SURVEYORS PLAY A KEY ROLE IN CHALLENGING THE HULL
INSURANCE LANDSCAPE BY RAMA CHANDRAN
HEAD OF MARINE, QBE INSURANCE (SINGAPORE)
Even in a world characterized by rapidly changing technologies, the traditional method of maritime shipping continues to serve as an important conduit for both trade and business. Shipping remains the backbone of globalization and lies at the very heart of the cross-border transport networks that support supply chains and enable goods to move between countries.
Last year’s bankruptcy of Hanjin Shipping served to highlight the critical importance of the maritime sector to the global economy. The financial demise of South Korea’s largest container line and one of the world’s top ten container carriers in terms of capacity had multiple knock-on effects, including sharp increases of 50 per cent and more in freight rates for routes operated by the company. Additionally, many of the world’s manufacturers faced delays in receiving raw materials and parts, which also meant that delivery of their products was also delayed.
INSURANCE COVERAGE ENSURES VIABILITY
Marine insurance plays a critical role in ensuring viability of the world’s shipping industry. Insurance protects against the many risks associated with the moving the cargo and raw materials across vast oceans and over borders. Without such insurance coverage, the shipping industry would face
critical dangers in their day-to- day operations. Global trade flows would also be negatively impacted.
The Hanjin Shipping bankruptcy illustrated the detrimental effects that financial setbacks can have on shippers as some US$14 million in cargo was stranded at sea. The financial impact on firms conducting trade through Hanjin was huge.
Insurance coverage helps protects shippers who experience loss or setbacks by apportioning resources collected from the wider community of ship owners to those that have a genuine need for it. Simply put, ship owners rely on insurance coverage as their safety net. However, as of late, the buffer that insurers have between the collective pool of finances collected through premiums and the cost of claims paid out is beginning to thin, which is ultimately unsustainable. As that buffer continues to erode, marine insurers may be forced to adjust premiums or increase deductibles as a countermeasure to ensure they are able to continue supporting the maritime shipping industry in the foreseeable future.
To this effect, surveyors play a key role in making sure that insurance premiums are kept both realistic and competitive for the marine shipping industry. As insurers are unable to conduct damage assessments for claims ourselves – due to the obvious conflict of interest – we must rely almost exclusively on the
intelligence of survey reports filed by marine surveyors to make the final decisions on the legitimacy and payout of claims.
An in-depth report that examines causality rather than merely stating the issue at hand offers our underwriters more intelligence about the situation at sea, enabling them to conduct proper assessment and to determine whether there are more systematic issues in play that can be addressed to ensure a lower rate of recurrence.
SIGNIFICANT CLAIMS ON MACHINERY
Traditionally, machinery claims have represented the most significant portion of claims paid out by marine insurers. The probability of damage to or loss of machinery would be higher than that of hull damage, just by virtue of there being so many components on a ship – which themselves are exposed to physical, mechanical and electronic vulnerabilities as a result of being continuously in use (and even under stress). Damage to the hull of the ship would usually only arise in collisions or grounding or due to extreme environmental factors and weather conditions.
In 2016, machinery claims form close to 40 per cent of claims processed by marine Insurers and account for the largest portion of total claims paid out, at 42.1 per
The Report • December 2017 • Issue 82 | 29
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