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Shipwreck costs increasing pressure on reinsurers: Lloyd’s


March 25, 2013   by Canadian Underwriter


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Public concern about pollution, the multitude of regulatory agencies and the increased capacity of container ships are all increasing the costs to insurers and reinsurers of removing shipwrecks, a recent Lloyd’s report suggests.

Costa Concordia

Last week Lloyd’s published The Challenges and Implications of removing Shipwrecks in the 21st Century.

The report noted the cost so far of removing the Costa Concordia cruise ship, which struck a reef off the coast of Italy in January 2012, exceeds US$560 million.

Lloyd’s also noted the cost of removing the Rena, which grounded off the shore of New Zealand in October 2011, is currently US$240 million.

“Statutory authorities in coastal states can exercise great power in wreck removal, and political considerations can have a significant impact on operations,” according to the report, which notes that “multiple tiers of government” and other agencies “can all claim a legitimate role, bringing their respective perspectives to bear, and influencing operational and commercial decisions.”

For example, the report noted, when MSC Napoli grounded off the English coast in 2007, several organizations got involved, including, among others, two county councils, two district councils, the county police, the county fire and rescue service, the Maritime and Coastguard Agency, the National Trust, the Environment Agency and the Department for Transport.

Within the last 20 years, the report suggested, public concern over the environment has increased.

“This applies regardless of the nature of the cargo and, even if there is no risk of any noxious emissions, a wreck’s physical impact on the shore – including visual – is likely to be unacceptable to politicians and the public,” according to the report. “News media will highlight the case, and stakeholders such as environmental protection groups may campaign for specific actions.”

Part of the risk is from cargo.

“For example, some seemingly benign products may become dangerous when mixed with water,” according to the report. “There is also the possibility of toxic fumes or gases, while corrosive cargos such as acids may need to be discharged into special stainless steel tanks.”

Lloyd’s says shipwrecks are usually insured for third-party liability by protection and indemnity clubs, which pool their larger risks, adding that the most expensive cases “regularly” exceed US$70 million, the level at which reinsurance cover begins.

“This can put pressure on reinsurance market capacity, while any consequent rises in the club’s reinsurance costs will be passed on to their shipowner members, increasing their operating costs in turn.”

The capacity of container ships also continues to increase.

In the 1990s, Lloyd’s say, the “common size” of a large container ship was one that could carry about 5,000 sea containers, measured by 20-foot equivalent units (TEUs.)

“By the mid-2000s container ships with a capacity of 12,000 TEU were coming into service,” the report states. “Currently the largest container ship in service has a capacity of 16,000 units.”

Image: The Costa Concordia ship. (Credit: Wikimedia Commons). 


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