Supply chain disruption, labor and material costs and delays are driving up the cost of hull and machinery claims.
Global inflation hit 8.8% in 2022, more thanÌýdouble its pre-pandemic level, although it isÌýforecast to fall back to 6.6% in 2023 and 4.3% inÌý2024. [1] However, higher prices are now bakedÌýin, while the outlook for inflation is uncertain,Ìýgiven current geopolitical and financialÌýmarket instability.Ìý
Increased commodity prices, higher laborÌýcosts and supply chain disruption have had aÌýsignificant impact on marine insurance claims, inÌýparticular hull and machinery claims. The priceÌýof steel, a key cost driver in hull claims, increasedÌýsharply post-pandemic, as did the price of spareÌýparts. A typical propeller or machinery damageÌýclaim, for example, now costs around two times more than it did pre-pandemic.Ìý
Shortages and delays in obtaining replacementÌýparts also led to longer stays in repair yards. Labor shortages have also increasedÌýcosts, contributing to longer repair times andÌýincreased yard costs. Industry estimates calculateÌýa +18% increase in ship repair costs between 2020Ìýand 2022 from inflation.
The severity of partial and attritional claims hasÌýrisen since the pandemic, according to RégisÌýBroudin, Global Head of Marine Claims atÌýÐÇ¿Õ´«Ã½ Global Corporate & Specialty (AGCS).Ìý“Analysis of claims across our portfolio showsÌýan increased severity for attritional claims forÌýhull and machinery from higher labor, repairÌýcosts, availability of spare parts and dry dockingÌýfor repairs, as well as the increased cost ofÌýmaterials like steel. This comes on top of theÌýincreased expense of dealing with large vessels,Ìýwhich face higher costs for repairs, salvage andÌýtowing,†says Broudin.Ìý
Addressing inflation is a challenge for both shipowners and insurers in the current environment,Ìýsays Justus Heinrich, Global Product LeaderÌýMarine Hull at AGCS. “Inflation-led increasesÌýin repair and yard costs are beyond the controlÌýof shipowners and can significantly increase theÌýcost of claims for insurers. Even companies withÌýthe best risk management on earth will see theÌýimpact of inflation on claims.â€
The post-pandemic boom in container shippingÌýhas also impacted values. Cargo values have risenÌýwith the increase in the price of goods and rawÌýmaterials, while the shift to increased levels ofÌýcargo storage in ports and warehouses has led toÌýhigher costs and aggregation issues for insurers.ÌýThe value of container vessels has also beenÌývolatile, having doubled in 2021, but since fallingÌýback sharply with the decline in freight rates.
