The difficult and dramatic rescue operations of the “Costa Concordia” continue. As one of the leading marine insurers Allianz Global Corporate & Specialty is one of the following co-insurers of Costa Concordia covering a minor stake. An interview with Volker Bergeest, Global Head of Marine Underwriting, on the recent cruise ship disaster.
100 years ago the Titanic sank – and now we have seen the Costa Concordia run ashore close to the Italian coast. Is this an exceptional event?
Bergeest: Having been in this business for almost 30 years I remember the „Herald of Free Enterprise“ in 1987 and the „Estonia“ in 1994. Two major accidents involving passenger ferries, and there was the fire during the construction of the „Diamond Princess“ in 2002 in Japan. But I cannot remember a comparable accident with an almost fully-booked cruise ship. Costa is an excellent, leading shipping company, well-known in the industry for applying very high quality standards.
Fortunately the majority of the passengers escaped, very scared but mostly with relatively minor injuries. But any number of fatalities is too many and some of the passengers are still missing. However, accidents like this one do not really come as a major surprise to a marine insurance company. We do envision these kinds of scenarios in our theoretical models but of course always hope that they’ll never become reality.
How is a cruise ship insured?
Bergeest: It’s actually quite simple. A ship is insured just like a car would be. There is hull and liability insurance – which, by the way, have been in existence for centuries. Today huge amounts of money are at stake: a cruise ship of the latest generation is worth up to one billion euros. So when it comes to hull insurance, such major risks can only be covered by insurance pools. One or several lead insurers negotiate the terms, and then further insurers get involved in the risk. These “followers” take on a share of the risk in exchange for a share of the premium. As such a follower, we will pay for a share of the overall Costa Concordia claim. Our globally balanced portfolio as well as the diversification of our marine risks ensure that we are always able to pay such claims.
Thousands of passengers are directly affected. How is the Third Party Liability managed?
Bergeest: To manage third party liability claims, the shipping companies support each other via so called “Protection & Indemnity Clubs”. These are mutual insurance associations used by the industry to organize liability coverage. Each company contributes and claims are then paid from the collective funds.
What can you tell us about the amount of the claim?
Bergeest: It is far too early for any information on this. First, there is the damage of the ship itself, which will be clarified in the coming months. The amount of this hull claim will heavily depend on whether the ship can be salvaged and repaired or whether, in the worst case, the wreck will have to be disassembled on site. When it comes to liability, claims handling in these cases can take much longer, depending on the outcome of legal investigations and any subsequent lawsuits.
Will the insurers also pay for the claim if the Master has acted deliberately or in a negligent way?
Bergeest: Yes, a shipping company is usually also covered against human error of the captain or the crew. But I would like to caution against premature condemnation. It will take weeks and months until a thorough investigation by the authorities and by the shipping company itself sheds light on the true causes of the incident. Until then, we can best help our client by responding as quickly as we can when they call for our support.