Insurance costs set for multi-year rises because of higher claims, say P&I chiefs

Shipping’s insurance costs are set to increase for several years after a sustained period of underwriting losses and high claims in 2024, according to the chief underwriting officer at Britannia P&I Club.

Simon Williams told a webcast featuring protection and indemnity leaders hosted by broker Gallagher that he expects renewals in February to rise by 5% to 10% after clubs are hit by more, and higher, claims in the second half of this year.

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Britannia provided P&I cover for the 9,962-teu container ship Dali (built 2015) when it brought down a bridge in Baltimore, Maryland in March. leading to what is expected to become the biggest largest maritime claim in history.

“We’ve had a challenging start to the year, it’s fair to say,” said Williams.

Pool claims, in which the cost of casualties between about $10m and $100m are shared between the 12 members of the International Group of P&I Clubs, have risen to normal levels after a dip in the past couple of years. The Dali case involves a pool claim.

But Williams said Britannia had also been hit by more and larger claims of less than $10m that are retained by the club.

“The outcome of all that, unfortunately, is that we are looking at a combined ratio at the six-month mark significantly in excess of 100%,” he told Gallagher P&I managing director Alex Vullo.

He said underwriting profits reported by most clubs earlier this year, boosted by an unexpectedly low level of claims, are not sustainable.

Williams said it would take two to three years for the clubs to get back to consistently breaking even with their underwriting results.

“If you’re a shipowner budgeting for insurance going forward, I would certainly budget for increases over the next couple of years,” he said.

The impact of the Dali accident is also likely to lead to double-digit growth in the cost to shipowners from the renewal of the contract hammered out by the International Group with reinsurers.

Under the contract, reinsurers pick up the costs of casualties above $100m. The owner and operator of the Dali have already agreed to pay $102m to the US government to cover the cost of reopening the channel to the port of Baltimore.

The settlement, which was fully insured, does not include the costs for reconstruction of the bridge. The level of the liability of the shipowner is set to be decided in a US court next year.

Paul Jennings, joint chief executive of NorthStandard, said 2024 was notable for larger claims close to $10m for each club.

He said if the levels of claims continue into 2025, there will probably be a further round of premium increases. NorthStandard has noticed an increase in larger claims in which vessels were exposed to worse weather because they had to reroute south to avoid Houthi attacks against shipping in the Red Sea.

“The biggest impact of geopolitics this year is probably the Red Sea diversions … and instead going around the Cape of Good Hope,” said Jennings.

“We have experienced a couple of claims which have been contributed to, if not totally caused by, the fact that ships have been exposed to more adverse weather.”

NorthStandard was the insurer for the 13,800-dwt bulker Ultra Galaxy (built 2008), which grounded in July off the coast of South Africa before breaking up in rough weather.