Fire and explosion incidents are behind the most expensive insurance claims in the marine industry, while cargo damage is the most frequent cause of loss, reports Insurance Business quoting a report by Allianz Global Corporate & Specialty (AGCS).
In a recent report, AGCS analysed more than 240,000 marine insurance claims worldwide between January 2017 and December 2021, worth approximately €9.2 billion (SG$13.05 billion) in value. The insurer then identified several claims and risk trends that are driving major loss activity in the sector.
At a glance
- Fire, collision and sinking, and damaged cargo are the top causes of marine insurance losses by value, according to Allianz Global Corporate & Specialty’s analysis of more than 240,000 claims worth €9.2bn in value.
- Inflation is compounding existing trends driving higher claims severity. Soaring prices for steel and spare parts and rising labor costs are impacting hull repair and machinery breakdown claims.
- Supply chain issues continue to impact claims, as does climate change through extreme weather events and new exposures linked to the net-zero transition.
Number of risk trends
AGCS also identifies a number of risk trends in the analysis that are likely to impact loss activity in the marine sector – both today and in the future:
Sources of disruption continue to increase: Recent years have seen a number of maritime incidents, natural catastrophes, cyber-attacks and the Covid-19 pandemic cause major delays to shipping and ports. Further disruption has also been caused by congestion, labor shortages and constrained container capacity. There are also greater concentrations of cargo risk on board large container vessels and in major ports, so any incident has the potential to simultaneously affect large volumes of cargo and companies.
Commercial pressures are already a contributing factor in many losses that have resulted from poor decision-making. With the pressure on vessels and crew currently high, the reality is that some may be tempted to ignore issues or take shortcuts, which could result in losses.
Climate change is increasingly affecting marine claims: Natural catastrophes is already the fifth biggest cause of marine insurance claims, by frequency and severity according to AGCS analysis. Extreme weather was a contributing factor in at least 25% of the 54 total vessel losses reported in 2021 alone, while drought in Europe during 2022 again caused major disruption to shipping on the Rhine. In the US, it dropped inland waterways around the Mississippi River to levels not seen for decades, impacting global transportation of crops such as grain.
A more sustainable, greener approach in shipping sector is needed, but comes with risks: Efforts to decarbonize the shipping industry, which is a major contributor to global greenhouse gas emissions (GHGs) will also impact claims going forward. Reducing GHGs requires the shipping industry to develop more sustainable forms of propulsion and vessel design and use alternative fuels. As much as the introduction of new technology and working practices is needed to move to a low-carbon world, it can result in unexpected consequences – insurers have already seen a number of machinery breakdown and contaminated fuel claims related to the introduction of low sulfur fuel oil in recent years as part of the move to cut sulfur oxide emissions. Machinery breakdown is already the fourth largest cause of claims by frequency and value.
Impact of Russia’s invasion of Ukraine: The shipping industry has been affected with the loss of life and vessels in the Black Sea, trapped vessels in blocked Ukrainian harbors and the growing burden of sanctions. Although the signing of the ‘Black Sea Grain’ Initiative in July 2022 enabled some vessels trapped in ports to move out of the conflict zone others remain. The full value of these trapped vessels is unclear, but industry reports have estimated it could be as much as $1bn. Under some marine hull and cargo insurance policies an insured party may be able to claim for a total loss after a specific time has passed since the vessel/cargo became blocked or trapped.
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Source: Insurance Business