- New technologies, capital-intensive infrastructures, and increasing concentrations of values in container traffic: Constantly mounting risks place demands on marine insurers
- Specialist knowledge and professional underwriting more important than ever
- Uniform security code in force worldwide from 1 July to protect ports and vessels
1966 saw the beginning of regular container traffic in the North Atlantic. Since then, this transport system has revolutionised global cargo traffic; more than 90% of the world's seaborne break-bulk cargo is now transported in these standardised boxes. It has required the establishment of logistical and transportation networks that span the entire world and new and complex infrastructures in the ports. The size of container ships has continually grown, the value of the goods transported has risen even quicker. The loss of a fully-laden unit can cost the insurance industry more than €1bn nowadays, a major loss in a large container terminal considerably more. The high loss potential is distributed through the international spread of risks between many markets. Claims experience has been volatile for decades. Professional underwriting and specialist know-how are more important than ever.
International container traffic has grown at an average of 8% p.a. in the last 25 years, a rate that is considerably higher than the 5% growth in world trade in the same period (IMF figures). The driving factor has been the need to save on costs, leading to a more efficient and swift handling and transportation of the goods and a steady increase in vessel size. In Hamburg, the proportion of cargo shipped in containers grew from 68.6% in 1990 to 96.1% in 2003.
There has been an immense increase in the concentrations of values and loss potentials, and the trend is still up. Today's large modern container ships, with capacities of up to 8,500 TEUs (20-foot standard containers), entail values exceeding US$ 1bn for cargo and hull insurers. Given the value of such vessels – approx. €300m each; and there are plans for much larger ones – a total loss would surpass all previous major losses in this sector. It would put a heavy burden on the ocean hull insurance sector, which has already been running at a loss for decades. In order to detach itself from the completely inadequate original conditions in this market, Munich Re has not assumed any reinsurance of this business on a proportional basis since the 1980s, as member of the Board of Management Christian Kluge explained to the press.
Depending on their geographical location, container terminals may be exposed to natural hazards – and in some cases to more than one at the same time: earthquake, hurricane, storm surge, flood, volcanic eruption, tsunami. To combat the potential accumulation of losses from, for example, natural catastrophes, the international marine insurance market has strived for a global division and spread of the risks involved.
In its publication "Containers – Transport. Technology. Insurance", Munich Re draws attention to the fact that it is not only the concentration of values per container, per means of conveyance, and per container terminal that has increased but at the same time the risk of man-made losses too. Terrorist attacks on, for example, container ships or ports may constitute a particular problem. In this context it is necessary to monitor the risks closely, especially as the hazard emanating from the possible application of radioactive, biological, or chemical substances is capable of generating overall losses above the billion euro mark. Against this backdrop, the supranational ISPS Code (International Ship and Port Facility Security Code) calls for radical security measures for terminals, port facilities, and ships as from 1 July 2004. Since 11 September 2001, cover for the terrorism risk is generally only offered for goods that are in the process of being transported or that are in intermediate storage for a short time.
In the wake of globalisation and the increasing international division of labour, container transportation is likely to remain an important growth sector particularly on Far East routes. In order to be able to provide advice and carry the risks emanating from the technical and organisational innovations in container transportation, insurers and reinsurers need expert knowledge more than ever before. The ability to link up technical, logistic, and underwriting knowledge is a precondition for risk assessment and for a selective assumption of risk at adequate prices and conditions. This is a course Munich Re is rigorously pursuing, the aim being to maintain optimum usage of its capital in the future and to continue providing its clients with tailor-made reinsurance solutions.
signed Kluge signed Küppers
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