bumbershoot metric

FULL
TO
THE
GUNWALES
An intro to
Starr Companies’
marine practice
Accident & Health | Aviation & Aerospace | Casualty | Construction | Crisis Management | Cyber
Energy | Environmental | Financial Lines | MARINE | Professional Liability | Property | Public Entity
Specialty Products | Travel Assistance
SUNKEN FORTUNES
The Maersk Alabama, Costa Concordia & MOL Comfort
About 95% of all global trade travels by sea at some point. This is not a modern innovation; it has been
the truth of international commerce since ancient Phoenicians plied the waterways of the Mediterranean
and Viking traders sailed down rivers as far south as Babylon. Today, the global commercial maritime trade
is a crucial linchpin on which the world economy depends. But moving that much value across that much
ocean is not without its risk, as any mariner knows. And today, with ships bigger than ever, moving more
cargo than ever, the possibility for things to go wrong has raised the stakes to unprecedented levels.
Maersk Alabama
(2009)
Piracy has plagued maritime shipping for as long as there has been maritime shipping, but in the
modern age, it has largely been confined to several hot spots where shipping bottlenecks, poor local law
enforcement and conditions favorable to outlaws all combine to make seaborne theft attractive (such as
the Straits of Malacca, a narrow passage between Singapore, Indonesia and Malaysia, through which an
enormous amount of shipping passes on its way from Asia to Europe). From 2005 to 2012, as the security
situation in Somalia deteriorated, the seas off Somalia, the Gulf of Aden and the wider Western Indian
Ocean had become the world’s worst piracy problem. Ships passing through these areas, including ships
delivering humanitarian aid to Somalia, were attacked routinely. Sometimes, the ships were merely robbed
of petty cash and personal effects. Other times, the ships themselves, with all cargo, were stolen and their
crews ransomed. But none of these attacks captured the world’s attention quite so much as the cargo
ship Maersk Alabama, which was captured by Somali pirates on April 8, 2009. It was the first American
vessel to be taken by pirates since 1821, just a few years after the end of the Second Barbary War.
The Maersk Alabama, a container ship with a crew of 23 and carrying 17,000 metric tons of cargo, had left
Djibouti for Mombasa, Kenya, when it was assaulted in the waters of the Gulf of Aden by a skiff carrying
four Somali gunmen. Despite antipiracy efforts by the Maersk Alabama crew, the gunmen boarded the
vessel and took its master, Captain Richard Phillips, hostage. The pirates never gained full control of the
vessel (thanks in large part to the crew’s antipiracy training), but they managed to remove Capt. Phillips
to a lifeboat. There, they planned on taking him ashore, where he would be ransomed. U.S. warships
arrived on the scene, and after a tense hostage standoff, U.S. Navy SEALs shot and killed three of Phillips’s
captors and took the fourth into custody.
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By 2014, piracy in
Somalia had virtually
been eradicated.
Military interventions such as this increased during that time, and by 2014, piracy in Somalia had virtually
been eradicated. But piracy in general and brazen attacks, such as that of the Maersk Alabama, underscore
just how vigilant maritime shipping must be. While piracy near Somalia has captured popular attention,
the reality is that piracy is, and has always been, a global problem. Case in point: even though coordinated
military interventions largely eradicated Somali piracy by 2014, attacks upon shipping continue in other
parts of the world, most notably in the South China Sea.
TOTAL PIRACY EVENTS,
WORLDWIDE
TOTAL PIRACY EVENTS,
WEST INDIAN OCEAN*
% OF TOTAL PIRACY EVENTS,
WEST INDIAN OCEAN*
2009
410
245
59.8%
2010
445
352
79.1%
2011
439
265
60.4%
2012
297
56
18.9%
2013
264
18
6.8%
2014
72
2
2.8%
*West Indian Ocean denotes the Red Sea, the Gulf of Aden, the Arabian Sea and the Somali Basin.
Figures include all approaches, attacks, piratings and disruptions.
An Approach includes any action by a suspicious vessel including intercept bearings and brandishing weapons.
An Attack involves the discharge of weapons against a vessel and/or a boarding attempt has been made.
A Pirating is an attack resulting in a vessel’s boarding and loss of control of steerage and propulsion.
A Disruption is any of the above actions that have been successfully interrupted by military intervention.
These figures only cover merchant vessels and do not include yachts, dhows and local fishing vessels.
Meanwhile, the threat to merchant ships and their cargo remains a major concern, not just while on the
open water, but during loading, off-loading and while at dock, where considerable thefts can and do take
place. The bottom line is that with so much of the world’s goods traveling by ship, there will always be
those looking to steal them.
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Costa Concordia
(2012)
Moments into the
salute, the ship
struck some rocks
and gashed her hull.
Since the sinking of the Titanic more than 100 years ago, the cruise industry has made great strides
to improve the safety of their vessels. But as those vessels have gotten larger, the risks they pose when
something goes wrong have magnified accordingly. Few incidents illustrate this more clearly than the
Costa Concordia disaster.
