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A technique intended to reduce the environmental effect of recovering the wreck of the Costa Concordia is boosting insurers' and reinsurers' costs, making the cruise ship disaster the costliest marine loss of all time.
Owned by an Italian unit of Miami-based Carnival Corp. & P.L.C., the Costa Concordia sank in January 2012 near the coast of Tuscany, Italy, causing 32 fatalities. It is a large passenger vessel at 951.5 feet and weighing 145.6 tons, and it was carrying 4,200 passengers when it hit rocks and grounded off the Italian island of Giglio.
Five people already have been convicted for their roles in the disaster, and the ship's captain is accused of manslaughter and abandoning the ship.
The ship was insured in the protection and indemnity and international insurance and reinsurance markets.
The latest estimates suggest the cost of the disaster to insurers will exceed $1 billion, making it to the most expensive marine loss of all time. The most expensive insured marine loss before the Costa Concordia sank was the Exxon Valdez in 1989, which cost insurers about $500 million.
Shortly after the sinking, all fuel was removed from the ship to reduce the threat of pollution. Italian authorities later announced that the ship must be removed intact rather than broken up before removal to avoid environmental damage, as would be typical for a ship of such size, experts said.
According to a recent Lloyd's of London report, the Costa Concordia salvage operation is “likely to be the most complex and expensive wreck removal operation of its kind.”
While there have been accidents involving ships of a similar size before, this is the first time that such a large ship is to be refloated rather than broken up, and this is pushing up the cost to insurers, said Capt. Rahul Khanna, a marine risk consultant at Allianz Global Corporate & Specialty in London, a unit of Allianz S.E.
“The engineering of the removal of this wreck is unique,” Capt. Khanna said. “It's unprecedented.”
According to Lloyd's report “The Challenges and Implications of Removing Shipwrecks in the 21st Century,” the Costa Concordia demonstrates several key factors that can influence the cost of wreck removal, namely “a massive vessel wrecked at a difficult location, rocky ground above deeper water, combined with environmental concerns leading the authorities to require a complex, heavily engineered solution.”
In early August, Munich Reinsurance Co. increased its estimate of its share of insured losses from the disaster to &100 million from &80 million ($132.8 million from $106.3 million) and said the industrywide loss likely would top $1 billion.
And in late July, Lancashire Holdings Ltd. increased its estimated loss to $58.7 million, $24.6 million more than its previous estimate. The company said the increase was due in large part to a $20 million payout on an industry loss warranty related to the disaster.
Lancashire CEO Richard Brindle expressed disappointment in higher loss estimate and said the company would “monitor the situation closely.”
At least 10 insurers underwrote the ship.
Several insurers and reinsurers are annoyed about the extra cost involved and think that the typical process of breaking up the ship would have been quicker, less costly and not harmful to the environment, since the fuel had been removed, one London market source said.
The more complex wreck re-moval process has resulted in delays, and “delays will mean more cost,” one underwriting source said.
If the so-called parbuckling process does not work — and it already is costing many millions of dollars — then the ship likely will have to be broken up anyway, at an additional cost of millions of dollars, the source said.
One senior underwriting source expressed annoyance at the cost to the insurance and reinsurance market of removing the wreck which, he said, likely would not pose any environmental threat were it broken up.
The Costa Concordia is being raised using a technique, known as parbuckling, never before used on a ship of this size.