Global head of Hull XL at Catlin Axa XL, Mike MacColl, has questioned whether the introduction on January 1st 2020 of a 0.50% sulphur cap could pose a systemic risk for hull accounts. In the February 2019 edition of the Gallagher Marine Hull & Machinery and War Risks Market Report MacColl said that the legislation “without doubt presents some of the biggest challenges to face the shipping sector in modern times”.
He said that shipowners had “a myriad of complex practical and financial decisions to make”, but that marine insurers might reflect on what happened recently in Galveston, which raised an issue of which most Marine insurers had been unaware. Cat fines, a hot topic in 2013, when the Joint Hull Committee issued guidelines on the subject, brought an enhanced threat in 2020 to safety at sea, to shipowners and their charterers and to insurers at the other end, “and not just Hull & Machinery insurers”.
MacColl asked whether this might propagate “a rapid escalation in the frequency of machinery related claims on Hull & Machinery, Loss of Hire, Legal Liability, Cargo and P&I/FD&D insurers and, maybe, introduce systemic risk? Let’s hope not.”
From Galveston, many vessels suffered blocked filters, purifiers & injectors, clogged pumps and, in the worst cases, blackouts and engine damage. At least one vessel ran aground; some required tug assistance and some used expensive chemicals to dilute/clean up the problem. Others lost time and some have banded together to take legal action, MacColl said.
He said that the prospect of an increase in frequency and severity of claims was a concern for “a long-suffering marine insurance market”. Insurers needed to be up to speed on the technicalities and close enough to their clients to understand best practice when they see it.
MacColl said that come 2020 insurers would expect Owners to be on top of all aspects of the new demands of fuel sampling, testing and on board management and to be able to demonstrate that to a high standard. “They will owe a duty of care in the preparation and execution of procedures to mitigate loss and to ensure vessel crews are (re) trained accordingly and well in advance”, he warned.
He predicted that claims might arise in the following areas
Hull & Machinery policies:
- Damage to filters, purifiers and engines
- Hull damage from groundings or collisions as a consequence of loss of power/black outs
- Claims for Salvage assistance
- General Average Loss of Hire insurers for Loss of Charter Hire arising as a consequence of any of the above
- Claims on Cargo insurers for General Average
- Maybe cargo damage as a consequence of a grounding or collision.
Claims on P&I insurers for:
- Non-payment of Cargo contribution in General Average
- Wreck removal claims following a CTL after grounding, a collision perhaps or an explosion on board?