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Upward trend in claim cost and frequency in 2023, says Cefor

The Nordic Association of Marine Insurers (Cefor) has published its 2023 reports based on the Nordic Marine Insurance Statistics (NoMIS) database. The statistics are based on Hull and Machinery coverage only.

Christian Irgens, recently appointed chair of Cefor’s Statistics Forum, noted a significant upward adjustment of the costs of previously reported claims. “The cost of claims that occurred in 2022 had a worse development in 2023 than claims of any previous year had in the following year. This is a clear deviation from the typical claims development pattern”, he said.

Claims frequency and the claim cost per vessel also showed upward trends in 2023.

For container vessels, changing market conditions saw changes to insured vessel values. These saw big increases in 2021 and the first half year of 2022, followed by downward corrections in the second half year of 2022 and 2023.

For the smaller vessels in Nordic waters, there has been an upward trend in the claims cost over the past 10 years, apart from a dip in the years 2020/2021. Claims frequency has shown a slight increase since 2022. The total loss frequency, which in general is higher for this segment than it is for the ocean hull portfolio, reduced somewhat in 2023, reaching its lowest level for a decade.

Although inflation in many areas was beginning to ease, the effect on hull claims and repair costs of the increased cost of spare parts and labour has shown up more clearly in 2023 than before, during which year both claims frequency and the cost per claim were trending upwards. In addition, said Cefor, the cost of claims from events in 2022 developed in the following year more significantly than they had in any corresponding development period in previous years.

The most interesting segment to watch over the past few years had been container vessels, Cefor said. Contrary to other vessel types, these had a sharp increase in claims frequency above $500,000 in 2020-2022, but returned to previous levels in 2023.

The cruise market returned to full activity in 2023, and an effect of this was that claims frequency rebounded to pre-Covid levels.

The total loss frequency showed a small increase in 2023, but continued the general trend of oscillating around a level of 0.05% since 2018. Major losses showed some increase in 2023 compared to the extraordinary benign past years (except for fires). In 2023, the first loss exceeding $50m was reported for more than 10 years.

With both the container and cruise segment having resumed full activity in 2023 and related increases in insured values in the portfolio, one may expect some further increase in major losses going forward, said Cefor.

The engines and machinery on these vessel types tend to be more complex, and the costliest machinery claims often are related to these segments.

The oil price rally in 2022 led to renewed activity in the supply/offshore segment, reflected by an upward trend in vessel values for this segment.

  • Total losses: Since 2018, the total loss frequency has been relatively stable at a low level around 0.5%.
  • Major losses: In 2023, eight losses of above $10m were reported, three of which exceeded $30m. The two most costly losses were fires, and half of the eight losses above $10m were fires. This compares to nine losses above $10m in 2022 (only one exceeding $30m).
  • Claim cost per vessel on the rise: The claim cost per vessel has shown an increase after 2020. This is in line with expectations related to the return of shipping activity to pre-pandemic levels. In 2023, the cost per vessel is about the level of the years prior to the pandemic.
  • Average claim cost affected by inflation: The average cost of reported claims has shown a rising trend, which may be an indicator of some impact of inflation on repair costs. When claims reserves on already reported claims are adjusted upwards, it also means that more claims may grow into higher cost ranges.
  • Claims frequency: The long-term trend was a substantial reduction from about 30% of all vessels having a claim per year ten years ago, to 20% in the years prior to the pandemic. After the extraordinary dip in 2020 in connection with reduced vessel activity in some segments, claims frequency has been rising somewhat again, but still at moderate levels not exceeding pre-pandemic levels.
  • Claims by type of casualty: In recent years, most casualty types showed a positive trend, except for fires. While the impact of fires was reduced in 2022 compared to the years prior to 2022, four out of the eight most costly losses in 2023 were fires, and two of these exceeded $50m.
  • Other types of casualties such as navigational-related claims have shown “a positive trend”, said Cefor (presumably Cefor is stating that they declined, rather than increased).
  • Insured values: Vessels renewed in 2023 showed an average decrease in insured values of 5%. This compared to an increase of 3% in 2022. The trend thus turned again after average value increases on 2021 and 2022 renewals. When interpreting the trend, one needs to consider that it differs substantially by vessel segment, said Cefor.

https://cefor.no/statistics/news/2023-year-end-hull-trends/