Catastrophes Set the Stage for the Marine Insurance Marketplace

January 26, 2004

Marine insurance suffered its worst year on record in 2002, and while 2003 showed some minor improvement, it too suffered more that its fair share of catastrophes.

The most notable of catastrophes in the marine marketplace for 2003 included an incident on Staten Island; a cruise ship explosion in Miami; a ferry boat accident in Manhattan; and the collapse of a gangway on the Queen Mary II in France topped the list.

The explosion of a barge at a fuel landing dock in Staten Island, N.Y., on Feb. 21, 2003, killed two crewmen. The explosion shook homes for miles and sent an all too familiar plume of smoke and flames over New York. The accident was classified as a “refueling accident” at the Port Mobil fuels storage complex, owned by Exxon Mobil Corp. The barge was unloading 4 million gallons of fuel.

The explosion of a boiler on May 25, 2003, on the Norwegian Cruise Line’s NORWAY dockside in Miami killed seven crewmen and injured fourteen others. Within three weeks of the accident, fourteen lawsuits had been filed totaling more than $1 billion, plus of course, the hull damage and loss of use. While jurisdictional considerations are still to be resolved, regardless of the result this will be a long and expensive battle.

Manhattan hit the marine catastrophe list on Oct. 15 when one of the Staten Island’s famed ferry boats slammed into a dock in downtown Manhattan. This catastrophe killed 11 passengers and sent another 34 people to the hospital, some with massive trauma. Despite high winds running at the time of the accident, city officials fired the captain of the ferry, Michael Gansas, for refusing to cooperate with investigators. Assistant Capt. Richard Smith, who was at the ferry’s controls, told investigators he passed out before the boat crashed into a concrete pier. According to one of the ship’s mates, Gansas was not in the wheelhouse, which violated a city rule requiring both captains to be present during docking.

The collapse of a gangway on the newly built Queen Mary II on the shipyard in Nazaire, France, killed 15 people and seriously injured another 32 on Nov. 16, 2003. Most of the victims were family members of yard workers who were walking on the gangway, only built the previous day to board the ship for a pre-delivery tour of the world’s biggest passenger ship. When the gangway collapsed, victims plunged 45-feet on to a cement platform. Many of the victims were children.

Catastrophes weigh heavy
While these claims are bad in any market sector, when considering the relatively small size of the marine marketplace, each catastrophe needs to be considered as 10 times the size in effect.

Nevertheless, different sections of the market have reacted differently to these forces and as such, I would like to discuss each separately.

Longshore marketplace. Over the last few years, the demise of Reliance, Legion and other longshore carriers, plus the withdrawal of other markets due to the lack of reinsurance has hit the market hard. Add the reluctance of insurers to write workers’ compensation in some of the top marine markets (most notably Florida and California), and you have arguably the tightest longshore market ever. There is little relief in sight and the market is expected to contract even further during 2004.

Hull, Protection & Indemnity. This sector of the commercial marine market probably dropped far quicker and further in the soft market than ever before, and as such, had much further to recover. The picture last year at this time was one of hull and P&I approaching a plateau, however the two huge losses detailed above, plus a number of claims in the $100 million plus range, have kept this sector on an increasing spiral.

Marine Liability. Marine CGL’s ship repairers legal liability, stevedores liability and similar commercial liability lines did not drop at the speed of the hull and P&I sectors, and so had less to recover. Further, it has not suffered the well-publicized failures or shock losses of the other sectors. Depending on whom you ask, we are approaching, or are at a rate plateau in marine liability.

Capacity is certainly not as available as it used to be, and excess layers are still getting increases, but overall decent account renewals are coming in close to expiry.

Layering, participation and buffer layers are terms that have been rare in the marine market during the ’90s but have returned with a vengeance recently. Carriers that would offer a $25 million to $50 million excess over their own primaries a couple of years ago, are now refusing the excess altogether over their own primaries, or reducing lines to $10 million. An excess liability or large hull risk that would have been taken 100 percent by one carrier is now requiring three, four or five carriers to get the same limits. And finally excess points for certain underlying coverages, most notably products or automobile where considered significant, have been pushed from $500,000 to $1 million to $2 million in certain cases.

The key distinction between the best submission and the poor submission is quality. Quality is king, not only in the risk itself, but in the appearance and quantity of the documentation. No amount of pretty pictures, producer narrative and clean clear loss runs will take a bad risk and make it good, but a poor presentation of a good risk can certainly have the opposite effect. The remaining commercial marine underwriters are inundated with submissions, and simply do not have enough hours in their days to dig through a poorly constructed or illegible submission. This will cause either a decline, or a long enough delay as to make it a constructive decline.

If you know your way around the commercial marine market today, and are prepared to put in the work to structure the proper submission and coverage layers, then these difficulties are just a brilliantly described opportunity to excel!

Ian Greenway is president and CEO of LIG Marine Managers in St. Petersburg, Fla. He is a national instructor on marine insurance for
numerous associations, and teaches commercial marine seminars through LIG Educational & Consulting Services. He is the author of
Navigating Marine Insurance and Navigating Marine Workers’ Compensation. He can be reached at:

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