AGCS highlights climate change and net-zero transition among key trends driving marine insurance claims activity

A number of factors are leading to ever larger claims for the global shipping industry despite total losses having more than halved over the past decade and seeing a persistent long-term positive safety trend, according to an Allianz report.

The Allianz Global Corporate & Specialty (AGCS) industry loss analysis, revealed that fire and explosion is now the most expensive driver of claims activity, while at a time of rising exposures and inflation, cargo damage is the most frequent cause of loss, following an increase in both attritional and high-value claims.

Additionally, the effects of climate change and the transition to net-zero are also becoming a feature of claims activity, a development that according to analysts, will only increase in time. All these against the backdrop of the damage and disruption caused by Russia’s invasion of Ukraine.

Fire and explosion has overtaken sinking and collision as the number one cause of marine insurance losses by value over the past five years according to AGCS analysis of more than 240,000 industry claims, with an approximate value of €9.2bn.

The number of fires on board large vessels has increased significantly in recent years, with a string of incidents involving cargo, which are difficult to extinguish and can easily lead to the total loss of a vessel, tragic loss of life and environmental damage.

Contributing factors often include mis-declared or non-declaration of dangerous cargos. The International Union of Marine Insurance (IUMI) has also noted recently an increase in engine room fires

A notable recent trend has been the threat posed by Li-ion batteries in electric vehicles or cargo that is not stored, handled or transported correctly. They have also caused fires in shipping containers, often where shipments have been mis-declared as mobile phone accessories or spare parts, according to analysts.

The report has also highlighted how inflation and exposure growth are driving claims severity. Soaring 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 labour costs are all impacting the cost of hull repair and machinery breakdown claims.

Incidents such as fires, collisions and groundings are among the top causes of marine insurance claims by value, with a number of costly incidents in recent years. Accidents involving large container ships and car carriers are particularly expensive, analysts noted.

At the same time, inflation is also adding to the problem of rising values at risk according to the report. Analysts have seen that the value of both vessels and cargos has been increasing at a time of growing exposures associated with larger vessels, which can carry over 20,000 containers at a time.

The surge in demand for shipping has seen the value of vessels increase significantly in recent years. Additionally, the average value of container shipments has also been increasing with inflation and an increase in the shipping of high value goods like electronics and pharmaceuticals.

Another cause of claims loss is damaged goods, including cargo handling and storage. This is the top cause of marine insurance claims by frequency, and the third largest by value over the past five years, according to the AGCS analysis.

The insurance market has also paid some large temperature variation and fire claims involving pharmaceutical shipments, added Régis Broudin, Global Head of Marine Claims at AGCS.

Additionally, there has been a boom in container shipping, which puts cargo handling and port turn-around under pressure, and has also affected cargo claims. A global shortage of shipping containers has resulted in substandard and damaged containers being bought back into use, while a deterioration in the economic environment and the higher cost of living could have implications for future theft and civil unrest claims.

The report also highlighted large supply chain disruption exposures in the shipping industry, mainly driven by a number of maritime incidents, natural catastrophes, cyber-attacks and the Covid-19 pandemic.

The trend for larger ships has also been helping to increase supply chain exposures, Captain Nitin Chopra, Senior Marine Risk Consultant at AGCS, added.

Chopra explained that, while more efficient, they require more complex and specialist port infrastructure and logistical support compared to traditional shipping. Also, larger ships carry larger containers, meaning more cargo risk.

In addition, ports are also increasingly reliant on technology, where an outage or cyber-attack could effectively close a port. Commercial pressures are already a contributing factor in many losses that resulted from poor decision-making, Chopra added.

Lastly, the report highlighted how climate change will increasingly affect marine insurance claims, with more extreme weather events and with new exposures linked to the transition to net-zero.

Natural catastrophes were already the fifth biggest cause of marine insurance claims, by frequency and severity for the five-year period ending December 2021, according to the AGCS analysis.

Weather has also been a factor in a recent increase in the number of containers lost at sea, as heavy seas exert huge forces on large container vessels and container lashings.

Efforts to decarbonize the shipping industry will also impact marine claims going forward. Shipping is currently a major contributor to global greenhouse gas emissions as 90% of international trade moved by sea.

The International Maritime Organization (IMO) is working towards a 40% cut in greenhouse gas emissions across the global fleet by 2030, and at least a 50% cut by 2050. This will require the introduction of new technology and working practices which can result in new risks or unexpected consequences, according to analysts.

Regarding Russia’s invasion of Ukraine, lives and vessels have been lost in the Black Sea, trade cas been disrupted with both Russia and Ukraine, and a number of ships are still trapped and deteriorating in the conflict zone due to Western sanctions on Russia.

AGCS said: “Depending on policy terms and conditions, ‘blocking and trapping’ coverage can be included in some marine hull and cargo insurance policies. Under this clause an insured party may be able to claim for a total loss after a specific time (generally 180 days for cargo and 12 months for hull) has passed since the vessel/cargo became blocked or trapped. From an AGCS perspective, we have already seen claims for cargo losses but are yet to see claims from trapped hulls, as many will not materialise until during the first quarter of 2023.”

Analysts highlighted: “Ultimately, the longer any vessels and cargos are trapped, the more difficult and expensive the salvage solutions will be.”

Source: Reinsuurance News,

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