The Costa Concordia was a Concordia-class cruise ship built in 2004 for Carnival Cruise Lines. At 952
feet long, 13 decks high and 114,147 gross tons of displacement in size; costing $570 million to build and
carrying some 4,000 passengers and crew, the ship was one of the largest ever constructed in Italy and
typified the rapidly growing size (and value) of cruise ships in general.
On January 13, 2012, the Costa Concordia left the Italian port of Civitavecchia for a weeklong
Mediterranean cruise. Shortly after departure, however, Captain Francesco Schettino ordered that the ship
make a “salute”—a crowd-pleasing close approach—near the island of Giglio. The move was not officially
permitted by the cruise line because of the dangers it presented and with good cause. Moments into
the salute, the ship struck some rocks and gashed her hull, taking in water. Schettino and his crew tried in
vain to maintain control of the ship and sent incomplete and inaccurate accounts of what had transpired
to the passengers as well as coastal authorities. An hour after the accident, with the ship listing badly and
almost two-thirds submerged, Schettino gave the order to abandon ship. In a gross breach of protocol,
Schettino left the ship while there were still some 300 passengers and crew on board. Even when ordered
back onto the vessel by the Italian Coast Guard, Schettino refused and went ashore while passengers clung
to the outside of the ship, exposed for hours. Ultimately, 32 people lost their lives in this tragic incident.
For months afterwards, the media focused on the trial of Captain Schettino for his misconduct, but an
even greater drama was unfolding. The Costa Concordia was a total loss, and insurers would soon pay
a $500 million hull claim on it. The wreck was in an environmentally sensitive national park area, and the
Italian government ordered that the ship be removed from the area, regardless of cost. For the property
& indemnity club (an association of ship operators who pool their resources to cover any liability losses
within the group), this meant that the cost to remove the Costa Concordia would exceed the cost of the
ship itself and not by a small margin.
For two years, an unprecedented salvage operation involving some 450 salvage professionals (including
divers, crewmen and other experts) and some 25 varied ships and support craft built an extensive
system of subsea platforms and sponsons (a kind of massive float) that would enable them to right
the Costa Concordia, lift it off the reef on which it rested and float it away for salvage. If the salvage
operation was successful, it would remove the ship without letting it break up and create a slick of fuel
and debris that would foul the otherwise pristine waters off of Giglio. The techniques used to salve the
Concordia had never before been tried on so large a vessel, casting serious doubts over the operation’s
success. Despite all doubts, the Concordia was successfully lifted off the reef and refloated on July 14,
2014 and then towed to Genoa, where it would undergo scrapping.
All told, it cost some $1.5 billion to retrieve the Costa Concordia, making it one of the most expensive
salvage efforts ever. The salvage costs alone were nearly triple the original cost of the ship itself, and the
costs to scrap the vessel would ultimately bring the project total to around $2 billion. This raises concerns
over the financial viability of insuring tomorrow’s cruise ships if they continue to keep growing in size.
After all, the largest cruise ships on the water today—the Oasis class—are twice the size and value of the
Costa Concordia.
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MOL Comforta
(2013)
Global trade demands have spurred the development of increasingly larger cargo ships, which can now
carry enormous amounts of goods in a single shipment. This presents a special challenge for shippers
and their insurers, since a major mishap on just one vessel can create a major loss for a large number
of parties. This was exemplified by the sinking of the MOL Comfort in 2013, the single most expensive
commercial shipping loss to date. Even though this incident never got the intense media coverage of
the Maersk Alabama or the Costa Concordia, it underscores the magnitude of modern maritime risk
far more than either of those other two events.
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Built in 2008 by Mitsubishi Heavy Industries (MHI) in Nagasaki, Japan, the MOL Comfort was a postPan amax 8,000-TEU type container ship that was one of the new workhorses of the maritime shipping
industry. It departed Singapore with a crew of 26 and a load of 4,382 containers equivalent to 7,041 TEU
(20-foot equivalent units). The ship ran into foul weather (including 20-foot waves) some 230 miles off
the coast of Yemen, and on July 17, the vessel cracked amidships. Most of the cargo remained on board,
but the Comfort’s problems were only just beginning.
While still afloat, the ship looked like a giant had tried to break it over its knee, and eventually it separated
into two segments. As the crew safely evacuated and were picked up by a passing German merchant
vessel, salvage ships were dispatched to the scene to tow the segments back to shore. Four tugs arrived
on the scene on June 24, but by June 26, the towing operation went awry.
Water began entering the stern segment of the Comfort, rendering any towing effort impossible.
Within 24 hours, that segment of the ship sunk to the bottom of the ocean, taking just about all of its
cargo with it. The bow section remained afloat and under tow until July 6, when a fire broke out in the
rear part of the bow section. Despite firefighting efforts by an Indian Coast Guard patrol boat, the blaze
could not be contained, and by July 10, most of the cargo on the bow section had been destroyed.
