Insurers such as AGCS have been warning for years that the increasing size of vessels is leading to a higher accumulation of risk. These fears are now being realized, as demonstrated by the growing number, and cost, of incidents with ULCS,
...explains Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS.
For example, data from the Nordic Association of Marine Insurers (Cefor) has previously shown that the most costly 1% of all claims account for at least 30% of the value of total claims in any given year.
Dealing with incidents involving large ships, such as fires, groundings and collisions, are also becoming more complex and expensive.
Ultra large container ships (ULCS) are of particular concern following a number of fire and explosion incidents, but also groundings and collisions.
Such vessels, the largest of which can carry 20,000+ TEU containers, require ports with appropriate specialist infrastructure to unload cargo or carry out repairs.
While we have seen total losses reduce over the past decade, the benefits are being largely offset by the increased cost of losses for large vessels. The cost of casualties or incidents is rising, with an increase in severity, and this is down to the increasing size of vessels. Such ships generate economies of scale for ship owners but also increased risk, and a disproportionately greater cost when things go wrong.
Fires onboard large container vessels are now a regular occurrence, with two in January 2019 alone.
In addition, the car carrier Sincerity Ace caught fire in the North Pacific on 31st December 2018, the latest large vessel of this type to do so, while Ro-Ro cargo ship, the Grande America sank on 12 March 2019 after its cargo of vehicles and containers caught fire.
On average, insurers see around two major losses involving car carriers each year. Such incidents can easily result in large claims in the hundreds of millions of dollars, if not more.
A hypothetical worse-case loss scenario involving the collision and grounding of two large container vessels, or a container vessel and a cruise ship, could result in a $4bn loss when the costs of salvage, wreck removal and environmental claims are included, according to AGCS.
Potentially, one insurer could find they have insured more than one vessel involved in the same incident, with exposure to hull, machinery breakdown and cargo losses.
The size of a vessel can significantly increase salvage and general average costs. ULCS require specialist tugs and finding a port of refuge with capacity to handle such a large ship can be difficult, which increases the salvage operation,
...explains Régis Broudin, Global Head of Marine Claims at AGCS.
Mr. Broudin cited recent examples such as Maersk Honam container ship which caught fire at sea in March 2018 and salvage and general average represented close to 60% of the cargo value, as well as the Yantian Express, container vessel which suffered a fire on board in January 2019.
Following a number of incidents in recent years, the shipping industry should question whether it is running acceptable levels of risk for large vessels, according to Captain Andrew Kinsey, Senior Marine Risk Consultant at AGCS.
There is a push for efficiency and scale in the shipping industry but this should not be allowed to give rise to unacceptable levels of risk,