Marine - uwr and claims

Marine Insurance – Underwriting and ClaimsAnne Glestad Lech / Petter Eid Skalstad

AgendaMarine Insurance – Underwriting and Claims

• Who needs it and why?• Pricing• Loss calculation• Claims handling

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What do we insure?

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Sea Gardian

http://www.google.no/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCNScrpme4sgCFQSicgodBvUP_A&url=http%3A%2F%2Fgcaptain.com%2Fteekay-tankers-investment-company%2F&psig=AFQjCNFiWZhpmp2IDJUQNgRozkg6eui_XA&ust=1446020970661773

Hull and Machinery, for short: H&M

• Covers the vessel and equipment• Often include collision and damage to fixed or floating objects• Limited to the “sum insured” and• Subject to a deductible• H&M not mandatory• Most vessels are on ‘full

conditions’, but some, especially older vessels, will, for example, not be covered for most machinery damages

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Loss of Hire, (LOH)To protect the income

• Covers Loss of income due to a casualty covered by the H&M insurance (+)

• Normal deductible period would be: 14 days.

• The length of the cover is limited - 90 or 180 days is the most common

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Tanker earnings can vary dramatically, USD 10.000 to USD 100.000/day

Marine Hull Insurances

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Any insurance shall cover the

- unexpected and- unforeseen …

Consequences of a Marine Casualty – Hull

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Damage to Cargo

Damage to Vessel incl Total loss

Salvage

GeneralAverage

Loss ofIncome

Fines & OtherMiscellaneous

WreckRemoval

Pollution

PersonalInjury

3rd party liability

Ranking of claim types

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Claim type Severity(% of $)

Frequency(% of #)

CollisionContactFireGroundingHeavy WeatherMachineryStructural FailureOther

Collisions

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Collision

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Contact with other objects

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Fire / Explosion

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Grounding

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«Costa Concordia»

Navigational error, mistook a light house for a fishing vessel, speed 17 knots

«Bareli» grounding China, March 17, 2012

Heavy Weather and consequences

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Heavy weather ending in grounding with fire and TLO (total loss)

”HUAL EUROPE”, car carrier

Heavy Weather/Grounding and Fire

High seas in the Antarctic

Six crew members died and two were rescued after the cargo ship Swanland, 1,978gt, sank 30 miles off the tip of the Llyn Peninsula, North Wales, in atrocious weather in the early hours of Nov 27-2011

Machinery claimsBreakdown of machinery equipment

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Machinery breakdown consequencesGrounding / Contact

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Salvage operationsAdditional cost

• “Nordlys” grounding outside Ålesund, Sept 2011

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“Nordlys” grounding outside Ålesund, Sept 2011

MS «Rocknes» in four «versions»converted to MS «Nordnes»

Ranking of claim types

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Claim type Severity(% of $)

Frequency(% of #)

CollisionContactFireGroundingHeavy WeatherMachineryStructural FailureOther

Distribution by Frequency and Severity

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Pricing..and how to get there

• The products to sell• LOH special• Risk assessment• Underwriting• Closing the deal

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The productsShipowners’ traditional insurances

• Protection of own assets under Hull & Machinery

• Protection of own earnings under Loss of Hire

• Protection against liability to others (Collision liability can be placed with either Hull & Machinery or

P&I)

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Sum Insured

• Market value of the vessel

• Basis for calculation of premium

• Maximum pay-out when total loss

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Maximum exposure for H&M

• Sum insured to shipowner/assured: 100%

• Plus liabilities:• Collision liability if included in policy: 100%• Salvage 100%

• i.e. Max liability may be 300% of sum insured

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Insurances against Total Loss onlyCommon abbreviations

• IV Increased Value• HI Hull Interest • FI Freight Interest• T.L.O. Insurances

Additional TLO, Charterers TLO, TLO for Buyers/Sellers Interest

Paid in full if the vessel is a Total Loss or a Constructive Total Loss (damaged beyond repair) - may include elements of other risks such as collision liability and GA

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Why Interest Insurances?

• Sum Insured (H&M + HI) shall reflect the market value of the vessel

• PA premium + TLO premium

• Market value = USD 12 500 000

• Hull value: 10 000 000 PA + TLO premium• Hull interest: 2 500 000 TLO premium• Freight interest: 2 500 000 TLO premium • Total value 15 000 000

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Loss of Hire conditionsNordic Marine Plan Chapter 16

• Loss due to ship being deprived of income • Triggered by damage to ship which is recoverable under the

H&M policy• Cover according to the NMIP is extended to also include certain events where no damage is required;

o Grounding without damage to the vesselo Blocking and trapping in porto Salvage or removal of damaged cargoo A General Average event

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Time lost while….Waiting for parts

• Anchor-handling tug.• Windlass operator pulled on the chain without noticing that the

chain was still secured in the shark jaw. • Shark jaw had to be renewed. • Total off-hire 94 days.

