Casualties caused by fire and explosions are burning the biggest hole in marine underwriters’ pockets.

Incidents such as collisions and groundings have traditionally been shipping’s costliest claims, but they have been overtaken after a series of major container ship and car carrier fires, according to analysis by Allianz Global Corporate & Specialty (AGCS).

The insurer reviewed 240,000 claims, worth $9.2bn, over five years. It found that fires and explosions represented 18% of claims by value to the end of 2021, compared with 17% for shipping incidents.

“The number of fires on board large vessels has increased significantly in recent years, with a string of incidents involving cargo which are difficult to extinguish and can easily lead to the total loss of a vessel, tragic loss of life and environmental damage,” AGCS said in its report Global Trends to Watch in Marine Insurance.

It said a common cause of fires is misdeclaration of cargoes, but there has also been an increase in engine room fires and explosions.

The move towards electric cars and the increasing international trade in lithium-ion batteries is a contributing factor, the insurer said, citing fires on the 6,400-ceu Felicity Ace (built 2005), 4,900-ceu Hoegh Xiamen (built 2012) and 10,000-teu Cosco Pacific (built 2013).

“Another notable recent trend has been the threat posed by lithium-ion batteries in electric vehicles or cargo that is not stored, handled and transported correctly. Highly inflammable, they have been implicated in a number of car carrier and container ship fires in recent years,” the insurer said.

As lithium-ion battery blazes are difficult to extinguish, it is recommending that the emphasis needs to be put on loss prevention training in how to tackle such fires.

Captain Rahul Khanna, global head of marine consulting at AGCS, said the overall trend in marine claims is down, but fires now pose the industry’s biggest safety threat.

“The potential dangers that the transportation of lithium-ion batteries pose if they are not stored or handled correctly only add to these concerns, and we have already seen a number of incidents,” he said.

Global inflation

Shipping’s hull and machinery claims bill could be pushed up further by global inflation, which is increasing repair costs and the price of steel, spare parts and labour, according to AGCS.

The increasing size and value of vessels and cargoes is also increasing insurers’ exposure to loss. Broker Clarksons’ figures show that the value of the world fleet has risen by 26% to $1.2trn last year.

AGCS said the incident involving the 20,388-teu Ever Given (built 2018) in the Suez Canal demonstrated how easy it is for the largest class of container ship to run aground.

The cost of handling mega-ship casualties is also adding to an increase in salvage costs.

Higher cargo values and larger vessels also contribute to the inflationary pressures on claims costs.

“It is not unusual to see one container valued at $50m or more for high-risk cargoes like pharmaceuticals,” said Khanna. One truck cargo claim valued at $74m was cited in the report .

Climate change

Climate change is also posing a threat to insurers’ claims costs. AGCS’ figures show that extreme weather contributed to 25% of losses in 2021.

Heavy seas have led to an increase in containers lost overboard. Figures from the World Shipping Council show that the average number of containers lost overboard has increased by 18% over the past two years.

Finally, insurers are yet to see what the final claims bill will be from the conflict in Ukraine. Dozens of vessels that have been trapped in Ukrainian ports will be declared a constructive total loss after 12 months has passed next February.