Francis Scott Key Bridge collapse likely to result in billions in losses, insurance claims
The tragic collapse of the Francis Scott Key Bridge Tuesday morning will eventually trigger insurance claims that will likely cost billions, AM Best said.
Reinsurers will take on the bulk of the insured cost of the collapsed bridge, AM Best said. Most shipping vessels secure liability coverage through protection and indemnity insurers known as P&I Clubs.
The impact of the disaster will be wide ranging and be felt well into the future, said Mathilde Jakobsen, senior director, analytics, AM Best.
“The insurance issues due to the collapse of the bridge will take a long time to determine and may involve several lines such as property, cargo, liability, trade credit and contingent business interruption,” she explained. “The claim will likely involve several insurers, reinsurers, subrogation, and legal issues and will serve to add to the increasing challenges in reinsurance availability.”
In images captured by video surveillance cameras, a container ship is seen crashing into the Key Bridge pillar at 1:50 a.m., causing a large part of the steel structure, built in 1977, to fall into the Patapsco River.
The financial impact on Baltimore, one of the busiest U.S. commercial ports on the East Coast, will be enormous, experts say. Insurance implications are similarly expensive and quite complicated, said Diana Zheng, head of marketing at Stallion Express, a Toronto-based company specializing in shipping and logistics.
Bridge insured by Chubb
The bridge is most likely covered under inland maritime insurance, she said, reportedly through Chubb. If the shipper has P&I coverage, Chubb is likely to seek reimbursement from that insurer, Zheng explained, a process known as subrogation.
Finally, the ship’s cargo was likely insured under yet a different policy.
“The financial impact of this incident could be far-reaching,” Zheng said. “Experts compare it with the Costa Concordia, a cruise ship disaster that left more than $1.5 billion dollars in insured losses. It’s important to note that these figures are just the insurance costs – the cost of rebuilding the bridge, the cost of lost revenue from transportation disruptions, and the cost of potential legal settlements.”
The massive scale of worldwide shipping, and commensurate potential losses to unforeseen disruptions, means insurance is a crucial element to the business.
Shippers have arrangements to share the burdens, Jakobsen said. The P&I segment is dominated by the members of the International Group of P&I Clubs, which collectively insure approximately 90% of the world’s ocean-going tonnage.
As part of the International Group’s pooling arrangements, member clubs mutually reinsure each other by sharing claims above $10 million, Jakobsen explained. Additionally, the group buys general excess of loss reinsurance coverage up to $3.1 billion in the open market.
Legal questions abound
Known as the Dali, the container ship is owned by Grace Ocean and operated by Synergy Marine. The ship is reportedly covered by Britannia P&I Club, which is part of the International Group.
Shipping insurance is a sector with a market value anticipated to reach $71.1 billion by 2031, said Robert Khachatryan, CEO at Freight Right Global Logistics, based in La Crescenta-Montrose, California.
“Looking at precedents like the Ever Given blockage in the Suez Canal, where the shipping industry faced an estimated $400 million loss per hour, offers a context for understanding the potential scale and complexity of insurance claims in the Baltimore incident,” he added.
There will be lawyers, Khachatryan added.
“Determining liability in the Baltimore incident will involve complex legal assessments,” he said. “Historically, similar incidents have resulted in legal proceedings where damages and compensation claims reached millions, depending on cargo value and fault determination.”
InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.
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