TECHNICAL » MARINE

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MARINE « TECHNICAL

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www.niba.com.au Insurance & Risk Professional 89

Generally speaking, the average

cost of marine insurance claims

has increased in recent years.

This is due, in no small part, to changing

environmental expectations.

Previously, if a boat sank or was

shipwrecked that would be it.

Now insurers have to control

environmental fallout and minimise the

damage to the immediate area. Wrecks

must be salvaged and removed.

The cost implications are huge,

putting more upward pressure on

premiums.

Stephen Ford is the Managing

Director of Associated Marine, the

biggest marine insurer in Australia.

He believes customers and brokers

are increasingly aware of the need for

compliant marine insurance.

“In the marine class, many insureds

will have overseas exposures that

will need local paper to be issued.

So brokers and risk managers are

showing increasing interest in compliant

solutions,” he said.

“Machinery damage continues to be a

major cause of hull claims but there have

also been some significant total losses.

“Piracy is also a matter of increased

concern to hull and cargo underwriters.

Developing and adapting covers for the

diverse range of infrastructure, mining

and energy projects underway around

Australia is a challenge.”

Fresh talent a necessity

Former Associated Marine CEO Adrian

Norman believes that the industry will

have difficulty meeting this consumer

interest thanks to a growing shortage of

skilled professionals.

Norman, now in charge of Great

Lakes, a wholly owned subsidiary of

global reinsurer Munich Re, thinks this

will start to impact the market in the

coming year.

“Combined with the growing

sophistication of the commercial and

corporate insurance buyer, there is a

real need for underwriters to be able to

provide genuine value-adding services

to brokers and clients, including claims

management services, marine risk

management services, and contract

reviews,” he said.

“Marine is different. It is governed

for the most part by different laws and

regulations than other segments.

“It has its own international courts

and in most jurisdictions even marine

insurance is largely governed by separate

insurance legislation to the bulk of

general insurance.

“Then there’s the litigation

risk, especially if pollution is a

potential issue.”

Ron Johnson, the Regional

Underwriting Manager – Marine,

for Allianz Global Corporate &

Specialty, agrees with this assessment,

saying the lack of emerging talent is a

major concern.

“There has been minimal training

of new underwriter and claims staff in

the marine market for some time, so the

current workforce is aging rapidly and

in high demand. This has resulted in a

substantial increase in the cost of new

recruitments, which further exacerbates

expense ratios for marine portfolios,”

he said.

“It is hard to foresee what may

drive any changes unless expense ratios

begin to bite on bottom-line results.

Underwriters may then be forced to

make the hard decision about continued

participation in a mature market where

MARINE « TECHNICAL

MARINE IS

DIFFERENT. IT IS

GOVERNED FOR

THE MOST PART BY

DIFFERENT LAWS

AND REGULATIONS

THAN OTHER

SEGMENTS.

CASE STUDY: SHIP GROUNDINGThe Notanda II was a total loss following its grounding on 28 December

2009. The 75-foot steel trawler had received bunkers at Carnarvon and

was heading north towards the fishing grounds when she struck a rock

shelf approximately four kilometres south of Cape Cuvier off the Western

Australia cost.

The vessel grounded heavily and sustained critical damage to the hull as

well as significant water ingress. Following an assessment of the damage

the vessel was deemed beyond economic repair and was declared a total

loss. Contractors have subsequently been instructed to remove accessible

debris and potential pollutants.

Source: Michael Gristwood, Senior Underwriter, Sunderland Marine

90 Insurance & Risk Professional www.niba.com.au

total revenues are probably in decline.”

Johnson feels that Project Cargo

business has been one of the few cases

where the local marine market has seen

some increase in revenue as a result

of the construction of a range of large

projects in Australia, with pre-assembled

offshore modules of significant size and

value needing to be transported to sites.

“Income streams can be severely

affected by a delay in the delivery of

critical pre-assembled modules or items,

and this has fuelled strong demand for

project-specific marine Delay in Start Up

(DSU) Insurance,” says Johnson. “Again,

the global knowledge base for the

underwriting of such risks is limited and

rests in the hands of a few specialised

underwriters.”

Premiums will rise

Despite this, John Cupitt, the National

Manager – Marine, of chartered loss

adjusters and assessors, MYI Freemans,

believes the market will be more buoyant

over the next 12 months.

“In our opinion, new products and

on-going competition will influence

the pleasure craft and commercial hull

market over the coming years,” he said.

“Claims are being more closely

assessed and also declined if they are

outside the policy terms and conditions,

or adjusted by insurers to reflect wear and

tear and market values where relevant.”