Later that night, the entire section sunk, bringing whatever cargo remained to the bottom of the ocean.
The cause of the fire was never determined.
The total insured loss of the Comfort was estimated to be $400 million— some $66 million for the hull
of the vessel and the remainder for the cargo. (One shoe manufacturer, for example, lost some $50 million
in product from the sinking.) The initial crack in the hull could have come from a load imbalance on the
ship itself, which put extreme pressure on the hull structure running along the underside of the vessel.
That, combined with the heavy waves the Comfort was experiencing, could have contributed to the
catastrophic hull failure that doomed the ship and everything on it.
By December 2014, more than 100 companies had filed suit against MHI for design flaws in the Comfort.
The Comfort’s 11 sister ships had all been removed from service to have their hulls reinforced after the
loss of the Comfort, but to date, the legal wrangling over the disaster continues, with enormous sums
of money on the line for the merchants who lost their product, as well as their insurers, the owner of
the shipping firm and of course, MHI itself.
Protecting the
fleets
The Maersk Alabama, the Costa Concordia and the MOL Comfort all exemplify the severity of
marine risk today. Despite advanced cargo-tracking technology, safer ships and pinpoint navigation,
the commercial maritime industry is an inherently risky one, with greater values exposed to loss than
ever before. To make this enterprise run at all, there must be a robust insurance presence behind
it, in which skilled and knowledgeable underwriters can appropriately craft the kinds of coverage
needed to keep the world’s shipping on schedule. That’s where Starr comes in.
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OCEAN MARINE INSURANCE
Insuring commercial vessels, their cargo & their liabilities
Ocean Marine insurance is the oldest form of commercial insurance available. While the modern insurance
industry can trace its lineage back some 300 years to when ship captains gathered at Lloyd’s coffeehouse
on the Thames river in London to place bets on whose ships would successfully return from their voyages,
insuring ships and their cargo goes back even further. The ancient Phoenicians actually wrote contracts to
cover the loss of cargo for goods being shipped across the ancient Mediterranean. For as long as Starr has
made it its business to cross the water, it has also been its business to insure it. And it will always remain so.
In modern insurance terms, there are two very broad kinds of marine coverage—Ocean Marine and Inland
Marine. Inland Marine is an outgrowth of Ocean Marine and typically covers goods in transit over land,
mobile equipment and other assorted forms of property not covered by other types of insurance. Inland
Marine will not be discussed in this report.
Ocean Marine covers commercial watercraft, their cargo and the liabilities that can arise from any
of the operations associated with them. Ocean Marine distinguishes between “blue water” (oceanic)
operations and “brown water” (lake and riverine) operations, but the insurance that covers them remains
fundamentally the same:
HULL
This covers any damage or destruction to the vessel itself. Hull is typically covered on a share basis
by a multitude of insurers, especially in modern times, with the cost of the largest container vessels
reaching $185 million each. There are many different categories of hull coverage, which typically
break down into:
o Tankers
o Bulk carriers
o General cargo vessels
o Roll-on roll-off vessels (e.g., ferries, car carriers and equipment transporters)
o LNG-LPG (liquefied natural gas or liquefied petroleum gas) carriers
o Smaller craft (e.g., tugs, barges, supply vessels / crew boats, research vessels, derrick barges,
ferries and charter boats)
Note: Commercial hull does not cover boats used for recreational use, such as yachts.
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CARGO
This covers the goods being shipped. Cargo is covered on a shipper basis; insurers do not cover the
entirety of a single cargo vessel’s delivery. The sprocket company that is sending $50 million worth of
sprockets to Germany seeks insurance for its own cargo in transit. The widgets sitting in the containers
the next stack over are insured separately. And the gadgets sitting in the container the next stack
over from the widgets are insured separately as well. Sometimes a single insurer might have multiple
accounts present on the same shipment. This is called aggregation, and it is a growing concern for
marine insurers.
LIABILITY
This covers any third-party property damage and/or bodily injury caused by the insured. Examples
might include bodily injury caused by a falling cargo container at dock, or damage to another vessel
in a collision. There are various forms of marine liability coverage, including:
o Charter’s liability. For liabilities under a charter party.
o Shiprepairer’s liability. Liabilities arising from repair operations.
o Wharfinger’s liability. Liabilities arising from the care and custody of vessels.
o Stevedore’s liability. Liabilities arising from loading and unloading operations.
o Terminal operators liability. This combines stevedore’s liability and wharfinger’s liability
with other coverages, depending on the nature and scope of the insured’s operations.
o Bumbershoot. A marine umbrella that provides coverage in excess of other marine and
non-marine coverages in place, with a drop-down feature to cover uninsured marine perils.
PROTECTION & INDEMNITY
This is a fourth category of coverage that falls outside of the three traditional forms described above.
