Fire losses increase marine claims: AGCS

Fire and explosion are the most expensive cause of loss for marine insurers, with damaged cargo the most frequent, according to Allianz Global Corporate & Specialty (AGCS). Publishing a sector report as part of its Global Risk Dialogue, AGCS said fire losses cost marine insurers €1.65bn during the five years to the end of 2021 and accounted for 18% of 240,000 global claims worth a total of €9.2bn. AGCS said fire and explosion marine losses are on the rise. “A contributing factor to this increase of fire risk onboard vessels is often misdeclared/non-declaration (of) dangerous cargoes, while a recent increase in engine room fires may reveal some underlying risk around crew competencies,” AGCS said. It has already seen a number of incidents from lithium-ion battery cargoes, which adds to concerns about fire risk. “The number of fires onboard large vessels has increased significantly in recent years, with a string 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 AGCS. “At the same time, the shipping sector is also having to deal with many other challenges including a growing number of disruptive scenarios, supply chain issues, inflation, time-pressured crew members and employees, increasing losses and damages from extreme weather events, implementing new low-carbon technology and fuels, as well as Russia’s invasion of Ukraine.” Collision and sinking was the second-largest cause of claims at 17%, followed by damaged cargo and machinery breakdown at 12% each, and natural catastrophes at 9%. AGCS said inflation is driving higher claims severity for all causes of loss, while supply chain issues are also impacting claims. “Inflation is another key concern for marine insurers and their policyholders as recent increases in the values of ships and cargoes mean losses and repairs are becoming more expensive when things go wrong,” AGCS said. Inflation has driven prices higher for steel and labour, which AGCS said is impacting hull repair and machinery breakdown claims. At the same time, the value of both vessels and cargo has surged and exposures have grown, with bigger ships able to carry up to 20,000 containers at a time. “It is not unusual to see one container valued at $50m or more for high-value pharmaceuticals,” AGCS said. Damaged goods and cargo are the most frequent cause of marine insurance loss, according to AGCS’s analysis, driven by physical damage often from poor handling, storage and packing. AGCS said it has also seen a number of high-value thefts and temperature variation claims in recent years. Rahul Khanna, global head of marine risk consulting at AGCS, said: “The risk of theft and damage to high-value cargoes needs to be addressed with additional risk mitigation measures, such as GPS trackers and sensors that provide real-time monitoring on position, temperature, moisture shock, and light and door openings.” Khanna said insureds must ensure their cover keeps pace with the value of goods they are transporting. “Cargo interests need to keep a close eye on insured values. Clients may need to adjust their insurance and policy limits, or risk being underinsured – we have already seen claims for high-value container cargos where the cargo interest was underinsured by as much as $20m,” he said. AGCS also flagged up the number of sub-standard or damaged containers brought back into use in response to a global shortage of containers as a cause of loss. Other risk trends impacting marine losses today and further down the line include an increase in sources of disruption to transportation, commercial pressures that could risk losses associated with shortcuts, and climate change. Extreme weather was a contributing factor in 25% of 54 total vessel losses in 2021, according to AGCS. It said insureds with vessels still stuck in Ukrainian harbours may be able to claim for total loss after a lapse of time, under blocking and trapping coverage included in some marine hull and cargo insurance policies. Although it remains unclear, industry reports suggest the value of vessels yet to return from Ukraine could be as high as $1bn. “We have already seen claims for cargo losses but are yet to see claims from trapped hulls, as many will not materialise until during the first quarter of 2023,” AGCS said.

Fire losses increase marine claims: AGCS

Policyholders warned of underinsurance as cargo values surge

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