“The marine insurance market

remains competitive and well-supplied,

and has generally been stable in the

past year. However, we have noted an

increase in theft claims, which is likely a

reflection of the tough times during and

following the global financial crisis and

rising interest rates right now.”

“With the increasing growth of our

economy, we expect that the pleasure

craft industry will prosper. This is good

news for the marine and marine insurance

industries, as is the steady increase in

vessel ownership in Australia.”

TECHNICAL » MARINE

CASE STUDY: CYCLONE DAMAGEGale force and cyclonic incidents

have been on the increase over the

last two years, producing hundreds

of hull damage claims. In February

2008, unexpected storms produced

damage to approximately 55 vessels

in the Whitsundays alone, with about

half of the 55 being lost.

Furthermore, on 21 March 2010,

Cyclone Ului caused damage in the

Whitsunday area to approximately 150

vessels with 30 total losses. This level

of damage has impacted seriously

on the hull insurance market and as

a consequence it is now very difficult

to obtain insurance on a vessel that is

kept on a mooring or on anchor in the

Whitsunday area.

Source: Maria Dwyer, Managing

Director, Oceanic

SEVEN VALUABLE TIPS FOR BROKERS: HULL COVERAGE1. Vessels with motors under 5 years old can now receive full breakdown

cover.

2. If Agreed Value basis of settlement is required, obtain a valuation from a

boat dealer.

3. If vessel is over 30 years, obtain an out-of-water survey.

4. Be mindful of policy security requirements (some policies have strict

requirements regarding storage of trailer boats when stored at home).

5. Be mindful of usage restrictions (policies will sometimes say no cover

while on trailer if vessel is normally moored, set nautical limits off coast of

Australia, restrict racing cover, exclude waterskiing liability).

6. Some insurers offer Lay-up cover while vessel not in use, offering some

premium savings.

7. Using a broker generally provides broader coverage than available

with direct insurers. Brokers also assist greatly in the event of a claim

where loss adjusters offering reduced settlements which appear “fair”

on the surface but often show little regard to policy entitlements, can be

challenged.

Source: James Finucane, National Marine Manager, IC Frith & Associates

1. If your client is importing,

encourage them to arrange

insurance in Australia. The

coverage suggested by the seller

may be inadequate.

2. If your client is exporting

encourage them to sell CIF so

they can arrange the insurance

here.

3. Exporters should ensure the

bill-of-lading or other carriage

documents they receive from

shippers accurately reflect the

number of packages shipped –

then there can be no dispute in

the event of a claim.

4. Importing and exporting can raise

complex issues. If in doubt speak

to an expert marine surveyor or

assessor.

5. Suggest your exporting client has

a seller’s contingency in place,

then if something goes wrong

overseas your goods are covered

for the return journey.

6. No matter how tough you think

shipping containers are, they

are not indestructible! Don’t be

tempted to save money by not

taking out marine insurance.

7. Make sure you think about the

fact that ships pitch backwards

and forwards as well as roll left to

right when stowing your goods.

We have seen the results of a car

that spent a voyage from LA to

Sydney rolling backwards and

forwards inside the container!

Source: Stephen Ford, Managing Director,

Associated Marine

SEVEN IMPORTANT POINTS FOR BROKERS: CARGO COVERAGE

For over a quarter of a century, we’ve built our marine insurance reputation on our Expertise, Service and Security. To discover why

our marine insurance solutions lead the market in Australia, talk to your Associated Marine Business Development Manager today.

EXPERTISE

SERVICE

SECURITY

hull • cargo • marine liability • fine art • pleasurecraft • home removals

Toll Free: Australia 1800 134 027 New Zealand 0800 264 269www.associatedmarine.com.au

Associated Marine Insurers Agents Pty Ltd (ABN 41 006 104 007 AFSL 235383) as managing agent for Zurich Australian Insurance Limited (ABN 13 000 296 640 AFSL 232507) AWHN-004681-2010 ZU20139

Would losing their cargo send yourcustomer’s business over the edge?

92 Insurance & Risk Professional www.niba.com.au

TECHNICAL » MARINE

Maria Dwyer, the Managing

Director of Oceanic Insurance Brokers,

sees marine insurers becoming more

conservative with respect to the risks

they accept, and is another industry

insider who holds the view that

premiums will rise this year.

“Premiums for commercial hull are

beginning to rise and we are seeing

renewals for claims-free accounts

increasing by between 3% and 10%,”

she said.

“Oceanic also has a large number of

marine liability accounts and these also

are seeing a soft rise in premiums.”

“In today’s world, risks to a vessel are

still just as relevant, however this burden

is now weighed down with new risks

created by statutory legislation. Federal

and State legislation today is very often

subject to strict liability. That is to say the

fact of the incident occurring and not the

cause of the incident can trigger a possible

prosecution under various legislations.”

