Fire and explosion incidents cause the most expensive insurance claims in the marine industry, while at a time of rising exposures and inflation, cargo damage is the most frequent cause of loss, according to Allianz Global Corporate & Specialty (AGCS). The marine and cargo insurer analysed more than 240,000 marine insurance industry claims worldwide between January 2017 and December 2021, worth approximately €9.2bn in value, and has identified a number of claims and risk trends that are driving major loss activity in the sector. Inflation is another key concern for marine insurers and their policyholders as recent increases in the values of ships and cargos mean losses and repairs are becoming more expensive when things go wrong.
“The number of fires onboard large vessels has increased significantly in recent years, with a string of incidents involving cargo, which can easily lead to the total loss of a vessel or environmental damage,” said Régis Broudin, global head of marine claims at AGCS. “At the same time, the shipping sector is also having to deal with many other challenges including a growing number of disruptive scenarios, supply chain issues, inflation, time-pressured crew members and employees, increasing losses and damages from extreme weather events, implementing new low-carbon technology and fuels, as well as Russia’s invasion of Ukraine.”
Extreme weather was a contributing factor in at least 25% of the 54 total vessel losses reported in 2021
Fires accounted for 18% of the value of marine claims analysed – equivalent to around €1.65bn – compared with 13% for a five-year period ending July 2018. A contributing factor to this increase of fire risk onboard vessels is often misdeclared dangerous cargos, while a recent increase in engine room fires may reveal some underlying risk around crew competencies, AGCS suggested. The potential dangers that the transportation of lithium-ion batteries on vessels pose only add to these concerns, with AGCS having already seen a number of incidents.
With many countries seeing rates at or around 10%, inflation is compounding existing trends driving higher claims severity. The rising prices of steel, spare parts and labour are all factors in the increasing cost of hull repair and machinery breakdown claims.
In addition, the value of both vessels and cargo has been increasing at a time of growing exposures associated with bigger ships, with the rise of the 20,000+ teu global container fleet. The combined value of the global merchant fleet increased 26% to $1.2trn in 2021 while the average value of container shipments has also been rising with more high-value goods such as electronics and pharmaceuticals. It is not unusual to see one container valued at $50m or more for high-value pharmaceuticals.
Damaged goods, including cargo, is the top cause of marine insurance claims by frequency, and the third largest by value, the AGCS analysis shows. The most common claims are physical damage, typically from poor handling, storage and packing. However, recent years have also seen a number of high-value theft and temperature variation claims – the latter can particularly impact pharmaceuticals. Theft is the third most frequent cause of claims with criminals targeting consumer electronics and high-value commodities such as copper. Cargo is typically stolen from ports, warehouses or during transits. The recent boom in container shipping has also affected cargo claims with a global shortage having resulted in substandard and damaged containers being brought back into use resulting in losses.
“The risk of theft and damage to high-value cargos needs to be addressed with additional risk mitigation measures, such as GPS trackers and sensors that provide real-time monitoring on position, temperature, moisture shock, and light and door openings, for example,” said Captain Rahul Khanna, global head of marine risk consulting at AGCS. “At the same time cargo interests need to keep a close eye on insured values. Clients may need to adjust their insurance and policy limits, or risk being underinsured – we have already seen claims for high value container cargos where the cargo interest was underinsured by as much as $20m.”
Fires accounted for 18% of the value of marine claims analysed
AGCS also identified a number of risk trends in the analysis that are likely to impact loss activity in the marine sector – both today and in the future.
Sources of disruption continue to increase: Recent years have seen a number of maritime incidents, natural catastrophes, cyber-attacks and covid cause major delays to shipping and ports.
Climate change is increasingly affecting marine claims. Natural catastrophes is already the fifth biggest cause of marine insurance claims, by frequency and severity according to AGCS analysis. Extreme weather was a contributing factor in at least 25% of the 54 total vessel losses reported in 2021 alone, while drought in Europe during 2022 again caused major disruption to shipping on the Rhine. In the US, it dropped inland waterways around the Mississippi River to levels not seen for decades, impacting global transportation of crops such as grain.