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Time lost while….Finding / waiting for repair facilities

• Suezmax tanker built 1996.• Damage to stern tube bearing.• Occured in South America, no yards/DDs available.• Towage to Europe.• Further waiting for docking.• Total off-hire: 113 days.

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Loss of Hire basisCounting days…

• Basis of cover, i.e. 14(30)/90/90 o 14 days deductibleo 30 days machinery deductibleo 90 days each accidento 90 days each insurance year

• Sum insured:limit x daily amounti.e 90 days x USD 30,000 = USD 2,700,000

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LOH basis 14(30)/90/90

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An LOH example

• Bulk vessel daily earnings USD 60 000• Basis of cover 14(30)/180/180

A grounding claim covered under H&M results in 160 days off hire.What will the owner get from his LOH insurer?

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LOH excerciseNo 1

Cover period 14 (30)/90/90Daily amount covered: USD 10 000/dayLost income: 200 days * USD 10 000 = USD 2,0

mill

How much money will the insured get from insurance for:

1. A machinery-related claim2. A grounding-related claim

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LOH excerciseNo 1

How much money will the insured get from insurance for:1. A machinery-related claim

Days off hire: 200 days

Lost days after deductible: 200 – 30 = 170

Bought cover for 90 days

To be recovered: 90 * 10 000= USD 900 000

1. A hull claimDays off hire: 200 days




LOH excerciseNo 2

LOH Cover: 14 (30)/180/180Daily amount covered: USD 10 000Lost income: 200 * USD 10 000 = USD 2,0 mill

How much money will the insured get from insurance for:

1. A machinery-related claim 2. A grounding-related claim

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LOH excerciseNo 2

How much money will the insured get from insurance for:1. A machinery-related claim

Days off hire: 200 days




1. A hull claimDays off hire: 200 days






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Risk management

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UNACCEPTABLETRANSFER

CONTROL

ACCEPTABLEFREQUENCY

SEVERITY

M/V «Explorer»Total Loss 2007 - holed by ice (note the changing conditions)

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http://www.smh.com.au/photogallery/travel/the-sinking-of-the-ms-explorer-in-antarctica/20081205-6s8l.html



Group work – 5 minutesIf your were to insure a fleet of 6 cruise vessels, what information would be relevant for an underwriter to be able to assess the risk and price the fleet.

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The vessel

List relevantInformation neededto evaluate the risk

Some elements of Risk Evaluation

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Fleet history/ statistics

Claimsleader and share

Market statistics

Coinsurerson the slip

Contingency Plans

The Trade

The Manager

The CrewDoes history reflect the future

The Insurance cover

The vessel

”Reputation”

Extensive Information is needed

to evaluate a risk



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Profitable underwriting

• Establish Risk / premium breakeven:o Is the risk more likely to produce a profit or a loss ?

• Maximise / reasonable profits above the breakeven• Loss is most likely: walk away

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H&M premium elements

• Particular Average element (attritional claims)• Total Loss element• Administrative Costs• Reinsurance Costs• Capital Costs• Brokerage• Profit

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Identifying and pricing risk drivers

• External institutions• Fleet statistics• Portfolio benchmark• Final touch

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External institutions

• Classificationo IACS

• Flag stateso Belize etc; Cyprus etc; NIS etc

• Port state controlso Paris MOU, Tokyo MOU, USCG…o Deficencies/detentions

Determine:o Seaworthiness

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Fleet statisticsThe Gardian Fleet

Determine:o Trends / concernso Frequency acceptable?o Average burning cost → PA element48

Claims size distributionCefor data

• 50% of all accumulated claims are excess of USD 2m

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Portfolio benchmark

• Quantitative analysis• Objective, easily measurable parameters

o Ship type, Insured value, dwt, build year, machinery type/make, speed, country of build…….

o Class/flag

Determine:Average portfolio cost benchmarkPA, TL, costs

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Distribution by Frequency and SeverityIncident years 2009 - 2014

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Final touch• The Art of Underwriting (???)

o Combine objective and subjective parameters plus gut feeling to reach the final decision:

o «Should I stay or should I go?»

