Global insurance giant Allianz Global Corporate & Specialty has released a new report analyzing the key trends driving marine insurance claims and it comes as no surprise that fire, collision and sinking and damaged cargo are the leading causes of marine insurance losses over the past five years. by value. However, Allianz highlights new emerging issues that it believes are also contributing to the growth in claims including port congestion and the size of container ships, as well as an increase in both theft and natural disasters.
The marine and cargo insurer analyzed more than 240,000 marine insurance industry claims worldwide between January 2017 and December 2021 and identified claim and risk trends driving large loss activity in the sector. They also compared the current period with the previous five years.
The total value of the claims over the past five years was approximately $9 billion. Loss due to fire accounted for the largest share of claims by value (18 per cent), but collision and the loss of the ship due to sinking were a close second in value of claims (17 per cent). Damaged goods and machinery that fail aboard ships are tied up (12 percent each), followed by natural disasters ranging from floods to hurricanes (9 percent). Together, these five categories accounted for two-thirds of the claims by value.
“The number of fires on board large vessels has increased significantly in recent years, with a series 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 said. AGCS. “At the same time, the shipping sector also has to deal with many other challenges, including a growing number of disruptive scenarios, supply chain issues, inflation, time pressure for crew and employees, increasing losses and damage due to extreme weather events, implementation of new low-carbon technologies and fuels, as well as Russia’s incursion into the Ukraine.”
Increasing concerns about fires arising from the transport of lithium-ion batteries have been repeatedly discussed and cited as the likely cause of several significant fire losses in recent years. This adds to the persistent danger of misdeclared/non-declared dangerous goods which has also been cited as a frequent cause of catastrophic losses. Allianz reports that fires accounted for 18 percent of the value of marine claims analyzed (equivalent to approximately €1.65 billion over the past five years) up significantly from 13 percent of the value of claims for the five years ending July 2018.
While cargo is often cited as a cause of the claim, however, Allianz also notes “a recent increase in engine room fires may reveal some underlying risk around crew competencies.” Among the risk trends that Allianz identifies for the future are further commercial pressures that could contribute to poor decision-making.
“With the pressure on vessels and crew currently high, the reality is that some may be tempted to ignore issues or take shortcuts, which could lead to losses,” the insurer writes in its analysis of market trends.
Climate change is also increasingly affecting marine claims with natural disasters becoming the fifth largest cause of marine insurance claims, by frequency and severity. According to their analysis, at least a quarter of the 54 total vessel losses reported in 2021 were due to extreme weather conditions. As another example, they highlight the 2022 impact of droughts and low water levels of shipping on both the Rhine and the Mississippi River.
Another factor contributing to the size of claims is an increase of more than a quarter (26 percent) in the value of the world fleet, which they say has reached $1.2 trillion. They also cite the increase in the value of individual shipments as well as the impact of inflation driving up the value of ships and cargo, as well as the cost of repairs.
As the value of shipments rises and the number of containers moving aboard individual ships and through ports increases, Allianz reports that damaged goods, including cargo, have become the leading cause of marine insurance claims by frequency, and the third largest by value. The most common claims are physical damage, typically due to poor handling, storage and packaging, but they also report an increase in temperature variation claims. The concentration of cargo on board larger ships, port congestion, labor shortages and limited cargo capacity are cited as future trends that could increasingly contribute to losses. The recent boom in container shipping has also affected cargo demands with a global shortage resulting in undersized and damaged containers being put back into service, leading to losses.
Cargo theft is the third most common cause of claims with criminals targeting consumer electronics and high-value commodities such as copper, reports Allianz. Cargo they notice is usually stolen from ports, warehouses or in transit.
“The risk of theft and damage to high-value cargo must be addressed with additional risk mitigation measures, such as GPS trackers and sensors that provide, for example, real-time monitoring of position, temperature, moisture shock and light and door openings. ,” 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. Customers may need to adjust their insurance and policy limits, or risk being underinsured – we’ve already seen claims for high value container cargoes where the cargo interest was underinsured by as much as $20 million.”
Looking to the future, Allianz also identifies the transition to green shipping as creating new risks. They point out that machinery breakdown is already the fourth largest cause of claims by frequency and value. According to them, insurers have already seen claims related to fuel contamination. They point to these claims as just the first windfall as the industry develops more sustainable forms of propulsion and vessel design and increases its use of alternative fuels.