Global inflation hit 8.8% in 2022, more than double its pre-pandemic level, although it is forecast to fall back to 6.6% in 2023 and 4.3% in 2024. However, higher prices are now baked in, while the outlook for inflation is uncertain, given current geopolitical and financial market instability.
Increased Prices
Increased commodity prices, higher labor costs and supply chain disruption have had a significant impact on marine insurance claims, in particular hull and machinery claims. The price of steel, a key cost driver in hull claims, increased sharply post-pandemic, as did the price of spare parts. A typical propeller or machinery damage claim, for example, now costs around two times more than it did pre-pandemic.
Shortages and delays in obtaining replacement parts also led to longer stays in repair yards. Labor shortages have also increased costs, contributing to longer repair times and increased yard costs. Industry estimates calculate a +18% increase in ship repair costs between 2020 and 2022 from inflation.
Post Pandemic Boom
The severity of partial and attritional claims has risen since the pandemic, according to Régis Broudin, Global Head of Marine Claims at Allianz Global Corporate & Specialty (AGCS). “Analysis of claims across our portfolio shows an increased severity for attritional claims for hull and machinery from higher labor, repair costs, availability of spare parts and dry docking for repairs, as well as the increased cost of materials like steel. Addressing inflation is a challenge for both shipowners and insurers in the current environment, says Justus Heinrich, Global Product Leader Marine Hull at AGCS.
The post-pandemic boom in container shipping has also impacted values. Cargo values have risen with the increase in the price of goods and raw materials, while the shift to increased levels of cargo storage in ports and warehouses has led to higher costs and aggregation issues for insurers. The value of container vessels has also been volatile, having doubled in 2021, but since falling back sharply with the decline in freight rates.
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Source: Agcsallianz
