It’s a high-stakes game without the right marine insurance

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Zurich aims to provide the right protection in the complex world of ports and marine operators before accidents and disruption happen

REMEMBER THE Chittagong Port disaster in June? You are not alone. Somewhat less newsworthy than the 2020 Beirut Port explosion that killed 200 and wounded over 7,000, the explosion at Chittagong in Bangladesh killed around 50 people and injured more than 300. The tragedy is the latest in a line of port disasters resulting in significant loss of life that sadly don’t hold the world’s attention for long due to their frequency and, perhaps, air of inevitability in today’s global supply chain. It is these higher-profile events that sharpen the focus of the many interested parties involved, ranging from cargo owners and insurers to brokers, says James Butchart, head

Zurich Financial Services Australia is the local arm of Zurich Insurance Group – a leading multiline insurer that serves global and local markets. For 100 years, Zurich has combined global expertise with local care to provide leading wealth and insurance solutions. Zurich’s general insurance business is dedicated to a fully intermediated broker advice model. This approach is paired with a state and regional presence, empowering local teams to make local decisions on the ground. We are passionate about our purpose to ‘create a brighter future together’ and use our resources to contribute to communities through disaster resilience, community partnerships and sustainability.

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Estimated proportion of dangerous cargo in shipping containers

“Customers, insurers and brokers need to have an understanding of the environment where the exposures may be situated at any given time”

James Butchart, Zurich

of marine at Zurich. “[They] highlight the importance of understanding risks and exposures at any given time.” But just as important to global businesses are the myriad of non-fatal accidents involving containers and shipping that occur much more often. Experts say that container fires at ports may occur on a weekly basis, and statistics indicate there is a major container cargo fire at sea roughly every 60 days. As our world becomes ever more interconnected, the stakes involved in safely running the global supply chain have increased due to the amount of material being moved and the number of parties involved. As the size of container ships increases, so do the potential risks and consequences of a large explosion, fire, damage or other loss. Despite certain regulatory and technical advances, the ability to mitigate or respond to such a cargo-related event has lagged in proportion to ship capacities and the variety of commodities being carried. Add in poor oversight of health and safety protocols at some ports and the next disaster is simply a matter of time.

Materials and goods damaged, destroyed or lost while being moved from A to B are normally covered by a marine cargo policy. “Provided the usual requirements of the policy have been met, the insurer will pay the owner of the goods for the lost value, including insurance, freight and perhaps 10–15% in addition,” says Butchart. “The cargo insurer will then look to determine if other parties could be liable for recovery of those losses.” One of the first people to get a phone call from the insurer

when something is damaged en route is the freight forwarder, given that it has an obligation to deliver its customers’ goods to their destinations. “[But] the freight forwarder may be entitled to use exclusions or limits under the carriage document to deny or reduce liability and should also be well positioned to seek recovery against other parties in the transport chain,” says Butchart. The next place liability accrues will be at the port itself. Cargo-handling facilities such as container terminals have a responsibility to the owners of the cargo, and they also have an overarching responsibility to all parties to understand and adhere to regulations that apply to the correct segregation and storage of goods kept at such facilities. This responsibility comes into play when port explosions are caused by poor safety measures around the handling and storage of dangerous materials, such as those at Chittagong in 2022, Beirut in 2020 and Tianjin in 2015. “A well-run operation will manage such exposures and mitigate the risk by correctly separating and storing such goods in accordance with the local regulatory environment,” says Butchart. “Customers, insurers and brokers need to have an understanding of the environment where the exposures may be situated at any given time and be mindful that standards and requirements can vary dramatically across the globe.”

“The [claims] that are more infrequent but create the most challenge to resolve are of course sexual abuse,” Davis says. “We were one of the first carriers to offer an affirmative sexual abuse policy back in the late ’80s – so we actually said, ‘This is what we will cover’ and didn’t go silent on it.” In the face of market upheaval, insurers are promoting their offerings or planning new products. At AmTrust, Sree says, the focus has been on “cross-selling to provide more broad-based coverage and providing enhanced coverage for our insureds.” Meanwhile, Convelo is developing a few new tech-driven programs, which will be available over the next six months or so. Smith says the company is “highly focused on technology to deliver top-of-the-market products to our broker partners in an efficient, easy-to-use platform. We are using this technology not only to automate systems and make the buying process easier, but also to improve in risk selection and lower claims costs.” NIA has responded to the pandemic by rolling out a new communicable disease form on the liability side. “That’s something that really nobody else has done,” Davis says. “But we saw that we have nonprofits who have to continue housing the homeless; they have to continue to work.” The coverage form delivers $250,000 of defense inside the limits. “It’s trying to be the coverage that nonprofits need without offering limits that might become opportunistic with some plaintiff attorneys,” Davis says.

“Zurich’s risk engineers use proprietary in-house technical risk-grading to assess exposures and controls in a comprehensive and consistent manner”

James Butchart, Zurich

The Zurich solution Zurich has a comprehensive insurance solution for cargo handling. Its Cargo Handling Facility Liability policy includes liability cover for loss or damage to cargo and third-party property, expenses arising from pollution, along with other heads of cover. “Port operators require specific coverage as they can be responsible for both landlord and operational services of a port, such as cargo handling and storage facilities, security, environmental protection, and pilotage and towage services,” says Butchart.

Despite not directly handling the materials themselves, the port operator needs to oversee those running the facility as the landlord liable for anything that might go wrong. As part of monitoring which tenants are handling which cargoes, particularly around dangerous cargoes and managing them appropriately, the port should engage in discussions with tenants, neighbours and emergency services to understand the potential for incidents and identify how to protect against them. Sometimes it can be difficult to determine to what extent the landlord can or should interfere in the tenant’s activities, but Butchart says some form of checking should probably be employed. “The liability cover for ports needs to be specifically tailored to the port operator’s responsibilities,” he says. Zurich Resilience Solutions has developed a risk-grading framework to help identify these responsibilities and the coverage required. It covers a structured assessment of seven fundamental areas of marine port and terminal liability. “Zurich’s risk engineers use proprietary in-house technical risk-grading to assess exposures and controls in a comprehensive and consistent manner,” says Butchart. “This allows them to define effective improvements actions, which are then shared with the customers, raising awareness and improving the risk.”

Source: Increased Risk Of Fire On Large Containerships - mfame.guru

Declared

10%

unDeclared

Average value of contents of shipping container – 2021

Source: Mfame

US$100,000

Putting the right protection in place Not only do ports owe obligations in relation to any cargo damaged or destroyed, but they also have a responsibility to the facilities’ neighbours and third parties on site, as well as for pollution mitigation. The costs incurred can be substantial. The Beirut explosion was heard as far away as Cyprus and left an estimated 300,000 people homeless due to shockwave damage. The damage from the blast affected over half of Beirut, with the likely cost above US$15bn and insured losses estimated at around US$3bn.

The Tianjin blast burned over 8,000 new cars and rendered several nearby buildings structurally unsafe, while the Chittagong explosion destroyed millions of dollars’ worth of garments destined for outlets such as H&M or Walmart. Zurich’s vision is “Creating a brighter future together”, and by working closely with its customers it ensures they have the right protection in place, which in turn helps them thrive, grow and deliver to their customers. The truth is that port disasters will occur again, despite best efforts to avoid them. Not having full and comprehensive insurance in place to rely on ahead of the tragic headlines is not a long-term business strategy for any business interested in a bright future. “Enabling our customers and brokers to fully understand the risks and tailor specific marine insurance solutions is integral to a strong, long-term relationship,” says Butchart.

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