The AGCS report highlights the key trends driving claims for marine insurance

According to a report by Allianz, a number of factors are leading to ever-increasing claims for the global shipping industry, despite total losses more than halved over the past decade and a continued positive safety trend.

The Allianz Global Corporate & Specialty (AGCS) industry loss analysis found that fire and explosion are now the most costly driver of claims, while in a time of rising exposures and inflation, cargo damage is the most common cause of loss, following an increase in both outstanding and high value claims.

In addition, the effects of climate change and the transition to net-zero are also becoming a feature of claims activity, a development that analysts believe will only increase over time. All this against the background of the damage and disruption caused by the Russian invasion of Ukraine.

According to an AGCS analysis of more than 240,000 industry claims, valued at €9.2 billion, fire and explosion have overtaken sinking and collision as the leading cause of marine insurance damage by value over the past five years .

The number of fires on board large ships has increased significantly in recent years, with a series of cargo-related incidents that are difficult to extinguish and can easily lead to the total loss of a ship, tragic loss of life and environmental damage.

Stratumn, by SIA Partners

Factors that contribute to this are often incorrect or non-declaration of hazardous cargoes. The International Union of Marine Insurance (IUMI) has also recently noted an increase in engine room fires

A notable recent trend is the threat posed by Li-ion batteries in electric vehicles or cargo that are not properly stored, handled or transported. They have also caused fires in shipping containers, analysts say, often where shipments were misdeclared as mobile phone accessories or spare parts.

The report also highlighted how inflation and exposure growth determine the severity of claims. Rising inflation has led to high prices. This includes steel prices; the higher the prices for this material, the higher cost of spare parts and rising labor costs all affect the cost of hull repair and machine damage claims.

Incidents such as fires, collisions and groundings are among the leading causes of marine claims, with a number of costly incidents occurring in recent years. Accidents involving large container ships and car carriers are extremely costly, analysts found.

At the same time, according to the report, inflation also exacerbates the problem of rising values ​​at risk. Analysts have seen the value of both ships and cargo rise at a time of increasing exposures associated with larger vessels, which can carry more than 20,000 containers at a time.

Due to the strong increase in demand for shipping, the value of ships has risen considerably in recent years. In addition, the average value of container shipments has also increased with inflation and an increase in the shipment of high value goods such as electronics and pharmaceuticals.

Another cause of loss from claims is damaged goods, including cargo handling and storage. According to the AGCS analysis, this is the leading cause of marine insurance claims, and the third largest by value over the past five years.

The insurance market has also paid some major temperature swing and fire claims related to pharmaceutical shipments, added Régis Broudin, Global Head of Marine Claims at AGCS.

In addition, there has been an explosion in container shipping, putting pressure on cargo handling and port turnaround times, which has also affected cargo claims. A global shortage of shipping containers has led to undersized and damaged containers being put back into service, while a worsening economic climate and a higher cost of living could impact future thefts and civil disturbances.

The report also highlighted the high exposure to supply chain disruptions in the shipping industry, mainly due to a number of maritime incidents, natural disasters, cyber-attacks and the Covid-19 pandemic.

The trend for larger ships has also helped increase supply chain exposure, added Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS.

Chopra explained that while they are more efficient, they require more complex and specialized port infrastructure and logistical support compared to traditional shipping. Larger ships also transport larger containers, which means more cargo risk.

In addition, ports are increasingly dependent on technology, whereby a malfunction or cyber attack could effectively close a port. Commercial pressure is already a contributing factor in many losses resulting from poor decision-making, Chopra added.

Finally, the report highlighted how climate change will increasingly impact marine insurance claims, with more extreme weather events and with new exposures associated with the transition to net zero.

According to the AGCS analysis, natural disasters were already the fifth largest cause of marine insurance claims by frequency and severity for the five-year period ending December 2021.

Weather has also been a factor in a recent increase in lost containers at sea, as heavy seas exert enormous forces on large container ships and container lashings.

Efforts to decarbonise the shipping industry will also affect claims at sea in the future. Shipping is currently a major contributor to global greenhouse gas emissions, as 90% of international trade is carried by sea.

The International Maritime Organization (IMO) aims to reduce greenhouse gas emissions by 40% in the global fleet by 2030 and a reduction of at least 50% by 2050. This requires the introduction of new technology and practices that could result in new risks or unexpected consequences, analysts said.

As for the Russian invasion of Ukraine, lives and ships have been lost in the Black Sea, trade with both Russia and Ukraine has been disrupted, and a number of ships are still trapped and deteriorating in the conflict zone due to Western sanctions against Russia .

AGCS said: “Depending on policy terms, blocking and trapping coverage may be included in some hull and cargo insurance policies. Under this clause, an insured may be entitled to total loss after a certain period of time (typically 180 days for cargo and 12 months for hull) has elapsed since the ship/cargo became blocked or trapped. From an AGCS perspective, we have already seen claims for cargo losses, but we have yet to see claims for pinched hulls as many will not materialize until the first quarter of 2023.”

Analysts emphasized: “Ultimately, the longer ships and cargoes are stuck, the more difficult and expensive the salvage solutions will be.”

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