What’s driving up marine claims costs?

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Experts weigh in on the factors driving the rise in claims costs in commercial hull insurance, and discuss how they influence underwriting decisions

MARINE CLAIMS costs have been rising steadily over the past several years. Fuelled by price pressures, limited access to workers, and low availability of experts, costs borne by vessel owners are being driven up. Marine insurers are responding through their underwriting decisions, but there are actions vessel owners and brokers can take too. The pressures have had a particularly notable impact on the commercial hull space, where vessels are now facing an increased risk of high-cost repairs. Access to much-needed raw materials is becoming scarcer, the price of steel products is rising, and global disruptions to shipping have meant significant delays to the shipment of mechanical parts. NTI Marine national hull product manager John James says all these factors will no doubt influence how insurers underwrite risk. He noted that COVID-19 has caused production issues in some key manufacturing areas, meaning the marine industry is effectively competing for resources – so for vessel owners it's now more vital than ever to account for these rising costs and get their sums insured and deductibles right.

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How covid-19 Affected Non-Profits

Moderate negative impact

38%

Significant negative impact

28%

Little negative impact

12%

Moderate positive impact

0.5%

“The marine industry is competing for resources with other industries, and the delay in sourcing materials means that vessels have to wait longer for repairs”

John James, NTI

“The cost of steel products reached an all-time high in 2021, and although it’s settled back down, the trend has overall been an upward one since 2017. This has been partly influenced by the increasing price of iron ore,” James says. “The use of coal in steel production is another factor, particularly since there’s a global focus now on aligning with environmentally safe processes. “Other contributory factors included COVID-19 causing production issues in places like Brazil, which is a huge iron ore producer, and global shipping disruptions which impacted production in many industries,” he explains. “Most of our steel is manufactured overseas, and a significant proportion of mechanical parts come from either Europe or Asia. The marine industry is now competing for those resources with other industries, and the delay in sourcing materials means vessels may have to wait longer for repairs. That can result in a double whammy for the insured of lost earnings, plus the costs of sitting in a repair yard or on a hard stand while they wait for those materials to become available. “It’s always important to get the sums insured and deductible levels right,” he adds.

The availability of workers, experts and repair space has also become tight over the past several years, and James notes that Australia has a limited number of surveyors. Given the importance of surveyors to the claims and repair process, this inevitably causes delays and lost income – something James says will also impact risk and underwriting decisions. The availability of repair yards and working vessels has become another key issue, as major projects to reignite the economy have taken up a significant amount of the resources in this area. “With all of these infrastructure projects underway, it’s difficult to hire working vessels like barges, because they’re booked out for years in some cases,” James says.

business, very solid organizations for reasons that surely didn’t make any sense to us. “We’re seeing some of the carriers pull back because of their own financial reasons. We saw some of them pull back pretty dramatically last year. Some of those are starting to come back in again. So, I would expect that it will be somewhat more stable over the next year, although some organizations we still see are somewhat distressed – foster care, child serving in general and animal rescues are still very difficult. And we’re also seeing some sorts of advocacy organizations having some difficulty finding coverage.” Smith predicts that underwriters will be cautious with commercial P&C lines, while he sees workers’ comp softening due to lower loss trends. As for claims, in addition to the standard auto, property and general liability claims, nonprofits are increasingly grappling with cyber losses and cases of abuse.

Work-related accidents or mishaps

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Directors & officers

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Legal fees

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Auto liability

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Property damages and bodily injury

“Surveyors play a vital role as they are an underwriter’s eyes and ears, whether that’s following damage, or for a pre-risk condition and valuation survey. The latter requires a lot of detail around various parts of the vessel and is different to the Australian Maritime Safety Authority reports, which don’t include any commentary around the current value of the vessel – an important thing for us and our customers to get right. “The number of surveyors in Australia is fairly limited, and delays lead to loss of income, which is something our customers can take out cover against,” he explains. “If we’re insuring against loss of earnings as well as material damage, we need to consider the availability of repair materials, and how quickly we might get a surveyor in. All of this helps protect our customers’ business, and the quicker we're notified of a loss, the quicker we can help get the vessel operating again for the insured.” While market movements are having a significant impact on costs, other factors such as location and speed of repairs can also make a huge difference to the final bill.

“Australia is a large continent, and some areas are very remote, so access to suitable slipways or other repair facilities can be very costly”

Juha Vuorinen, NTI

NTI Marine claims specialist Juha Vuorinen says vessels that run into trouble in more remote waters inevitably face higher towing or salvage costs, and the logistics of getting a specialist out to inspect the damage can be difficult. He notes that some owners may also put off time-consuming repairs if the vessel is still able to operate, and this can often lead to additional expenses, so it needs careful consideration, and discussions involving the insured, the broker and the insurer. “One of the main issues is often the location of the vessel itself,” Vuorinen says.

“Australia is a large continent, and some areas are very remote, so access to suitable slipways or other repair facilities can be very costly. In Western Australia, for example, there are very limited spots where vessels can come in to be seen, and if the vessel requires towing, then that also increases the cost. So if it takes two to three days, then that’s already a significant expense, and that’s not counting any parts you need for repair, and getting them delivered. “Some owners will defer their repairs, as the damage is not significant enough to warrant immediate repairs; however, this will only happen on class surveyor’s approval,” he adds. “Those repairs may be deferred until the vessel is due for a class survey, which may not be for several years. In the meantime, the cost of materials may have gone up. “The old adage that time is money very much applies to the operators of these vessels, who will always want to get them working as soon possible.”

What do non profits need coverage for?

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