Protection & Indemnity covers certain risks that either fall outside of the general scope of hull, cargo
or liability perils, or present loss potentials of a magnitude to merit special attention. An example of
this would be the environmental liability from an oil tanker leak, or the salvage costs for a ship stuck in
an environmentally sensitive area (such as the Costa Concordia). War risks, political risks and other risks
might also be covered by a Protection & Indemnity agreement. In these cases, the potential liability costs
are so great that many insurers won’t cover the risk, and instead it is covered by protection & indemnity
clubs—a kind of risk retention pool created, funded and administered by a group of shipowners who
jointly contribute monies to a fund that will act as insurance should any one of them suffer a major
liability loss.
Market
conditions
Ocean marine, as a line of insurance, has been volatile one the last decade. In that time, the combined
ratio for the segment has varied by more than 20 points, bouncing above and below the 100.0 mark from
2004 to 2008, then growing steadily for four years—from 91.0 in 2009 to 109.3 in 2012—before falling
sharply to 97.7 in 2013.
Direct premiums written grew from $3.2 billion in 2004 to $3.8 billion by 2008, but the financial crisis
knocked that down to $3.6 billion by 2010. Premiums jumped to $4.1 billion in 2011, but have slowly
fallen ever since. The lack of catastrophe losses is really what returned the segment to profitability in 2013,
despite its dropping premium volume.
On the whole, this is a highly competitive market that favors buyers over insurers. The marine insurance
marketplace is an increasingly crowded one. As insurers seek to diversify their lines of business, they see
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marine as a profitable and attractive class, and enter it. As a result, there is a huge excess of capacity,
giving buyers a lot of power to negotiate lower rates and/or ask for increased limits. For now, the lack
of catastrophe losses makes this possible, but it cannot be sustained for the long term.
Price predictions for 2015 have been for premiums to range from flat to -10% for cargo, hull and marine
liability. In Cargo, falling cargo shipping prices have made it harder for shippers to earn a profit, so that
line has aggressively sought lower premiums. When they cannot get them, shippers instead demand
higher limits, which insurers have so far been happy to grant, though that might end should some major
losses emerge.
In Hull, recent losses like the MOL Comfort as well as troubling trends with regards to ship size, have
likewise made this an area where insurers are reluctant to grant premium reductions. The overcapacity
in the market, however, compels insurers to grant premium reductions, or to provide higher limits than
they might otherwise provide. Overall, the marine insurance market remains an intensely competitive
one that requires a close watch on claims and the emergence of new risks, as well as differentiating
services to offset price-based competition.
Claims
There were 75 “total losses” of vessels of 100 or more gross tons in 2014. (Note: “Total losses” refers to
a situation in which the entire vessel and its cargo are lost.) Since this figure does not cover vessels that did
not suffer total loss, or smaller craft, it obviously is not a comprehensive gauge of overall marine claims
for the year. But it does offer a helpful snapshot of the claims environment and more importantly, where
the indicators are pointing in terms of overall number of claims, claims by type of vessel and causes of loss.
There have been 1,271 total losses over the last decade, but total losses per year have trended downward
over that time, from 149 in 2005 to 75 in 2014. On average, there are some 127 total losses a year during
that time, but the real key numbers are from 2009 on, when the number of total losses never again
exceeded 130 a year.
Of these losses 253 occurred in Southeast Asia (southern China, Indochina, Indonesia and the Philippines).
The next most frequent areas for losses were the East Mediterranean and Black Sea (162), followed by
Japan, Korea and northern China (158). Numbers by region fall off sharply after that.
Cargo ships are the most common loss type by vessel, at 523 total losses. Fishing vessels were the next
most common type of loss by vessel, at 229. Bulk vessels come in third at 94. Every other category shows
considerably smaller frequencies of loss:
523Cargo
229Fishing
94 Bulk
72 Passenger
65 Chemical/Product
64 Tug
52
Roll-on roll-off (Ro-ro)
43 Other
36 Container
25 Barge
25 Supply/Offshore
21 Dredger
15 Tanker
4 LNG-LPG
3 Unknown
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The most common cause of total loss over the last decade has been foundering (the sinking or submerging
of the vessel), which, at 603 total losses, accounts for nearly half of all total losses in this time period.
The second most common source of loss is wrecking/stranding (the collision of the vessel upon the
ground or a fixed object), at 252 losses, but the frequency of that particular cause of loss has gone
down noticeably since 2011. Fire/explosion is the third most common source of total loss, at 133.
603
Foundered (sunk/submerged)
252
Wrecked/stranded (aground)
133Fire/explosion
113
Collision (involving vessels)
77
Machinery damage/failure
50
Hull damage (holed, cracks, etc.)
19 Miscellaneous
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Contact (e.g., harbor wall)
6 Missing/overdue
5 Piracy
It is worth noting that in cases of grounding, fire, machinery damage/failure and hull damage, crew
negligence often plays a part in the claim itself. The grounding loss of the Costa Concordia, for example,
is a case in which gross negligence on the part of the captain resulted in the loss of the entire ship.