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Division of RiskSubscription / Syndication

• Because of the value and the need to spread the risk, few insurance companies will take the whole risk. The risk is therefore split between several insurance companies.

54Follow shares

15% 20%20% 25%

20%Claims leader

Placing the insurance• Most hull insurances are effected through one or more brokers

• There are most commonly several insurers on one fleet• Each participant takes a share of each vessel in the fleet. I.e. a 15% share of the cover pays 15% of any claim/vessel.

• One of the underwriters is appointed as claims leader: 1 contact point for the insured if a claim occur.• Some markets may operate with one or more rate leaders =

decide premium level.55

MARSH Willis

Market participantsA small extract only

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The broker• Receives an authority from the client that wants to take out an

insurance• Employed by and acts on behalf of the insured• Some tasks may be:

– Administrate and negotiate the different markets/policies/ shares/ conditions etc

– Discussion partner for the client– Issue documentation

• Commission: Varies from 5% to 25%

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The broker

• Usually has a claims department

• Sometimes actively involved in claims handling

• Advisor to the Assured

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Claims Lead Concept

• One of the insurers on the slip is appointed Claims Leader• Implied authority from co-insurers to handle the claim on

behalf of all insurers• Claims Leader’s tasks

o appointing surveyoro approve cause of damageo arrange salvageo decide on total loss, litigation etc. o issue an adjustment

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Nordic Marine Insurance Plan (NMIP)• Agreed document

• Comprehensive commentaries

• Continuous revision process

• Includes insurances for H&M, Loss of Hire, Hull/Freight interest, builders’ risk, offshore construction and fishing vessels

• www.nordicplan.org61

Scope of cover

• Nordic Plan – all riskso Underwriters’ have to prove any exclusions

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Scope of cover

• Burden on proof

• Exclusionso Gross neglect or intent by assuredo No cover for parts which are defective due to

– Wear and tear– Lack of maintenance– Corrosion, rot etc.

o War risks

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Safety RegulationsDuty of Assured

• Rules aimed at preventing loss• Classification society, flag state, port state, ISM-code,

insurance company

• No liability for insurers if- if there is a causal connection between a breach of safety regulation

AND- the assured can be blamed for the breach.

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Main principle – H&M

• Insurers to pay the costs of restoring the vessel back to the condition she was in just prior to the accident.

• No betterments• Second hand parts ok• Repairs vs new parts

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Total loss

• Actual total loss• Constructive total loss

o If estimated repair costs exceed80 % of sum insured or market value

• Full payment of sum insured

• Trigger hull interest and freight interest insurances

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Claim settlementWhat to cover?

In full Apportioned owners/uwrts•Repair costs General expenses at shipyard •New parts Removal costs to yard•Class survey Superintendent costs•Salvage costs•Interest

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«Sea Gardian» Case Study

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Sequence of eventsCase Study

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Call your claims handlerCase Study

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• Important with immediate notification of claim

• 24/7 Emergency number• Staffed with experienced

claims handlers• Will follow up closely

together with surveyor, tug brokers, owners etc.

• Hands-on claims handling

TimelineCase Study

18 September - Collision - Dropped port anchor – entangled propeller- Main engine failure- 4 tugs ordered- Starboard anchor failed – cut- 2 tugs

20 September - Vessel aground- 4 tugs- Tow line broke – damage to deck

21 September - Anchor chain freed from propeller- Vessel refloated

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TimelineCase Study

22 September - Main engine restored23 September - Lightering operations commenced2 October - LOU to opponent – LOU to tug boats3 October - Lightering completed – towed to shipyard8 October - Arrived shipyard4 November - Repairs completed

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First notificationCase Study

Ref telcon, - pls be advised that “Sea Gardian” collided with another vessel approximately one hour ago. We have been in touch with Managers and have so far received the following:

Pos N 29° 40.6’ E 122° 21.25’Vsl is loadedNo leakage from hull except for from stern tube (has been stopped)Two crew injuredMinor damages to hull in manifold areaNo info received yet regarding damages to the other TankerHighwater is in approx 1-2 hrs and we would need tug assistance as

soon as possible (we understand your correspondents not yet has been informed).

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First notificationCase Study

Subject: “Sea Gardian” off Ningbo brush with Tanker and running aground Dear RunarRegret to inform that «Sea Gardian» has had a brush with a Tanker off Ningbo at anchorage and has run aground.

