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Lloyd's Warns of Spiraling Costs of Marine Accidents

Source: BestWire

Posted on 25 Mar 2013 by Neilson

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Mariine InsuranceWith at least $2.1 billion already spent on the world's 20 largest shipwreck removals over the past decade, insurers and shipowners are facing spiraling costs from mishaps at sea, a Lloyd's report warns.

According to the report, released at a marine conference at Lloyd's, costs are being driven upward by the larger size of both ships and cargoes.

The report mentioned the grounding of cruise ship Costa Concordia off the coast of Italy in 2012, the $240 million loss of the container ship MV Rena in New Zealand in 2011, and the looting by scavengers of the damaged MSC Napoli in England in 2007. Lloyd's put the Napoli loss at $135 million and said the final bill for the Costa Concordia, which has not been removed, is not in yet.

Shipwrecks are often a massive media event, frequently combining reports of heroism on the high seas with dramatic scenes of stricken vessels spilling their cargoes, Lloyd's said in a statement accompanying the report. But after the TV crews have moved on, the essential and sometimes dangerous work of wreck removal gets under way. And, as a new report from Lloyd's reveals, the cost of this complex job is rising fast, with insurers and reinsurers, and ultimately shipowners, having to foot the bill.

Lloyd's has a direct interest in this sector, through its role as a reinsurer to the mutual protection and indemnity clubs that insure these risks.

According to the report, the number of cruise ships of more than 100,000 gross tons has increased to 51 from 40 in 2007. The largest container ship now in operation can carry 16,000 units, more than three times the large capacities of the 1990s. Accidents involving very big ships, the report said, may be beyond the capability of equipment that is available.

Tim Fuller, a member of the large casualty working group of the International Group of P&I Clubs, said insurers and reinsurers are very much in this together.

Costs, Fuller told the conference, are affected by such factors as location, the performance of salvage teams and the impact of government actions.

The physical location of the wreck is, of course, of paramount importance, Fuller said. It determines the proximity of the casualty to salvage equipment, and naturally it determines what prevailing weather conditions are likely to be experienced.

The cost of removing wrecks has been increased, the report suggested, by media coverage, the scrutiny of environmental organizations and the need to minimize damage from fuel spills. Shipowners, in their turn, can expect higher operating costs, the report said.

Lloyd's called for consistency and fairness from authorities who might press for expensive and difficult wreck removals on the theory that improved technology has made this possible.

Shipowners and insurers should consider a formal, international campaign of engagement with relevant stakeholders such as influential coastal states, the International Maritime Organization, the EU [European Union] and International Harbor Masters, Lloyd's said.

Noting that human error continues to be the single most significant cause of shipwrecks, Lloyd's said there should be improvements in risk management and training, with greater reliance on technology.