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Insurers may trim exposure to large container ships: Report

Posted On: May. 31, 2023 10:09 AM CST

container ship

Some insurers may scale back their exposure to larger container vessels and other mega ships if the associated risks are not properly managed, according to a report published Wednesday by Allianz Global Corporate & Specialty SE.

Fires, groundings and port blockages are among the problems experienced by large vessels in recent years, and the trend toward even larger ships and cargo values could exacerbate these risks, AGCS, a unit of Allianz SE, said in the report.

Fires on large container ships and the costs associated with resulting casualties are major concerns for insurers, Rahul Khanna, London-based global head of marine risk consulting at AGCS, said in an interview with Business Insurance.

Despite regulatory progress and steps taken by some shipowners to tackle fire risks and address insurer concerns, “a lot remains to be done, because the problem is very much there,” Mr. Khanna said.

There were 209 fires involving ships reported globally in 2022 — the highest total in a decade, and up 17% year over year, AGCS said. Fire is the most costly cause of marine insurance claims, the report found.

Different types of cargo being transported, such as electric vehicles and other battery-powered goods, including some containing highly flammable lithium-ion batteries, have added to concerns.

The capacity of the largest container vessels has doubled in the last 20 years, leading to higher cargo accumulations and exposures for insurers, AGCS said.

More than 50 ships currently have a capacity of 21,000 TEU or more, and a high proportion of new container ship orders are for larger vessels. (TEU, or twenty-foot equivalent unit, is a measure of a ship’s cargo capacity.)

“Five years ago a 5,000 TEU vessel was a large vessel. Now we’re talking about close to 25,000 TEU. We are looking at hundreds of millions worth of cargo onboard these vessels which increases the exposures for insurers exponentially,” Mr. Khanna said.

Salvage and wreck removal costs for larger vessels tend to be very costly, and this is not limited to container vessels, Mr. Khanna said.

“In the last couple of years, we’ve seen some car carriers which ran aground and had to be removed. They were considered a total loss and when wreck removal costs were done, the cost was upwards of $500 million,” he said.

Shipping losses hit a record low in 2022, with 38 total losses of large vessels reported globally, down from 59 the previous year. Cargo vessels accounted for 10 vessels lost, with foundering the main cause of loss across all vessel types, AGCS said.

Annual shipping losses declined 65% in the past decade, reflecting increased focus on safety, including improved ship design, technology and risk management advances, and regulation, AGCS said.