Insurers face massive bills following Suez Canal blockage
Shoei Kisen KK, the Japanese firm that owns the stricken Ever Given tanker blocking the Suez Canal, could be liable for millions of dollars of insurance claims due to mounting costs caused by the crisis.
On-site news of the salvage operation show that despite efforts to dredge underwater silt and sandbanks and an army of tug boats, the 1,312 foot long cargo ship remains aground at both ends. The financial fallout from the disaster is spiralling as high as £9.5bn per day, reports suggest.
The Ever Given is currently being operated by the Taiwanese company Evergreen Marine and is beached across the southern entrance of the canal. The event is stopping other container ships from passing through the famous waterway - which is one of the world's busiest shipping lanes.
A crack salvage team from the Netherlands has now been contracted to join the operation following failures to move the cargo ship.
The operation will be led by Smit Salvage, a subsidiary of the Dutch marine services company, Boskalis, and the company has sent a team of 10 experts to the site.
The canal blockage occurred on Tuesday when the 224,000 ton vessel hit sandbanks. The Ever Given is said to be insured in the Japanese market for $137.7m against hull and machinery damage.
The cost of the salvage operation is being borne by the hull and machinery insurer. According to Reuters, a statement released by the UK P&I Club - the protection and indemnity insurer for the Ever Given, confirmed its connection to the stricken Japanese vessel, but declined to comment on any other details.
The UK P&I Club is one of the oldest shipping brokers in the world. It provides P&I insurance in respect of third party liabilities and expenses, arising from owning ships or operating ships as principals.
But, the most expensive fallout from the crisis by far will be the delivery delays caused by the incident.
Cargo owners, whose perishable goods are stuck on the ship, along with claims for missed delivery deadlines from other ships that are halted due to the incident, are swiftly mounting.
Many vessels are being rerouted around South Africa’s Cape of Good Hope. However, this detour adds an extra 6,000 miles to the European shipping route and increases fuel costs by $300,000 per supertanker.
Rahul Khanna, global head of marine risk consulting at Allianz Global Corporate & Specialty (AGCS), also told press there could be claims made for damage to the canal.
Reports show that containerised goods make up an estimated 26% of the canal's daily traffic.
- Delays to westbound traffic could cost approximately $5.1bn
- Restricted shipping the other way could cost $4.5bn
- Daily costs of the Suez blockage amount to $9.6 billion
Insurance claims and disruptions
- Perishable items claims
- Missed delivery deadlines claims
- Business compensation claims for undelivered goods
- Canal damage
- Re-routing costs for the 6,000 mile longer journey around the Cape
- Additional fuel bills of $300,000 per supertanker that is re-routed
- Approximately 30 tankers are currently blocked in the canal
- A further 20 oil tankers carrying oil and refined products are delayed
- Seesawing crude oil prices due to complicate the matter as a result of the crisis-caused supply issues and pandemic restrictions
First time blockage
The disaster is the first of its kind to hit the troubled waterway, which has, throughout its history, been a source of international conflict. Marcus Baker, global head of marine and cargo at Marsh, the global professional services firm that specialises in insurance brokerage and risk management, explained, “If you have a constant build-up of ships, there are massive supply chain issues.”
One shipping lawyer, who declined to be named, described the events as “Potentially the world’s biggest ever container ship disaster without a ship going bang."
Shoei Kisen KK and Evergreen Marine have have so far been unavailable for comment.
Image credits: Reuters , Airbus DS, BBC
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.