Some insurers may reduce their exposure to larger container ships and other megaships if the associated risks are not properly managed, according to a report published on Wednesday by Allianz Global Corporate & Specialty SE.
Fires, groundings and port blockages are among the problems large ships have experienced in recent years, and the trend towards 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 accidents 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 legislative progress and steps taken by some shipowners to address fire risks and address insurers̵
7; concerns, “a lot remains to be done, because the problem is very much there,” Khanna said.There were 209 fires involving ships reported globally in 2022 – the highest total in a decade, and a 17% year-on-year increase, the AGCS said. Fire is the most costly cause of marine insurance claims, the report found.
Various types of goods being transported, such as electric vehicles and other battery-powered goods, including some containing highly flammable lithium-ion batteries, have raised concerns.
The capacity of the largest container ships has doubled over the past 20 years, leading to higher cargo accumulations and exposures for insurers, AGCS said.
More than 50 vessels currently have a capacity of 21,000 TEU or more, and a large 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 are talking about close to 25,000 TEU. We are looking at hundreds of millions in cargo on board these ships, which increases the exposure for insurance companies exponentially,” Khanna said.
Salvage and wreck removal costs for larger vessels tend to be very costly, and this is not limited to container ships, Khanna said.
“In recent years we have seen some car carriers run aground and have to be removed. They were considered a total loss and when the 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 the root cause of loss for all vessel types, the AGCS said.
Annual cargo losses fell by 65% over the past decade, reflecting increased focus on safety, including improved ship design, technology and risk management advances and regulation, the AGCS said.
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