As the coronavirus pandemic continues to disrupt insurance industry in several ways, industry experts have expressed concern that marine insurers may soon begin counting their losses from the COVID-19, which consequences have triggered an uptick in losses from cost-cutting measures, jeopardised the long-term safety improvements in the shipping industry for 2020 and beyond.
In fact, those who spoke in the Allianz Global Corporate and Specialty SE’s (AGCS), Safety and Shipping Review 2020, affirmed that the tough operating conditions and the sharp economic downturn instigated by the pandemic unlocks a unique set of challenges for marine insurers and maritime operators.
Global marine insurer; AGCS, in the report, stated that though the shipping industry has continued to operate through the pandemic, despite disruption at ports and to crew changes, any reduction in sailings due to coronavirus restrictions could see loss activity fall in the interim.
“Coronavirus has struck at a difficult time for the maritime industry as it seeks to reduce its emissions, navigates issues such as climate change, political risks and piracy, and deal with ongoing problems such as fires on vessels.
“Now the sector faces the task of operating in a very different world, with the uncertain public health and economic implications of the pandemic,” says Baptiste Ossena, Global Product Leader Hull Insurance, AGCS.
Going further, it highlighted challenges such as; disruption of essential maintenance and servicing increasing the risk of machinery damage; which is already one of the major causes of insurance claims, the inability to change crews is impacting the welfare of sailors which could lead to an increase in human error onboard vessels, cargo damage and delay are likely as supply chains come under strain, the growing number of cruise ships and oil tankers in lay-up around the world pose significant financial exposures, due to the potential threat from extreme weather, piracy or political risks’ among others as factors that could heighten risks in the face of the pandemic for operators.
Speaking, the Global Head of Marine Risk Consulting at AGCS, Captain Rahul Khanna, said that piracy is still stands as a major risk and concern for the industry.
He said: “Piracy remains an ongoing issue. We thought we had a handle on it but it has manifested yet again. Hijackings by Somalian pirates may have reduced for now, but incidents have been increasing in West Africa and parts of Asia, where we see a worrying pattern of violent attacks against crew, as well as kidnappings.
“The Gulf of Guinea has re-emerged as the global piracy hotspot accounting for 90 per cent of global kidnappings reported at sea in 2019 with the number of crew taken increasing by more than 50 per cent to 121 according to the International Chamber of Commerce’s International Maritime Bureau (IMB).
“Following an active 2019, there has been no let-up in piracy in 2020. There were 47 attacks reported to the IMB in the first three months of the year, up from 38 in the same period last year, mostly targeting tankers, as well as container ships and bulk carriers.
He added that: “Ship-owners also face additional cost pressures from a downturn in the economy and trade. We know from past downturns that crew and maintenance budgets are among the first areas that can be cut and this can impact the safe operations of vessels and machinery, potentially causing damage or breakdown, which in turn can lead to groundings or collisions. It is crucial that safety and maintenance standards are not impacted by any downturn.”
For his part, Senior Marine Risk Consultant at AGCS, Captain Andrew Kinsey says: “Piracy is typically local in nature but it can have a global geopolitical impact as it has proved to be an easy business model, especially in parts of the world where governments are dysfunctional or where there is little rule of law. There is a strong connection between piracy and unstable governments, which provides opportunities for pirates to carry out attacks where the state is not strong enough to properly police its coastal waters.”
Pointing out the key loss locations and most affected ships, the report said the Gulf of Mexico ranked second place, the West African Coast took the third hotspot for losses while the East African Cost ranked fourth.
According to the report, South China, Indochina, Indonesia and the Philippines maritime region remains the top loss location with 12 vessels in 2019 and 228 vessels over the past decade – one in four of all losses. It attributed; high levels of trade, busy shipping lanes, older fleets, typhoon exposure, and safety issues on some domestic ferry routes as the contributing factors.
“Cargo ships with 15 cases accounted for more than a third of vessels lost in the past year, while foundered (sunk/submerged) was the main cause of all total losses, accounting for three in four with 31 cases. Bad weather accounted for one in five losses and issues with car carriers and roll-on/roll-off (ro-ro) vessels remain among the biggest safety issues.
“Total losses involving ro-ros are up year-on-year, as well as smaller incidents (up by 20%) – a trend continuing through 2020,” it added.
Reacting to this, Khanna said the rise in number and severity of claims on ro-ro vessels is concerning as they can be more exposed to fire and stability issues than other vessels.
“Many have quick turnarounds in port and a number of accident investigations have revealed that pre-sail away stability checks were either not carried out as required, or were based on inaccurate cargo information. Too many times commercial considerations have endangered vessels and crews and it is vital that this is addressed onshore and on board.”
He stressed that taking steps to address these issues will mitigate accidents, machinery damages and maintenance which will in turn, reduce insurance claims being tendered to insurers during this pandemic period.
In addition, the report recommended that both operators; marine insurers and maritime operators can utilise new technologies though, not as a panacea but an increasingly useful tool to battle these challenges.
“Shipping tech can be a positive for safety and claims, and is increasingly being deployed to combat some of the risks highlighted in the report – from reducing the threat of fire on vessels through temperature monitoring of cargo to even potentially integrating suppression systems in drones in future. Increased use of industrial control systems to monitor and maintain engines could significantly reduce machinery damage and breakdown incidents, one of the biggest causes of claims for the insurance companies.”