Bigger isn’t
always better
One of the biggest issues affecting marine insurance today is the size of the ships themselves. Since the
late 1960s, container vessels have grown over 1,200% in size, from the 1,530-TEU Encounter Bay to the
MSC Oscar, currently the world’s biggest container ship (in terms of cargo capacity), at over 19,000 TEU.
That is a remarkable growth in cargo-carrying capacity in a relatively short period of time, and marine
insurers have had to work hard to keep pace with these developments.
The Maersk Triple-E class of container Ships (for Energy, Efficiency and Economy), are among the world’s
largest and can carry up to $2 billion in cargo, and have an average hull value of $185 million apiece.
There are even larger classes of vessels, still, with each holding the record for just a short time before
another class of supermassive container vessel overtakes it.
For years, the ceiling on vessel size was the “Panamax,” or the largest ship that could still fit through
the Panama Canal. As trade intensified between Asia and Western U.S. ports and as oil flowed in greater
quantities from the Middle East to Asia, the Panamax became an old standard, as post-Panamax ships
grew larger and larger still.
The likeliest ceiling on vessel development is the so-called “Malaccamax,” or a ship that can fit through
the Strait of Malacca, a vital shipping corridor that threads the needle between Malaysia, Singapore and
Indonesia. All oil shipments to Asia go through there, as does an immense amount of other shipping;
any vessel too big to fit there will have to go the long way around the archipelagos of Southeast Asia,
at which point any economies of scale gained by the larger vessel capacity are offset by the much higher
fuel cost required by longer ocean voyages.
By the time ships are hitting Malaccamax size, however, a different limit might kick in—insurance
coverage. Already, supermassive container vessels are causing headaches for insurers because of the
increased concentration of cargo. As the loss of the MOL Comfort illustrates, the loss of a single cargo
ship can result in many losses for a single insurer who, despite best practices, still must watch a ship go
to sea with the cargo of multiple clients on board. This aggregation of risk could ultimately prompt marine
insurers to place limits on how much is being shipped on any one vessel, as well as refusing to cover ships
with an excessive aggregation of cargo.
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Image source: Department of Defense
For marine insurers, outsized ships are not confined to cargo vessels. Cruise ships have also reached
gargantuan proportions, which pose a special hull and passenger liability risk. To put it all in perspective:
the infamous RMS Titanic, which sunk when it struck an iceberg in 1912 and was long held as the standard
for luxury cruising, weighed in at 46,328 gross tons, with a capacity for 2,435 passengers and 892 crew.
The Costa Concordia was more than twice that size, at 114,147 gross tons, with a hull value of $570
million and a capacity for 3,780 passengers and 1,100 crew.
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But the Costa Concordia is a mere schooner compared to the MS Allure of the Seas, currently the
world’s largest cruise ship at 225,282 gross tons, wtih a hull value of $1.2 billion (the same as the
Costa Concordia’s salvage costs, by the way) and a capacity of 6,410 passengers and 2,384 crew.
Put another way: at maximum occupancy, there are as many people on the Allure of the Seas when it
leaves port as there are in the entire student body of Princeton University, plus about half of its faculty.
Having said that, cruise ship passenger liability is very strictly controlled, by both the International Maritime
Organization’s Convention on Limitation of Liability for Maritime Claims and by the wording of the
contracts passengers are expected to sign before embarking. In the case of the Costa Concordia —which
is by no means unusual for cruise ships—passengers agreed to sharp limits on what kinds of lawsuits
could be brought against the cruise line, where those suits could be brought and a hard limit of $71,000
in compensation for a passenger injury or fatality. The contract also stipulated that the cruise line could
essentially abide by whichever laws and treaties governing maritime liability most benefited the cruise line.
Passengers can still bring an action if the cruise line showed gross negligence and acted knowingly in a
manner contrary to their passengers’ safety. In the case of the Costa Concordia, the outcome will hinge
on whether Captain Schettino’s order to steer the ship dangerously close to shore was purely a decision
he made on his own, contrary to company policy, or whether the crowd-pleasing “close approach” was
something that, while officially forbidden, was allowed and perhaps even encouraged, unofficially.
Even with the $71,000 limit per passenger in force, the total loss of a cruise ship the size of the Allure of
the Seas would mean a $455+ million liability loss. Clearly, there is a size issue affecting passenger marine
operations also.
Emerging risks
In addition to the challenges posed by growing ship size and cargo/passenger capabilities, there are other
emerging risks that the marine insurance world must consider.
Fire containment. Modern cargo vessels require onboard fire-detection and suppression systems
commensurate with the amount of cargo they carry, but in many cases, the ships simply do not have
adequate fire protection on board. This was amply illustrated by the fire and explosions that destroyed
the MOL Comfort.
Deepwater ports. The bigger the ship, the deeper the water it needs to dock and offload. Few ports,
however, are big or deep enough to admit the largest cargo vessels, which further aggregates risk
as these megacarriers congregate within a handful of ports to do business.
