September 2014 34 Bermuda:Re/insurance+ILS


Reinsurers usually bear the brunt of losses when it comes to marine


disasters, and the specific circumstances of such losses have implications with


regard to risk management. Two recent events demonstrate startling similarities which are likely to affect premiums.


individuals are—to date—unaccounted for. Reports have suggested that the captain and his crew abandoned ship, delaying orders to evacuate passengers, and questions have also been raised as to whether the ferry was carrying substantially more cargo than was permitted.


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Clive O’Connell, partner at Goldberg Segalla Global, spoke to Bermuda:Re about some of the consequences for re/insurers when such serious criminal negligence allegations are made regarding the circumstances of a loss. He explained that the Korean government will pick up the initial cost of compensation, but some of these allegations— if proved true—could destroy the Chonghaejin Marine Company’s insurance cover, “because it does appear possible that there were alterations made to the body of the vessel which led to its demise and those alterations were not communicated to insurers”.


In the extensive ongoing investigation, authorities hope to clarify


whether this suspected overloading of the vessel or the alleged communication breakdown between the crew and disaster teams was more instrumental in the sinking of the ship. Risk management—or the lack of it—for passenger ships in particular extends well beyond the physical characteristics of the vessel and can lead to lessons learned in the hardest of ways.


Liability losses


Over the last two years there have been five major shipping disasters, one of which bears some similarities to the Sewol incident. Thirty-two people died when the Costa Concordia struck a reef off the coast of Isola del Giglio, Italy in January 2012. The captain also abandoned the vessel before all the passengers had been rescued, and is subject to an ongoing manslaughter trial as a result. Both incidents resulted in hull as well as significant liability losses, with crew behaviour—which exacerbated lives lost—proving remarkably similar in both incidents.


The loss figure for the Sewol has been calculated at around half a


billion dollars, whereas the Costa Concordia loss has reached upwards of $2 billion. One factor that has increased cost levels for the latter loss


he MV Sewol ferry sank off the coast of Jindo Island, South Korea on April 16, carrying 476 passengers, a large portion of whom were high school students. More than 200 bodies were found, 174 were rescued, and the remaining


Trouble at sea


Bermuda:Re/insurance+ILS


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