The fatal Yangtze cruise ship that capsized and killed more than 400 people last week will cost its insurers about $14.9 million, or 92.5 million yuan, Chinese insurance regulatory authorities disclosed yesterday.
The four-deck cruiser, christened the Eastern Star, was hit by a freak tornado on the Yangtze River on June 1. The vessel overturned in about a minute only a few dozen meters from the riverbank, leaving an estimated 442 dead or missing, mostly between the ages of 50 and 80. Just 14 people – including the ship’s captain and first engineer – survived.
China has assembled a 60-member team to investigate the incident, which marks of one of the country’s worst shipping disasters in nearly 70 years.
For insurance companies covering the ship and cruise line, the tragedy will mean a sizable payout. According to a conference held by the China Insurance Regulatory Commission Thursday, insurance companies underwrote 340 contracts for parties involved in the incident that live up to requirements for claims. That includes shipowners, travel agencies, passengers and crew members.
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The ship itself, which was owned by the Chongqing Eastern Shipping Corporation, was insured for about 15.7 million yuan by the People’s Insurance Company of China.
The CIRC also included estimates for 12 million yuan of liability insurance for travel agencies, 61.7 million yuan of personal insurance for 396 passengers and 3.12 million yuan of personal insurance for 18 crew members.
Already, the People’s Insurance Company of China has paid 10 million yuan to Chongqing Eastern Shipping Corp.
Despite the scale of the tragedy and timing - the news comes one year after the sinking of a ferry in South Korea that killed 304 people on board, including teenagers on a school trip – the incident is not expected to have much impact on the insurance market or the risk profile for cruise ships.
And North American insurers would likely be spared that same sizeable hit for a similar vessel. North American cruise ships typically rely on several syndicates for medium to large-sized vessels such as the Eastern Star.
“If there were a similar accident here involving a vessel that resulted in 400 or more fatalities, the legal liability in most cases would be covered by one of 13 international P&I clubs, which are not Canadian or American entities but located offshore, typically in London or Bermuda,” said Ron Eldridge, senior vice president, marine practice, Marsh Canada Limited, in a previous interview with Insurance Business.
As a result, a shipping disaster such as this would likely have no effect on the marketplace from a legal liability standpoint.
Hull and machinery insurance, on the other hand, may have a marginal influence on the insurance sphere.
“Most ships of any meaningful size would be insured on a subscription basis whereby no one insurer would write more than a certain percent – maybe 15, 20, 25 percent of the value of the ship – so you’d have multiple subscribing insurers,” said Eldridge. “When you consider that, the impact on any one insurer is minimized.”
In fact, it is dubious whether an insurer would even consider writing a cruise or passenger ship carrying more than 200 passengers at a time.
“There’s a reasonable chance that the domestic marketplace wouldn’t be interested in a vessel that size,” Eldridge said.
Affected Chinese insurance carriers rushed to the site of the disaster Monday as divers searched for missing people.
“We have set up emergency leadership groups, rapidly implemented emergency response measures and set small teams who have already rushed to the site,” PICC told Reuters.
Ping An Insurance Group Co. of China and China Life Insurance Co. also sent in emergency response teams and had claims teams on-site to work with clients. Ping An said it has already identified multiple life insurance customers on board the cruise ship and have contacted family members to cover travel and accommodation costs.
