September 2014 Bermuda:Re/insurance+ILS 35
“Reports have suggested that protection and indemnity
reinsurance rates will rise for all vessel types in the coming year, with passenger vessels hit particularly hard.”
has been a direction from the Italian government that the salvage must be conducted with the marine environment in mind. The question is how have reinsurers been affected by these complications?
In this sense, the two events need to be looked at quite distinctly.
The Costa Concordia was directly insured into the traditional European insurance market, with considerable reinsurance coverage. As O’Connell explained, “The lion’s share of ultimate liability, as happens with massive losses, falls on to reinsurers because the insurers themselves are protected against catastrophe.” He went on to say that the situation in Korea appears to be somewhat different, although it may be too early to say precisely how different.
Regarding the suspected overloading of the Sewol’s cargo, reinsurers
may immediately be in a far better position if insurers can avoid, or at least limit, their liability. This depends heavily on who provided the original policy and how large it was. O’Connell affirmed that it was purchased locally, and added that this local carrier’s external reinsurance arrangements would also be a deciding factor.
Lloyd’s and Bermuda have certainly been involved in the Costa Concordia calamity, yet O’Connell is unsure about the Sewol, “as there’s already a question as to whether or not the insurance will respond and to what extent”, so there may be limited participation from these markets in terms of any reinsurance payout.
Large liability claims are a widely anticipated outcome of such tragic
events. What these losses demonstrate, as O’Connell explained, is that whichever geography and whatever class the vessel, “whether it be an overcrowded local ferry or a modern cruise ship taking people on holiday through the Med”, they are all susceptible to human error.
This is a dynamic that ought to push prices up, but wider market dynamics may preclude this from happening. Nevertheless, some reports have suggested that protection and indemnity reinsurance rates will rise for all vessel types in the coming year, with passenger vessels hit particularly hard, facing as much as a 20 percent rate hike in the coming renewals.
While all of these factors must be taken into account, one must remember that commercial lines developed from marine insurance because ships have always been at risk of sinking, and that the existence of risk is a necessary component of insurance. Losses have been a feature of the marine industry from its beginnings; what these losses show is the potential size that they can take.
The insured losses from just one ship are likely to be exponentially larger than the cost of its hull, because of the liabilities that come into play. The nature of shipping is changing: ships are getting bigger, cargo loads are becoming larger, and the implications of disasters are growing.
Yet O’Connell does not think this should surprise or deter anyone looking to enter the marine market today, and concludes: “They’re all factors that have to be accounted for when assessing their appetite for that risk.”
1STGALLERY /
SHUTTERSTOCK.COM
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