AXA XL lifts lid on container ship fires

AXA XL lifts lid on container ship fires

AXA XL lifts lid on container ship fires | Insurance Business Australia


AXA XL lifts lid on container ship fires

It’s the most costly marine insurance claim

“When we examine the overall value of insurance claims, it becomes evident that fires on container ships actually far exceed any other type of loss in the industry,” said Tom Hughes (pictured above), head of marine in Australia for global insurer AXA XL.

The International Union of Marine Insurance (IUMI) regards fire risks as a “huge issue” and “on everybody’s mind.”

In a recent interview with Insurance Business, Hendrike Kühl, the IUMI’s policy director, said cargo fires on container ships “have become a common occurrence” causing “numerous casualties” and “severe damage.”

IB is reaching out to marine insurance experts for their views. Hughes strongly agrees with Hamburg-based Kühl.

“It is not unusual for people outside of marine insurance or the shipping industry to believe that the main source of financial losses in this sector stems from incidents like containers falling overboard, or shipping incidents such as sinking or collision,” he said. “However, this is not the case.”

Container ship fires: an upward trend

Hughes said fires are a “major concern” for his clients.

“Studies show a clear upward trend in fires occurring on both general cargo and container vessels in recent years,” he said. “This situation is particularly troubling for container vessels given the distinct challenges involved in preventing and extinguishing fires once they ignite out at sea.”

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A 2020 IUMI report found that between 2000 and 2015, more than 50 of these fires caused just over US$1 billion in damages (excluding hull damages).

Bigger ships means more fires

Hughes said it’s widely recognised that when container ships get bigger, and their volume of cargo increases, the frequency of fires also increases.

“When there are more containers on board, there’s a higher chance that a container might hold materials prone to self-ignition, potentially resulting in a fire,” he said. “As the size of the ship increases, the impact of the worst-case fire scenario grows exponentially.”

According to global insurer Allianz, container ships today are carrying an incredible 1,500% more containers than they were in the late 1960s.

“The shift to larger vessels in recent years has magnified the potential fallout in case of fires, leading to larger losses and lengthier delays,” said Hughes. “Fires are a major reason behind general average (GA) claims on container ships.”

He said a fire igniting in a single container can rapidly become uncontrollable.

“We have seen numerous examples where the ship’s crew have had no option but to abandon the vessel,” said Hughes.  “Under these circumstances, general average being declared can have a significant impact on customers because it increases delays in the release of their cargo.”

He said this disruption to the supply chain is particularly challenging for the delivery of seasonal goods.

“For this reason, contingency planning has never been so important for our clients,” said Hughes.

Costly fire claims and rate adjustments

The AXA expert said fires are now the most costly factor in recent marine insurance claims, affecting both cargo and hull insurance.

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“The rate adjustments we’re witnessing in the global marine insurance market are taking these concerning trends into consideration,” said Hughes. “It is increasingly important for a marine underwriter to exercise caution when assessing risks and deploying capacity, given that the likelihood of significant fires isn’t decreasing; in fact, it’s on the rise.”

However, after years of lobbying, the Hamburg-headquartered IUMI and its supporters have managed to get this fire safety issue on to the agenda of the International Maritime Organisation (IMO).

“The actual work will start next year in March,” said Kühl. “What we are hoping is to move the needle towards more safety, towards more serious improvements.”

Hughes sees these moves as positive.

“We can now expect renewed efforts to influence change in the way these increasingly large vessels are designed,” he said. “For example, vessels could be designed with more compartments to segregate cargoes and isolate fires that ignite while the vessel is out at sea.”

Now that the container ship fire safety issue is on the IMO’s agenda, the Ship Systems and Equipment Subcommittee (SSE10), can start looking at solutions.

Kühl expects the first fire safety improvements to be implemented in 2028.

Are you a marine insurance stakeholder? How do you see the fire risks on container ships? Please tell us below.

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