Skill shortages. The largest cargo vessels make their global shipping voyages with just over 30 crew on
board, working in shifts around the clock. Huge advancements in navigational and automation technology
have enabled large vessels to operate with fewer people. However, overreliance on technology is creating
a worldwide shortage of capable and experienced professional mariners. Case in point: 40% of the world’s
commercial sailors come from the Philippines; any deficiencies in training there translate to problems across
the world’s commercial shipping fleet. This is especially true for specialized tasks, such as canal transit,
which require the help of specially trained and experienced captains.
Salvage challenges. The maritime salvage industry is a fairly small one, despite its global scope of
operations, and it works on a contract basis, much like how ambulances compete to be the first at the
scene of an accident. Poor investment in their equipment and capabilities are raising concerns that salvors
may not be able to address stricken vessels as quickly and efficiently as may be required. The extraordinary
costs and environmental concerns associated with the Costa Concordia wreck underscore the rapidly
rising stakes involved with any salvage operation, which is ultimately paid by insurers.
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Catalytic fines and low sulphur fuels. As ship engines are designed to be more environmentally friendly,
they are increasingly calibrated to run on low-sulphur fuels. While this lowers the ship’s environmental
footprint, these fuels are harder on engines and contribute to more frequent mechanical breakdowns.
Arctic exposure. As global warming melts Arctic ice, extreme northern maritime lanes are opening up that
have never before existed for modern seafarers. This brings a host of new opportunities and challenges,
as increasing Arctic operations bring with it specific risks that insurers must remain watchful for, such as
collision with ice, Arctic weather and the stresses upon ships operating in the deep cold.
Drone ships. A number of manufacturers—Rolls-Royce chief among them—are developing autonomous
operations technology that would enable shippers to put drone ships at sea. On paper, these new
navigational and piloting systems are less accident-prone than human operators. However, insurers
are wary that relying on these systems might create new risks and further degrade the skill set of the
maritime profession.
Cyber risk. As ships are increasingly automated and as sophisticated inventory-tracking systems are used
by shippers and cargo handlers, the marine insurance world is seeing a significant emergence of cyber
risk. The danger of gaining unauthorized control of a ship’s piloting system, tampering with navigational
systems or stealing cargo-routing data all can pose major loss potential. And while marine insurers
can work with their clients to take preventative and protective measures against cyber risk, no marine
operation can truly manage its cyber risk without robust cyber coverage designed to fit perfectly with
an existing marine coverage program.
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STARR MARINE
Building a better worldwide marine insurance program
Starr Marine is a global insurance operation that generates more than a quarter of a billion dollars a year in
gross premiums written. It is a mature operation with many years of experience developed during Starr’s
long history with AIG. When the two companies split, the core of AIG’s marine business transferred to Starr,
bringing with it an extraordinarily high level of experience and skill, along with many long-standing accounts.
Today, Starr Marine is forecast to earn some $260 million in GPW for 2015, a projected 5.5% overall
increase over 2014, but a 13% increase among existing business. Note that Starr expects to maintain flat
pricing in an environment where most marine insurers are cutting rates by as much as 10%.
Starr Marine serves Fortune 1000 companies, especially those that also have business with other profit
centers within Starr Companies, making marine just one component of a successful insurance program
that covers multiple areas, such as energy, environmental, Starr Tech and more.
Starr’s primary success in its marine operations stems from a disciplined focus on its core strengths of
cargo, marine liability and non-blue water (a.k.a. brown water) hull coverage. Those are the areas where
Starr Marine expects to expand its market-leading underwriting and adjusting positions.
Cargo
Starr provides its clients with a superior level of support and services. The key target markets for this line
are Fortune 1000 multinational businesses, especially those that are also supported by other Starr profit
centers, such as energy, environmental, Starr Tech and cyber.
The industry segments most typically served by this line include:
o Multinational conglomerates
o Hard-goods manufacturing exporters
o Wearing apparel manufacturers
o Large freight forwarders
o Project cargoes
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(Project cargo is the national or international transportation of pieces of equipment that are large,
heavy, higher value and/or critical to the project for which they are intended. This coverage is also
called heavy lift and may also entail the shipment of components that require disassembly for
shipment and reassembly after delivery.)
Project cargo is a special niche for Starr because of its technical underwriting expertise, loss control
services and close working relationship with Starr Tech and Starr’s Construction profit centers.
Marine liability
Starr has a large and profitable book of marine liability business, with a particular emphasis on the
transportation sector and within that, a focus on:
o Large ports
o Terminals
o Stevedores
o Shipowners
A key to Starr’s success in this area is the many long-standing relationships it has cultivated and maintained.
Case in point: Starr Marine launched the Safe Harbor joint venture in 2013, which gave the marine profit
center access to the specialized marine pollution liability market, thereby giving Starr the ability to sell not
only liability insurance to new and existing clients, but to offer related coverages to them as well.