Following are the Agent details:

MOB:+86-13867898986

Pls liaise with Agents and arrange for P and I and H and M attendance.You may also contact Superintendent Mr Prasant Padhi who is also on board.His contact details are:+6596694260.

Best RegardsFor Ship Management Pte Ltd

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What was the essential information?Case Study

• Type of accident• Location• Degree of danger• Salvage/Assistance needed?• General Average• P&I or H&M?• Liability?

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Check the policyCase Study

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Check the policyCase Study

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Salvage/Sue and LabourCase Study

• Measures to avoid a greater loss• Vessel in danger• In need of assistance• Extraordinary measures

Challenges:• Local authorities• Heavy weather• Threat of life or pollution

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Salvage – what to do?Case study

• Contact salvage company or salvage broker• Agree terms

o Lloyds Open Form (LOF)o Lump sumo Daily hire

• Salvage awardo Degree of perilo Time usedo Level of difficultyo Salved values

• Lloyds Arbitration80

Salvage CostsCase Study

• Salvage costs paid by vessel and cargo proportionally

• Hull Underwriters reimburse the vessel

• Must be related to a recoverable peril

• No deductible to apply

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«Sea Gardian»Case Study

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Sea Gardian

Lightering operationCase Study

• Lightering operations were necessary to repair the vessel

• Foreign vessels not allowed to take the cargo

• Could not bring cargo back ashore due to customs

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General Average

• https://www.youtube.com/watch?v=54uqcnIQ6h0

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General AverageCase Study

• Maritime adventure (ship, cargo, freight etc.)• in peril.• Extraordinary, • intentional• reasonable measures to avoid total loss of ship and cargo

• Costs apportioned over the value of the ship, cargo, freight and bunkers

• York Antwerp Rules

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General AverageCase Study

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Apportioned over ship, cargo, freight and bunkers, based ontheir value at destination.

General Average

Contributory Values

Contribution

Vessel USD 20,000,000 USD 400,000Cargo USD 10,000,000 USD 200,000

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Total GA costs – USD 600,000

General Average Absorption ClauseCase Study

• Assured can opt not to declare General Average

• H&M underwriters will pay all GA costs up to a maximum amount stipulated in the insurance policy

• Cargo and charterers will not be asked to contribute

• Still adjusted as per York Antwerp Rules

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Particular AverageCase Study

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TimelineCase Study


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Letter of UndertakingCase Study

• A promise to third party that the Assured will pay for liability imposed on them either by agreement or in court

• Must stipulate an amount and jurisdiction

• In order to prevent arrest of vessel

• Issued by Claims Leader on behalf of Assured

• Counter-guarantees from co-insurers

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LiabilityCase Study

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• Pay for repairs of damage to the other vessel if «Sea Gardian» is found liable

• Based on portion of blame

• Cross liability settlement:SG pays 90 % of opponents’claimOpponent pays 10 % of SG’s claim

Liability – H&M

• Only liability caused by collision or contact

• P&I will always pay for:o Personal injury and deatho Environmental damageo Liability caused by the use of vessel’s anchors, mooring equipment etc.

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TimelineCase Study


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Choice of repair yardCase Study

• Repair tenderso Repair costso Removal costso Time

• Owners’ decision

• Underwriter’s liability limited to least expensive, but adjusted for time.

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Appointing surveyor

• Network of independent surveyors• Technical experts• Valuable input

o Choice of repair yardo Cause of damageo Extent of repairso Reasonable costs

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H&M underwriters’ liability

• «Sea Gardian» repair costso Lost anchor and chaino Propeller damageo Bottom damage (grounding)o Hull damage (collision)o Deck damage (tug line damage)o Engine damageo Less possible recovery from other vessel

• Tug boats/salvage – ship’s proportion• Lightering operations• Liability towards «Chang Hang Xian Feng»

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TimelineCase Study

22 September - Main engine restored23 September - Lightering operations commenced2 October - LOU to opponent – LOU to tug boats3 October - Lightering completed – towed to shipyard8 October - Arrived shipyard4 November - Repairs completed. Issued Payment on Account

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Assured’s presentation of claim

• Assured’s statement of claim:o All relevant invoiceso Log bookso Class reportso Damage reports by master/officers or manufacturero Info about removal costs to shipyard

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Adjustment

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• In-house adjuster vs. external adjuster

• Calculation of final compensation based on the insurance conditions

• To be presented and accepted by the Assured and the co-insurers

Disputes

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• Section 5-5 – Disputes concerning the adjustment of the claim

• Nordic Average Adjuster

• Arbitration

• Trial

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Marine - uwr and claims