Caution remains in hull and machinery insurance
The high value of the latest generation of high-tech mega-ships is helping to drive up insurance costs
The year 2011 has seen the cost of nautical-related marine insurance claims return to former high levels, and new technology is doing nothing to reassure underwriters, as Denzil Stuart reports.
The latest mid-year claims statistics from the Nordic Association of Marine Insurers (Cefor) says that claims costs seem to stabilise at high levels, and the picture is particularly worrying for nautical-related claims, with average costs climbing back to high levels.
As at June 30 this year, this ended a downward trend from the peak years 2007/2008. The reason appears partly to be the more stable market conditions, with higher ship utilisation rates and repair costs following the sudden decline in the world economy and the damaged shipping industry.
Values of newbuildings are also generally increasing due to more advanced technologies and the leap in ship sizes, making each vessel more expensive to insure and potential claims costs much higher. “History has proven the volatility of major claims, and it is necessary to prepare at all times for these costly claims,” warns Helle Hammer, Cefor’s managing director.
A new increase in the average cost for nautical-related claims such as grounding, contact and collision are causing particular concern. “More advanced ships and the introduction of new technologies represent a big challenge in recruiting competent crew and provide them with proper training,” says Hammer, pointing to human error as a direct or indirect cause in most incidents at sea.
However, claims frequency offers a more positive picture, with a downward trend both for partial (attritional) and total losses after a peak in 2007/8.
Cefor’s comments and analysis have been reflected elsewhere, principally in September at the annual conference of the International Union of Marine Insurance in Paris. The 600 or so delegates, the majority being underwriters from around the world, heard that, unsurprisingly, machinery damage remains the primary cause of major partial losses, accounting for 35.6% of the total between 2006 and 2010. Collision/contact and grounding represent 23.54% and 22.32%, respectively, consistent with the figures reported last year. Weather remains a relatively small cause of serious casualties, but is still responsible for nearly 50% of all total losses reported.
Meanwhile, while the total number of losses annually remains relatively low when compared with the bleak 1990s, there has been a significant increase in gross tonnage lost during 2010. Up to the beginning of September this year, over 800,000gt had gone, against an adjusted total of 580,000gt for 2009.
At 40% of the 2010 total to date, bulk carriers represent the rump of losses. No doubt this is partly a reflection of the increase in the size of vessels.
On the other side of the coin, bulkers have the largest share of the global order book – 42% of the total number of vessels.
Overall, more than 7,000 newbuilds have been contracted, with Chinese yards edging up to 41% of the total. The total value of the order book at August 1 was estimated at a staggering $386.8 billion. However, bearing in mind the litany of problems besetting shipowners, it’s a safe bet that construction of many new ships will never be finished – or, indeed, begun.
It is not only underwriters of hull and machinery risks who are getting increasingly twitchy over future claims trends – the P&I clubs have joined the general chorus of anxiety. For instance, Claes Isacson, CEO of Norway’s Gard club, now the biggest in terms of tonnage entered, said: “2010 was particularly noticeable for a few significant casualties late in the policy year. In addition, we saw more claims above $10 million than we would expect as well as an increase in underlying claims trends.”
And noted P&I broker A.J. Gallagher says that: “Although it is way too early to say that claims are on the rise again, the signs of upward movement in high value claims could be indicative of something to come.”
Images for this article - click to enlarge
Unless otherwise stated, all images copyright © Mercator Media 2012. This does not exclude the owner's assertion of copyright over the material.
