Vessels that change ownership or flag are more likely to produce claims, analysis by the Nordic Association of Marine Insurers (Cefor) has confirmed.
Ships that change hands have a significantly higher claims frequency, regardless of age at the time of sale, the association's annual meeting heard this week.
And it is not a short-lived outcome. Even 10 years after a transaction, sold vessels are at higher risk of producing a claim than those with unchanged ownership.
Cefor said that from the statistics alone, it is difficult to draw any firm conclusions on why the claims frequency is higher, but suggested there may be several possible explanations.
A significant contributory factor could be a change of vessel management, with the tendency for the outgoing technical manager to remove maintenance and service records from a vessel, increasing the risk of insurance claims.
Loss of such records has been highlighted as a problem by the International Union of Marine Insurance, Cefor and the London insurance market’s Joint Hull Committee.
“Ship records are often not passed on to the new owner, leaving the incoming crew and management with very little information of the condition of the ship and machinery,” Cefor warned in its annual report.
Cefor managing director Helle Hammer added: “We have called for a change of rules to require that these records remain with the vessel and are further convinced this would mitigate some of the claims we are experiencing.”
But it is not a new problem.
“You wouldn’t buy a secondhand car without seeing the service record, but this is what goes on in shipping,” Gard's Karl Petter Muhlbradt told TradeWinds in 2013 when he was chairman of Cefor’s technical forum.
But there are other hypotheses, with maybe a combination of factors responsible for the increased claims from vessels that change hands.
“Shipowners have different business models and strategies for their fleet management,” Cefor said. “Vessels that are built for a lifelong purpose might be better designed, built, operated and maintained than speculatively bought vessels.”
A strategy to replace ships rather than maintain them might also result in an over-representation of poorly maintained vessels among those that have been sold.
This theory is supported by the fact that the claims frequency is high in the years before and after the change of ownership.
Furthermore, the company management, culture and crewing strategy will have an impact on the risk for human errors.
The new owner and crew may lack experience with the specific vessel type and design.
The exposure to risk may also change as a result of a vessel being moved to a different geographic area or into a new trade.
Upgrades and maintenance in relation to the change of owner might also trigger claims.
Reactivation from lay-ups near the time the ownership of a vessel changes may also result in claims.
The idea that a transfer of ownership and accompanying changes to shipmanagement and company culture may affect risk exposure is not a novel idea for marine insurers. But the analysis by Cefor’s statistics forum confirms these hunches and provides some quantification of the increased risk.
A series of graphs produced by Cefor indicate that the risk of a claim is generally between 3% and more than 10% higher for vessels that change owners than for those that do not.
Cefor says a change of flag might be viewed as just a new home port painted on the stern and a changed pennant blowing in the wind, as it is still the same steel sailing the oceans.
But the organisation’s statistics show vessels with a new flag have a higher claims frequency than those that never change. Claims frequency also appears to rise in the year before a change of flag.
“Since the hull and other basic properties of the vessel do not change with a change of flag, it is safe to conclude that the reason for the increased claims frequency lies with the management of the vessel,” Cefor said.
But, there is an increase in claims frequency for ships that change flag but not ownership.
However, Cefor members are better placed than some others, as the Nordic Marine Insurance Plan gives underwriters the right to cancel insurance after a change of management or flag. The association's members include Gard, Skuld, Norwegian Hull Club, Swedish Club, Codan, Alandia Marine and the DNK war-risks mutual.
Cefor, through its Nordic Marine Insurance Statistics (NoMIS) database, has the best casualty information in the market. The data covers nearly 263,000 ocean-going vessel years and more than 73,000 claims. On average, about 6% of the vessels tracked by NoMIS change ownership in a year.
Over the past couple of years, Cefor has used its statistical resources to show that Chinese newbuildings are producing more claims those from South Korean and Japanese shipyards, and that containerships reactivated from lay-up produce more claims than those involved in uninterrupted trading.
