The pandemic has had a major effect on the transport of goods, leading to many more insurance disputes. Despite this, there remains a confidence that the shipping industry will recover within a couple of years.
The majority of traders and operators in the shipping sector feel that Covid-19 has negatively affected their revenue and employee headcount, as would be expected, but also notably their insurance premiums, according to a recent survey conducted for DWF Group, an international law firm based in Manchester, UK.
The survey, of 200 traders and operators working in the shipping and commodities sector, found that 63 percent of respondents felt Covid-19 and the subsequent lockdowns had a negative impact on their revenues. In addition, 60.5 percent said that there was also a negative impact on employee headcount, and 46 percent said that there was negative impact on insurance premiums. OnePoll conducted the survey.
Pandemic effects
“The pandemic has had a major effect on the transport of goods in general, which has led to many more disputes,” said Jonathan Moss, head of marine and trade for DWF. “There have been closures of ports and terminals, diversion of vessels, immigration restrictions, demurrage and delay. Crews cannot be changed. A confused and contentious environment is not what insurers want.”
In particular, Moss noted an increase in first-party cargo claims: lost, stolen, damaged and deteriorated. “Cargoes are anguishing, or being released or abandoned. For claims there is a need for original bills of lading, but in many cases people cannot get hold of those because of lockdowns.”
Moss added: “We are also seeing negligence claims and rising claims for professional indemnification,” such as for surveyors not able to get to a site at the time for loading or unloading.
“In hull and machinery coverage, there are problems with limited parts and repair staff. And there are more problems arising in operational vessels because crews are on board longer. They are making mistakes. There are increasing claims among the [protection and indemnification (P&I)] clubs, as well as for freight, demurrage and damage (FD&D).”
If a pandemic is not an act of god or nature, then nothing is, but ironically force majeure (FM) is not statutory for most insurance, Moss explained. “It has to be incorporated in the language,” he said, “it has to be in the contract and it has to be specified.” And even then it has been argued that the term ‘epidemic’ in an FM clause does not extend to ‘pandemic’.
Premiums will continue to increase as insurers exit the market. They are worried about big payouts. – Jonathan Moss, DWF Group
Positive outlook
For all the chaos, Moss stressed that the long-term outlook is positive. “The survey illustrated that traders and operators, especially the large global companies, expect a return of confidence within two years,” he said. “There is quite a sunny outlook. That is partly based on the resilience of the sector over the past 10 or 15 years. Shipping adapts to change quickly.
“It is far more proactive than other segments,” Moss continued. “That is especially the case with sharing intelligence about ports and routes and other best practices. That will be especially helpful in the coming months.”
A further irony of the pandemic’s effect on insurance is that capacity continues to be reduced and premiums are continuing to rise. As has been reported extensively, underwriters had been leaving marine lines after years of poor returns. That was reducing capacity, increasing premiums, and tightening terms and conditions. The market went from too soft to too hard with no middle ground.
“Premiums will continue to increase as insurers exit the market,” said Moss. “They are worried about big payouts. In just the last year or two we have seen the port explosion in Lebanon, a tough hurricane season in the US Gulf and the pandemic. We are seeing reduced capacity and a harder market.”
This article has been taken from the December 2020 edition of HLPFI.
