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More marine insurers are saying it is not in their interest to insure the hulls or the cargoes of merchant ships that do not comply with a new international safety code.
But, given the severely competitive state of the market, whether all insurers will support the International Safety Management Code remains to be seen. This became evident this month at the annual meeting of the International Union of Marine Insurance in Lisbon, Portugal.
The code went into effect July 1 for passenger ships, high-speed craft and oil and chemical tankers of more than 500 gross tons. Starting July 1, 2002, the code will be extended to apply to ships of less than 500 gross tons.
The code, devised by the International Maritime Organization, a London-based unit of the United Nations, applies a universal benchmark for marine safety management procedures (BI, Aug. 18, 1997). It requires shipowners and ship operators to have systems in place to prevent accidents and pollution.
IUMI President Georg Mehl reminded members at the start of the meeting that he had urged them in a letter sent earlier this year to support the code. Comments at this year's annual meeting indicate that members do.
Richard DeSimone, chairman of the American Institute of Marine Underwriters, said the ISM Code is so vital for safety that he could not imagine why any underwriters would not support it.
However, Mr. DeSimone, who is also senior vp-marine of Atlantic Mutual Cos. of Madison, N.J., also acknowledged that nothing could be done to prevent underwriters from continuing to insure non-ISM-compliant ships or the cargoes on those ships.
London's cargo insurers, through the Joint Cargo Committee of the Institute of London Underwriters and Lloyd's of London, have issued an ISM endorsement stating that losses to cargoes carried by a non-ISM-compliant ship will not be covered unless the policyholder believes the vessel was compliant.
Michael Harding, chairman of the JCC and a cargo underwriter with Eagle Star Reinsurance Co. Ltd. in London, said cargo insurers have wholeheartedly welcomed the ISM Code, as it should help reduce cargo claims by making ships safer.
However, IUMI's Cargo Insurance Committee noted that while there was generally strong support among IUMI member associations for the ISM Code, a number of these said their cargo market -- either cargo insurers or policyholders -- is unaware or not fully aware of the code's possible implications for cargo insurers. These markets include Austria, Cyprus, Germany, Greece, Pakistan, Poland, Russia and the United Arab Emirates.
Concerns were expressed about some unscrupulous shipowners who obtain their ISM certificates unlawfully. For example, there have been unsubstantiated reports of shipping companies buying their required ship-board safety manuals from someone else and simply changing the front cover. In addition, governments of countries where ships are registered or classification societies charged with carrying out inspections may not be thorough enough in ensuring a shipping company is ISM compliant.
Roberto Salvarani, head of the maritime safety unit at the European Commission's transport directorate in Brussels, Belgium, said he finds it difficult to believe that in the last-minute rush of shipowners to meet the July 1 deadline -- which an unexpectedly high 87% of affected vessels met -- some compliance documents weren't obtained underhandedly.
He warned that marine underwriters need to join ship safety inspectors and government bodies in ensuring that this problem is stamped out.
"Unless you take it on yourself, we will continue to see plenty of ISM compliance documents on non-compliant ships," Mr. Salvarani told underwriters. Underwriters, either by coordinated or individual action, should refuse to insure ships that are not ISM-compliant, he said.
A representative of shipowners, Chris Horrocks, general secretary of the London-based International Chamber of Shipping, acknowledged that such concerns are perfectly legitimate. He said there have already been a small number of cases in which the condition of a ship or the crew's lack of understanding indicated that ISM Code certificates had been issued "on rather flimsy evidence." But such practices should not be viewed as a significant development; the main point is that there will be a gradual but steady improvement in ship safety, Mr. Horrocks said.
Efthimios Mitropoulos, the IMO's director of maritime safety, emphasized the benefits to marine underwriters of the ISM Code. He cited figures from the Norwegian ship classification society, Det Norske Veritas, that show that the introduction of a safety management system, as required by the code, can cause personal injury payouts to ship crews to fall by up to 70%. DNV figures also show that savings on repair bills and on the number of days a ship is in dry dock for repairs can amount to 5% to 10% of total company costs. The bulk of these savings would most likely accrue to the marine underwriters who foot the repair bills.
Nigel Carden, chairman of the ships' standards subcommittee of the International Group of P&I Clubs, the mutuals that provide shipowners liability insurance, said these clubs had decided at an early stage not to insure ships that were not ISM-compliant. Now P&I clubs belonging to the International Group are refusing to allow ships without ISM certificates to join.