The marine liability unit focuses its selling efforts through a series of zone teams in the United States,
Canada, Bermuda, Brazil, Japan, Dubai and China. These teams each handle concentrations of marine
business and use their regional expertise to more effectively target new and existing accounts.
Brown water
hull
What especially sets this line apart is its strong pricing and a projected premium growth of 8.8%
throughout the year. Starr has a strong and effective model for this line that focuses on large, complex
accounts with good loss records and a strong, organized approach to safety. The line also focuses on
enhancing relationships with existing major accounts as well as developing new business in areas such
as builder’s risk, where there is a good deal of new building activity outside of the U.S. that supports
strong pricing.
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THE STARR DIFFERENCE
Worldwide coverage and robust pre-loss and post-loss services
In the fiercely competitive marine insurance world, the key to success is not so much about the products
an insurer offers, or how much they charge for them. Rather, a successful marine insurance relationship
often stems from the level of service that can be provided to the client. The strength of the relationship.
The depth of skill and experience.
These are all prime differentiators, and this is where Starr Marine truly excels, not just in winning new
business, but in maintaining and nurturing that business over the years.
Many insurers seek to enter the marine insurance market because it is perceived as a simple line of
business, with predictable losses and even more predictable returns. Nothing could be farther from
the truth. Which is why Starr Marine—with its long history of marine expertise, deep relationships
within the marine brokerage community, robust suite of risk management and claims management
services and industry-leading account support capabilities—stands apart.
Pre-loss
Starr provides its clients with a range of pre-loss services in order to deliver a higher level of service.
This includes creative and disciplined underwriting, worldwide fronting, loss control services and
cargo tracking.
Loss control services. Starr’s Marine clients enjoy, as a benefit of placing their business with Starr,
access to a host of complementary loss control and risk management services that ensure the best
practices that might prevent a loss. This helps Starr on the claims side, but more importantly, it helps
the client run a safer, more efficient and more profitable business. That aim is something Starr has
been deeply committed to, and it will remain a major focus of all client services going forward.
These loss control services take various forms. One is a wide range of loss control engineering and safety
inspection consultants whom Starr can direct toward an insured’s operation upon request. Starr assists in
conducting a comprehensive review of each client’s claims history and shipping procedures and all aspects
of the packing, handling and/or storage of their cargo. By following recommendations developed through
years of experience with foreign trade, Starr’s clients will be in the best position to reduce or eliminate
preventable losses due to damage or theft of their product.
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Rather than dispatching these experts to an insured’s operation to mandate certain levels of safety,
they are sent to help the insured identify problem areas and to provide the education and advisory needed
to improve operations. This is an area in which Starr collaborates with its clients, rather than dictating
to them, and the result is that clients act on the advisory Starr provides and make it a part of their safety
culture. That is the path toward true risk management success.
Creative and disciplined underwriting. Starr’s Marine underwriters use cutting-edge, enhanced pricing
models and catastrophe modeling to take into account weak market conditions, especially for businesses
with natural catastrophe exposures. This enables Starr to allocate its capacity intelligently, which means
better pricing across the board for all of its Marine clients. But Starr’s underwriters are also deeply skilled
at crafting individually tailored insurance solutions for their Marine clients. The commercial maritime
industry is not a cookie-cutter business, and clients often have special requirements that need special
underwriting consideration. Starr’s underwriters, with their extensive experience and understanding
of maritime risk and insurance, provide that.
Worldwide fronting. At present, Starr Marine writes locally admitted policies for insureds around
the world. One of the prime differentiators with Starr Marine is its global network of locally admitted
policy writers. The nature of marine insurance is that with ships traveling through so many different
jurisdictions, the insurance requirements for each jurisdiction can create possibilities for coverage gaps.
Starr takes care of all of that by crafting a multinational policy that works seamlessly with locally admitted
insurers wherever the insured’s business goes—all contained within the Starr policy itself. The insured
never needs to see the many different agreements and arrangements Starr keeps with locally admitted
insurers. The insured simply needs to place their coverage with Starr and know that wherever their ships
sail, Starr will do the heavy lifting to ensure that the coverage is in force everywhere and anywhere.
Cargo tracking. With container ships getting larger and larger and with the number of ports able to
accommodate such gargantuan vessels in short supply, the risk of cargo aggregation is increasing at
a rapid pace. For insurers, this is a special challenge, since they must make sure that many different
accounts do not end up on the same vessel. To that end, Starr Marine employs a proprietary cargo
tracking system that pings the location of insured cargo containers in real time. Starr monitors this
regularly to determine where cargo is, whether it is concentrating excessively in any single port or
on any single vessel and whether that cargo is traveling somewhere it shouldn’t. All of this adds up
to a unique ability for Starr to prevent one company’s losses from becoming another company’s losses.
It adds to insureds’ abilities to run more loss-free and more productive businesses. And it helps insureds’
own supply chain risk management efforts—which in today’s increasingly globalized business environment
is more important than ever.
