What has the Costa Concordia disaster meant for the European marine market?
The Costa Concordia cruise liner, which had been lying dormant off the Tuscan coast of Italy, has just had a rude awakening. The 952 foot-long wreck was put completely upright shortly after 2am GMT on Tuesday 17 September after an operation using cables and metal boxes filled with water rolled the ship onto a specially constructed undersea platform - a process known as parbuckling.
The ship, carrying more than 3200 passengers, ran aground on a reef near the Italian island of Giglio in January 2012. The cost of the disaster has been significant; 32 people lost their lives, the ship was valued at $500m and, last month, Munich Re estimated the cost of removing the wreck would likely exceed $1.1bn.
Counting the cost
At the time of the wreck, Insurance Insight's sister publication Post reported more than 30 insurers were likely to carry the cost; XL, Allianz, Generali and RSA were among those named as being involved.
A year on, David Smith, marine division managing director at Besso, the firm tasked with placing insurance for removal of the wreck on behalf of Titan Salvage, told Post, "From a hull point of view it's as if the Costa Concordia never happened."
"In many ways the Costa Concordia has been a good advertisement for the European market." David Smith
Indeed, today, commentators seem unconcerned about the impact the disaster has had on rates in the European marine sector. "In many ways the Costa Concordia has been a good advertisement for the European market; the predominance of coverage from a hull aspect was from Norway, France and London. It has allowed the markets to demonstrate that they can quite easily absorb a loss of that magnitude and it not cause too greater undulations in ratings." Smith says.
Demian Smith, Torus Insurance global marine head, agrees saying the impact on rates has been "absolutely nothing". He says: "While it was a significant loss, it doesn't appear to have been enough to cause anybody to blush or flinch. I don't think it has had any effect at all really, particularly on the hull market."
Conversely, the catastrophe has had a significant impact on P&I ratings with rates and premiums written by the clubs increasing significantly, Besso's Smith says.
But Torus' Smith questions the impact of the P&I loss on the European market given that those losses were not written on the continent but rather internationally. According to Smith, competition in the hull market might have diminished the effect the Costa Concordia disaster has had on rates.
"Many insurers have been writing rates that are inadequate and profitability doesn't seem to feature in many people's thought processes. But there is so much capacity, so many people want to write marine and marine hull and are prepared to lose money on it.
"Across the industry it is acknowledged that rates are well below what they need to be to even break even with the number of claims," he says.
"While it was a significant loss it doesn't appear to have been enough to cause anybody to blush or flinch." Demian Smith
Besso's Smith agrees the marine market is currently awash with underwriters. "There are far too many people who view what happened with the Costa Concordia as a one off aberration. I think a lot of people saw this event as a good reason to come to the marine market because they were hoping the rates would rise," he says.
Torus's Smith acknowledges excess capacity was not spurred by the Costa Concordia. "The marine market has struggled with excess capacity for a long time and a lot of it comes down to diversification benefits insurers get under Solvency II for non-correlating classes of business. Marine is one of those classes," he says.
Indeed, Besso's Smith considers the appetite for insuring cruise liners is as strong as ever. "The underwriters that tend to write cruise liners view the Costa Concordia as a one off and if you remove that one big loss, traditionally, cruise liners do run very well. They are a very safe form of shipping," he says.
Torus's Smith adds insurers have continued to take on risks akin to the Costa Concordia following the event. "In terms of hull, these losses happen occasionally. At the moment there is enough capacity around to have these risks placed and insured," he says.
He considers it unlikely that ship owners will reconsider the way they have their vessels insured. "The hull market has traditionally been verticalised internationally and ship owners probably find the subscription market has benefit."
"Despite all of the regulation we will never be able to eliminate human error." Burns
The catastrophe has raised questions over the way marine safety is approached, however commentators say it is unlikely any major changes will emerge. David Smith says: "From an insurance standpoint we haven't seen underwriters look for anything different or impose additional subjectivities."
Mike Burns, marine partner at law firm Weightmans, considers it unlikely new safety initiatives will come from Costa Concordia. "But it does provide a reminder that despite all of the regulation we will never be able to eliminate human error," Burns says.
Nigel Russell, marine director at broker RFIB, concludes: "I think there have already been further rules and regulations in the EU that are due to come out on marine safety but that is a normal political response."
"For all that one can see, this appears to be human error; a lack of judgement. How far you can go to completely take out the human error element of the risk is open to question."
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