Marine Insurers Troubled by Rising Major Vessel Casualties
- Business & Finance
There has been a continued increase in frequency of major vessel casualties, according to the International Union of Marine Insurance (IUMI).
The growth trend of marine risks is exerting a significant pressure on marine insurers, especially as the frequency of major vessel casualties rose again in 2016 for the second consecutive year, the union’s statistics released last week show.
As disclosed, the major marine casualties had enjoyed a year-on-year decline until 2015 when they recorded a sharp upturn which was continued in 2016.
Conversely, the trend in total vessel losses (from 2000 onwards) continued its downward trajectory through to 2016 notwithstanding a minor uptick in 2015. In general, many markets were reporting a reduction in frequency of claims but an increase in the average cost of the claim, the union said.
Furthermore, the main causes of the total losses to 2015 were weather related but the frequency of losses caused by grounding or machinery damage were now increasing faster than any other cause. This was followed by fire and explosion which had remained largely constant since 2006.
“It was thought that recent increases in total losses caused by machinery damage may have been a reflection of reduced asset values and the consequent increase in constructive total loss risk following major damage,” IUMI added.
In addition, accumulation losses both on board ship and in port continued to cause concern for cargo underwriters.
The increasing risk in this sector is further driven by the emergence of the new generation Ultra Large Container Carriers capable of carrying 20,000 TEU with a potential cargo value estimated at USD 985 million.
Accumulation risk in ports, particularly Chinese ports, was thought to be even greater, IUMI pointed out. It was estimated that the value of cargo throughput at Shanghai could reach USD 1.6 billion a day, Shenzhen USD 681 million and Tianjin USD 477 million.
The explosion at Tianjin in 2015 also resulted in a significant loss but might have been much worse. The total cargo estimated to be onboard the 754 ships in the port on the day of the incident would have amounted to more than USD 53 billion.
“Marine risks continue to grow both in size and complexity and it is vital that underwriters fully understand the potential losses that they are being asked to insure. It is gratifying to see the year-on-year decrease in total losses, but we must take particular notice of the recent increase in major casualties and the reasons for this,” Donald Harrell, Chairman of IUMI’s Facts & Figures committee said.
In terms of energy sector, a significant drop in offshore activity with very little infrastructure spending and reduced drilling activity had significantly depleted an already limited premium base. The only positive factor in the energy mix was the increase in North American land rig utilisation in the shale basins, the insurer noted.
“The offshore sector continues to face challenges that look likely to get worse before they get better. Energy risks per se have not reduced, but the premium base from which they are settled, or reinsured, has shrunk dramatically,” Harrell added.
“As marine underwriters, we must continue to innovate and provide cost-effective insurance solutions to enable seaborne trade to continue without interruption.”