This means the vessel owner now

needs insurance that will pay not only

for the cost of their legal defence but also

the fine itself.

Generally, the marine insurance

market has been very slow to recognise

that over time the risks to a commercial

operation have changed, with only a few

insurers responding to provide ‘Fines and

Penalties’ cover for vessel owners.

Dwyer maintains that more

competitiveness is just around the corner.

“The cost of building a 15-metre

tug is between $500,000 and $600,000

and the premium for the hull and P&I

would be approximately $6,500 to

$7,500,” says Dwyer. “The high sums

add to the insured’s need to seek out very

competitive premiums.”

Although the broad marine insurance

industry is not set for a massive upturn

any time soon, most analysts agree

that steady demand for competitive

coverage options, along with our robust

economy, will ensure it remains well

and truly afloat.

CASE STUDY: THINK GLOBALLY, ACT LOCALLYHave you ever been told that

no local policy issuance is

required when taking out a global

insurance policy?

Upon renewing their Marine

Cargo Insurance, a multinational

corporation operating in several

countries, including Indonesia,

decides to consolidate all their

Cargo policies into a global

insurance program.

The tendering broker and

insurer are aware that issuing

a local policy in each country

where non-admitted insurance

is prohibited may attract local

taxes and charges in addition to

the insurance premium, so they

propose that all such countries be

insured by the insurer’s head office

in Australia in an effort to contain

costs and minimise administration.

The local regulator in Indonesia

becomes aware that this

corporation is transporting cargo

without a locally issued policy in

effect, therefore avoiding payment

of local taxes and charges. This

leads to the local Country Manager

of the corporation being charged

with tax evasion and breach of

insurance regulations.

The Country Manager feels that

the broker and/or insurer should

be charged with negligence, but

as the broker and insurer are both

based in Australia the Indonesian

regulator has no authority to pursue

them. The only victim is the client.

It is vital that multinational

corporations ensure that their

insurance arrangements comply

with the local insurance and

tax regulations of each country

in which they operate. The

repercussions of avoiding local

regulations can lead to penalties,

fines, loss of trading licence,

seizure of property (cargo) and

even imprisonment.

Source: Chartis Insurance The scenario depicted in this editorial is purely fictional and is for illustrative purposes only. Any relation to or reference to any actual person, party or events is purely coincidental.

CASE STUDY: DAMAGE IN TRANSITWhen expensive equipment is being transported, it pays to have a qualified

company to confirm the item is packaged correctly.

A custom-built microscope, valued at US$1m and used in the mining

industry for survey work, was due to be transported from Australia to a site

in Indonesia.

The microscope was shipped to Indonesia without incident, but the only

available delivery route to the site was via an unsealed road. The insured

was relying on a third party to transport and pack the equipment without

independent checks onto a flatbed truck.

The Insured had provided the carrier specific packing instructions,

which included airbed support and various tie downs so that vibration was

minimised during road transit, however the truck operator did not follow the

packing instructions and the microscope suffered vibration damage.

Onsite assessment by loss adjuster Charles Taylor suggested that the

damage could be repaired for A$200,000 and a decision was made to

return the microscope to Perth for repair. Insurers were concerned with the

adequacy of packing and whether the claim would be excluded, however in

this case Insurers decided that they would grant indemnity.

During the return journey by plane, the microscope either fell over or was

dropped during transit or handling – a second incident. The damage was so

severe that the microscope was now a total loss and minimal salvage was

obtained. Insurers treated this second incident separately and applied a

second deductible.

The lesson is that when expensive equipment is being transported it pays

to have a qualified survey company check and confirm the adequacy of

packing before the commencement of the transit. Small companies cannot

simply rely on carriers to do the right thing and appreciate what they are

carrying.

If the packing is adequate then the only risk of damage is usually due to

external forces such as weather and/or other vessels.

Source: Charles Taylor Consulting

The capture of the project cargo

vessel, MS Beluga Fortune, by pirates

off Kenya on 24 October 2010, is a

great example of the potential risks

associated with underwriting marine

cover.

While in this case the vessel

was released within 24 hours, the

average time in captivity for vessels

taken by pirates in the region is 90

days. For critical items, this would

almost certainly cause a delay in the

completion of a project and poses the

question of how any Marine DSU cover

on cargo would respond. It reinforces

the need to seriously consider such

cover for new projects where critical

items are sourced overseas.

Source: Ron Johnson, Regional Underwriting

Manager – Marine, Allianz Global Corporate

& Specialty

MARINE « TECHNICAL

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CASE STUDY: MARINE DSU