Malcolm Hartwell, Director, Head of Transport and Master Mariner, Norton Rose Fulbright.
Claims arising out of the pandemic have been the main challenge faced by the marine insurance industry in South Africa in 2020.
This is in line with a report on the current state of the global marine insurance industry. On the positive side, the three container ships that grounded or caught fire while carrying South African insured cargo did not result in major losses. In addition, a decision of the English Court of Appeal extending the shipowners’ personal obligation to ensure the seaworthiness of its ships is also good news for the local industry.
2020 Global report on marine insurance industry
The International Union of Marine Insurance has released its 2020 Marine Insurance report. They comment that the general health of marine underwriting has been extremely challenging this year and, understandably, the pandemic has significantly impacted trade, shipping, commodity prices and consumer activity. Despite this, their analysis reflects the beginnings of a modest market recovery in most business lines.
The data reflects the following two primary observations which are of relevance to the South African market.
The premium base declined by 1.5% from 2018 to 2019 and there is no doubt that it declined far more significantly into 2020 as a result of the pandemic. As a result, it will be difficult to predict the future performance of the cargo market.
Loss ratios generally increased from 2016 through to 2019 with significant losses as a result of containership fires. The accumulation of cargo in stock and in transit due to the pandemic increases the likelihood of damage to vulnerable cargoes and will adversely affect ratios from 2020 onwards.
Premiums are relatively stable despite the global fleet continuing to grow. The growth has slowed over the last few years, but there is still a significant gap between the premiums and the size of the fleet.
In general, the age of the world fleet is increasing as a result of decline in investment by owners, but this has been balanced by a long term downward trend in total losses which are now at an all time low. Large vessel fires however remain an issue and the increasing costs of major losses as a result of increased ship sizes remains a significant risk.
The South African market has felt the impact of the increase in containership sizes and resultant significant increases in losses with casualties such as the mv APL Austria. Ship size, reduction in crew, outdated firefighting requirements and resultant inability to control particularly underdeck container fires once they start, remains the most significant challenge for hull and cargo insurers. Underwriters and the industry have been engaged in discussions around this issue, but the massive increase
in containership size driven by market forces means that there is much more work to do on the regulatory and risk management front to mitigate the massive increase in losses on this ship type.
Cargo claims and unseaworthiness
Cargo insurance forms the bulk of the South African marine insurance market and underwriters will be pleased with the decision of the English Court of Appeal of the CMA CGM Libra matter. The importance of this decision is reflected in the fact that shipowners have been given leave to appeal to the Supreme Court.
All of the bills of lading against which 85% of the world’s trade is carried incorporate one or other carriage regime.
The most widely accepted regimes are derivatives of the Hague or Hague-Visby Rules. All of the regimes seek to maintain a balance between the rights and obligations of the cargo owner on the one hand and shipowner or carrier on the other hand.
In the shipowners’ armoury are a range of defences which, if upheld, exonerate the owner from liability for damage to the cargo. These include the fact that shipowners are not liable for loss caused by fire, errors in navigation or errors in management caused by the ship’s Master and crew. In order to overcome these defences, cargo owners have to persuade a court on a balance of probabilities that the loss arose because the shipowners failed to exercise due diligence to make the ship seaworthy prior to and at the commencement of the voyage. This means that the shipowner itself must have failed to do something with regard to the seaworthiness of the ship that resulted in the loss.
In the CMA CGM Libra case, a shipowner’s obligation was extended considerably by the court holding that a defective passage plan prepared by the navigating officer rendered the ship unseaworthy and the owners were responsible for all of the acts of the Master and crew in preparing the vessel for the voyage.
Communication between ship and shore and monitoring of every activity on board the vessel has led to greater safety at sea but, in this case, has increased the burden on the shipowner and its shore staff to ensure that the vessel is seaworthy prior to and at the commencement of the voyage. It only affects the errors in navigation defence, but the principles apply equally to the fire defence which is of major concern to cargo owners and insurers in light of the huge risk posed by large container ships.