Post-loss
Maritime business is an inherently risky one, and no matter how much risk management is in practice,
there will still be losses, ranging from natural disasters to warehouse fires to navigational mishaps to acts
of piracy. What matters most, however, is when those losses occur, a mariner’s insurance company has
the readiness and the willingness to be the solution that the situation calls for. This is also where Starr
truly stands out, with outstanding claims management, recovery and subrogation services.
Claims Team. Starr’s claims team is among the very best in the insurance business, with the knowledge,
expertise, network and resources to handle even the most difficult or challenging marine claims wherever
and whenever they occur.
Through a global claims network headquartered in New York, but with regional offices throughout Asia,
Europe and the Americas, Starr can handle marine claims swiftly, offering clients the certainty that no
matter where or when they may experience a loss, Starr will be there to provide immediate assistance.
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Because of the zonal team approach of Starr Marine, regional and local offices have claims settlement
authority, which means most claims can be adjusted locally and promptly.
Starr’s claims operations are staffed with specialists who understand the details of its clients’ operations,
the intricacies of marine insurance, local laws and business practices, and international marine insurance
law and conventions. Their experience with handling claims locally and worldwide means Starr does not
have to rely on external claims handling services. Client claims are processed entirely in-house, in seamless
concert with the underwriters and loss control specialists who make up a client’s program.
Starr’s claims handlers deal with a wide range of claims that span the breadth of cargo, liability and
hull claims that include standard cargo, advanced loss of profits, freight forwarding, charterer’s liability,
ship repairer’s liability, terminal operator’s claims, and more. They also have experience handling small
to midsized enterprises as well as the largest multinational entities.
The Starr claims team also offers a variety of services to fast-track claims handling, including:
o Surveys to determine the nature and extent of loss and/or damage
o Collection of all necessary shipping documents in support of the claim
o Review of the insurance policy to adjust the loss
o Review of the final claim statement and/or preparation of adjustment where necessary
to process claim payment.
Recovery and subrogation. Starr’s Marine claims department pays all claims promptly, but at the same
time, it understands that every dollar brought back from salvage and recoveries will reduce its clients’
total cost of insurance. That is why Starr has a dedicated marine cargo subrogation department that
operates through a global network of offices and fronting arrangements, to aggressively pursue recoveries
worldwide in an effort to keep clients’ marine insurance costs down.
Starr’s marine recovery specialists have long-standing relationships throughout the world in the surveying,
salvage and maritime law communities. These relationships, coupled with its own recovery expertise,
yield superior recovery rates on behalf of clients.
Cargo claims in particular are reviewed by Starr’s subrogation department for recovery potential.
Once recovery is deemed possible, Starr aggressively pursues reimbursement in the most favorable
jurisdiction possible with steamship companies, airlines, mail and truck carriers, warehouses and terminals.
Over the years, this has yielded many millions of dollars in recoveries that go right back to its insureds.
In addition, Starr’s recovery specialists can consult with current or prospective clients to discuss historical loss
trends and current legal opinions regarding transportation losses and their effect on recovery potential.
This is a level of advisory service few other insurers are prepared to offer.
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CONCLUSION
Better marine coverage means better marine businesses
Marine insurance is the oldest form of coverage and the basis on which the modern insurance stands.
And yet, for all of its unique history, it remains one of the most current and evolving insurance markets,
continually evaluating emerging risks and designing loss prevention and claims handling innovations
to ensure that the world’s maritime business continues to run smoothly, even in the face of adversity
and disaster.
Starr Companies provides its clients with a deeply seasoned and proven marine insurance service that
can handle the most complex and challenging cargo, liability and hull risks, anywhere in the world.
Through a network of global fronting, regional account teams and nonstop risk management services,
Starr Marine knows that while almost all of the world’s commercial goods travel at some point via sea,
none of it would be possible without the proper kind of insurance.
Starr Marine…as broad, as deep and as powerful as the oceans themselves.
The coverages described in this document are only a brief description of available insurance coverage. It is intended for general information purposes
and does not provide any guidance regarding coverage that may or may not be available under this policy in respect to any claim. Any policy issued by
Starr Indemnity & Liability Company will contain limitations, exclusions and termination provisions. Not all coverages available in all jurisdictions.
Starr Companies (or Starr) is the worldwide marketing name for the operating insurance and travel assistance companies and subsidiaries of Starr
International Company, Inc. and for the investment business of C.V. Starr & Co., Inc. and its subsidiaries. Starr is a leading insurance and investment
organization with a presence on five continents; through its operating insurance companies, Starr provides property, casualty and accident & health
insurance products as well as a range of specialty coverages including aviation, marine, energy and excess casualty insurance. Starr’s insurance company
subsidiaries domiciled in the U.S., Bermuda, Hong Kong and Singapore each have an A.M. Best rating of “A” (Excellent). Starr’s Lloyd’s syndicate has a
Standard & Poor’s rating of “A+” (Strong). Starr’s insurance company subsidiary domiciled in China has an A.M. Best rating of “A-” (Excellent).
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