The shipping insurance sector has entered into a serious crisis, whose consequences will impact directly on ship owners.
The shipping insurance sector has entered into a serious crisis, whose consequences will impact directly on ship owners, with fee increases from 2009 onwards said Mr. Ilias Tsakiris, CEO of Hellenic Hull Management Ltd., speaking in an event organized by Wista Hellas. After describing the latest development on the world economy and their negative effect on the shipping industry, Mr. Tsakiris noted that it"s the first after the World War II that a simultaneous recession has plagued the U.S., Japan and Europe. During 2008, ship owners enjoyed quite low insurance costs, as a result of a booming period of four years, during which fees were constantly reduced. This was mainly to the fact that the world"s fleet grew younger as more and more older vessels left service and were replaced by a more modern tonnage. Therefore, insurance danger was limited, reducing fees, while modern ships also reduced the number of claims.
?Traditionally expensive insurance market saw the boom and decided to enter the market by offering really low-cost fees. For instance, a modern vessel worth $60 million could also cost $60,000 in insurance fees. But insurance companies didn"t care, since whatever their loss from claims, they could reimburse it in returns from their investments. The results of this unreasonable underwriting are visible today. New building orders reached such an extent that repair yards went extinct, therefore whatever the repairs, they reached extreme highs. To sum it up, although claims were fewer, they were more expensive? said Mr. Tsakiris.
He added that shipping companies with good track records don"t have anything to fear. But even that, is only enough to limit the percentage of the increase. This is due to the reinsurance fee increases that all insurance companies will face this year. According to Mr. Tsakiris" estimated fee increases will range from 10-20 percent on average.
The global fleet is currently overinsured
Another important issue is the fact that the global fleet is currently overinsured, as a result of the steep drop in values during the past couple of months, thus rendering the previous estimated value of $1.3 trillion obsolete. This raises a moral risk, since in case of a total ship loss, the owner will receive the total value of this vessel, but in past terms, not current. Hull and Machinery insurers aren"t prepared to assume that risk and cover such values in the near term. This provides a fruitful field for an increase of claims, because traditionally, when freight rates decrease, losses are on the rise. At the same, further pressure is caused by the piracy boom in the Gulf of Aden, when only this year, ransoms of $150 million will be paid, as a result of attacks by Somali pirates.
Hellenic Hull Mutual is increasing its efforts in providing aid towards ship owners whose ships are attacked. The Club insures exclusively Hellenic and Cypriot companies, already covering almost 1,000 vessels owned by at least 150 companies.