Fire and explosions are responsible for the most expensive insurance claims in the marine sector, while cargo damage is the most frequent cause of loss, according to a new report by Allianz Global Corporate & Specialty (AGCS).
The report, which analyzed more than 240,000 marine insurance claims filed between 2017 and 2021, highlights a number of trends driving loss activity in the industry, AGCS said. The report also found that inflation was a concern for marine insurers and their policyholders, with rises in the value of shops and cargo making losses and repairs more expensive.
“The number of fires on board 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, AGCS global head of marine claims. “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 fossil fuels, as well as Russia’s invasion of Ukraine.”
Fires were responsible for 18% of the value of marine claims analyzed by AGCS for a total of around €1.65 billion (about US$1.7 billion), up from 13% for the five-year period ending in July 2018. AGCS found that the mis-declaration – or non-declaration – of dangerous cargo was a contributing factor to the heightened fire risk. The report also said that a spike in engine room fires could highlight underlying risks involving crew competency.
Inflation a risk driver
With many countries reeling from inflation rates of around 10%, inflation is exacerbating already-existing trends driving an increase in claims severity, AGCS said. The climbing prices of steel, spare parts and labour are pushing up the cost of hull repair and machinery breakdown claims.
The value of cargo and vessels has also been rising amid growing exposure for larger ships, the report said. The total value of the global merchant fleet rose 25% to US$1.2 trillion last year. The average value of container shipments has also been on the rise.
“It is not unusual to see one container valued at US$50 [million] or more for high-value pharmaceuticals,” AGCS said.
Damaged goods were the most frequent cause of marine insurance claims and the third-largest by value, the report found. While the most common claims are for physical damage, the number of theft and temperature-variation claims has also been on the rise.
“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 Capt. Rahul Khanna, global head of marine 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 US$20 million.”