Dieter Berg, marine expert at Munich Re, discusses the incident involving cruise ship Costa Concordia and the lessons to be learnt for the insurance industry
Mr. Berg, what is your take on this accident?
Berg: It is by far the largest marine hull insurance loss I have ever experienced. Even the Exxon Valdez is unlikely to come close. The alarm bells should now be ringing among the hull insurers.
... because so far they have got it wrong as regards the risks involved?
Berg: Many insurers do not get their sums right and underestimate the potential of a major loss. It is simply mind-boggling when you see how the values of vessels have been developing. Yet, surprisingly, in my view this niche segment does not even appear on the radar of the Board in many companies.
Have the shipping companies learned nothing from previous loss occurrences?
Berg: The world fleet is now younger. Many shipowners took advantage of the last crisis to scrap old vessels. As a result, there are fewer losses but those that do occur are more costly. This is due to the higher values and spiralling repair costs, including steel and labour.
What is the actual significance of the Costa Concordia for insurers?
Berg: For one thing, it means that insurers and reinsurers will be left to foot a massive bill. I am assuming it will be a total loss. The ship's hull insurers have to ask themselves seriously whether potential major losses are adequately priced.
Will smaller marine insurers be able to stay in the game?
Berg: The alarm bells from Italy will be followed by critical analyses by managers. Smaller players will recognise that hull insurance for ships is not a profitable venture for them.
Meaning that with fewer competitors the premiums are set to go up ...?
Berg: I cannot say whether there will be an upsurge in premiums. In this kind of hull business, you can get a lot wrong with relatively little capital. And you can create a lot of pressure in the market with relatively little capacity. And let's not forget that, at the end of the day, shipowners are also very shrewd buyers of insurance.
This press release contains forward-looking statements that are based on current assumptions and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and other factors could lead to material differences between the forward-looking statements given here and the actual development, in particular the results, financial situation and performance of our Company. The Company assumes no liability to update these forward-looking statements or to conform them to future events or developments.