Sean Dalton, IUMI Cargo Committee Chair and Head of Marine Underwriting NA, Munich Reinsurance America, Inc., and Pascal Dubois, IUMI Loss Prevention Committee Chair and Head of Marine France, Swiss Re Corporate Solutions, talk about the increasing cargo risks, which are becoming a growing concern.
Major fires on cargo ships are turning out to be a rising concern, which often leads to loss of life, damage to the ship and cargo, while it can also have important environmental impact. These consequences are even greater on ships of increasing size, Sean Dalton and Pascal Dubois mention.
In fact, during 2018 there have been several examples of such cases, such as Maersk Honam, Sincerity Ace, Yantian Express, and APL Vancouver. They point here is the fact that if a fire is not quickly brought under control, it can be over the crew’s capability to tackle it.
Many of the fires on board ships are due to mis-declared cargo and improperly shipped hazardous material. Namely, carrier alliances are adding more complexity as one shipping line will often be carrying another’s containers and depend on their performance to vet and screen cargo.
Another important factor for marine underwriters is the unknown accumulation. The largest container ships will carry cargo values that are over USD 1 billion in value. However, often the insurer/reinsurer cannot attribute specific exposure to their clients. The recent loss of over 280 containers from MSC Zoe is an ideal example of the risks underwriters experience when insuring cargo a=on board the largest and most modern ships. What is more, the modern cargo policy has widened the insurable risk. Namely, provisions like ‘Selling Price Valuation’ and ‘Control of Damaged Goods/Fear of Loss/Brand Protection’ have risen the number of cargo claims.
According to IUMI’s global cargo premium results, it has concluded that this line of business cannot make a profit on a worldwide basis and premiums are not risk-adequate to cover losses and expenses.
While there are geographic and market-specific differences, on a global basis this is concerning. There are many underlying causes including a surplus of capacity/capital, prolonged soft market conditions and the commoditisation of certain specialty lines. It is becoming increasingly challenging to technically evaluate and develop risk adequate prices for these severe losses
Sean Dalton and Pascal Dubois state.
However, IUMI notes that there are initiatives in the right direction. These include, among others, the initiative from the National Cargo Bureau to inspect a sample of inbound containers arriving at US ports from various carriers that are members of the Cargo Incident Notification System, and Maersk which will start performing random container inspections.
Digitalisation will be critical in eliminating inadequate risk conditions. In this aspect, initiatives like the Global Smart Containers Alliance in Asia, which aims to ‘combine the knowledge and information from component and system suppliers together with the leading shipping operators of the world to transmit data over GSM networks as well as through satellite communication’ are important.
At IUMI we believe there is a need for greater transparency over cargo carried on ships; the accumulation of values needs to be recognised and quantified; and more adequate protection should be made available to guard against and to fight onboard fires