A series of major loss events involving container ships in recent months — including a sudden surge in containers lost overboard in the North Pacific region in late 2020 and early 2021, the grounding of the Ever Given in the Suez Canal in March and a fire that destroyed the X-Press Pearl off the coast of Sri Lanka in June — has highlighted the risks to companies that insure ever-larger vessels.
Efforts are underway to stem rising insurance claims from such accidents, but it could take years to make an impact, according to marine insurance specialists.
Changing regulations stewarded by the International Maritime Organization, the global standards-setter for marine safety, generally requires about a decade, said Lars Lange, secretary general of trade body the International Union of Marine Insurance, or IUMI. Given that timeline, the industry will surely be hit by more high-profile claims in the next few years.
Bigger ships, bigger claims
Container losses, ship fires and the overarching trend of increasing vessel sizes — which makes ships harder to control and rescue along with more cargo and vessel to lose or damage — have conspired to create bigger exposure for insurers. Claims from these incidents can affect all areas of marine coverage: hull and machinery, cargo and marine liability, known as protection and indemnity, or P&I.
The average number of container ship claims covered by the International Group of P&I Clubs, a risk pool of mutual marine liability insurers, increased to 5.2 per year between 2016 and year-to-date 2021 from 1.4 per year between 2010 and 2015, according to Alexander Gray, head of marine P&I at insurance broker Lockton Inc. in Singapore.
The International Group pool and its reinsurance programs cover claims from $10 million to $3.1 billion.
With the frequency and severity of claims in a “negative trend,” concern among insurers and reinsurers is growing, said Are Solum, senior claims adviser and lawyer at Norwegian marine insurer Gard.
In response to the emerging crisis, the International Group separated fully cellular container ships, which have no hatch covers over their cargo holds, into their own pricing category under its 2021-2022 reinsurance program. The group said it had done this because such vessels now represent 20% of the tonnage insured by its members, which have experienced many large claims in recent years. The reinsurance rate per gross tonnage for fully cellular container ships under the program increased by 7%.
Price increases can only go so far, though, and it seems unlikely that insurers will play hardball to force change. Lange said it “wouldn’t make sense” for insurers to demand smaller vessels. Solum said that while vessel size is a concern, his company will not steer clear of insuring vessels with capacity exceeding 20,000 containers.
To reduce the risk of major losses, insurers are working with shipowners, shipbuilders, flag states and ship classification organizations to improve vessel safety. The first item on the IUMI’s agenda is fires, where some progress has been made, Lange said. Work is underway to amend the International Convention for the Safety of Life at Sea to improve fire detection and control on new container ships. The amendments will come into force Jan. 1, 2028, if adopted before July 1, 2026.
Efforts to tackle containers lost overboard, a relatively new area, Lange said, are in earlier stages but remain a priority. IUMI believes that regulation of the lashing equipment used to secure containers to vessels may need to be strengthened, for example.
While it may take time to implement regulations, Lange said some shipping companies are already taking action, such as improving container checks and systems for positioning dangerous goods to prevent fires. Until a year ago, there was, on average, a fire on a container vessel every other week, Solum said, noting that the number has declined slightly in the past year.