Concordia claims spread amongst several insurers
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It’s too early to tell exactly how much insurance firms will have to pay out to cover the damage due to the capsizing of the Costa Concordia, but analysts have estimated that claims could total at least $500 million. One went as far as to say the total bill for insurers could reach $1 billion
“We would be surprised if any single player had more than 5% to 10% of the risk,” Numis analyst Nicholas Johnson wrote in a note. He said the risk is similar to that of the Deepwater Horizon oil spill, where no one company had more than 2% of the total insurance liability.
Costa’s parent company, Miami-based Carnival Corp., which operates 101 ships under several brands including Carnival, Cunard, Holland America, Princess and Seabourn, did not respond to requests for an interview about its insurance coverage. But the company is responsible for at least $40 million in insurance deductibles.
For the insurance companies, it is also too early to tell the extent of their liability. A lot depends on if the ship can be repaired or not.
Carnival has two different types of insurance policies that would cover the $500 million to $1 billion in claims from the Concordia.
This insurance covers damage to the ship. Carnival is responsible for the first $30 million in damage. The rest is covered by a network of insurers led by XL Group, an Irish insurer with executive offices in Bermuda. A company spokeswoman refused to comment.
German insurer Allianz Global said it has a “minor stake” in the Concordia claims. A third firm, London-based RSA Insurance Group is liable for up to $15 million, according to an industry source. Other yet unnamed companies also will have to pay out claims.
Chicago-based Aon Corp. brokered the hull insurance deal but a company spokeswoman refused to comment.
“The amount of this hull claim will heavily depend on whether the ship can be salvaged and repaired or whether, in the worst case, the wreck will have to be disassembled on site,” Allianz said on its website.
The second type of insurance coverage purchased by Carnival is for personal injury liability. The company said in a statement Monday that it has a $10 million deductible on that policy. That coverage would include any payments related to the cost to clean up any leaking oil, the loss of cargo, and any injuries and deaths of passengers and crew. At least 11 people died in the accident with nearly two dozen others still missing.
Claims would be paid out even if the ship’s captain is found to be negligent. The cruise company has said that Capt. Francesco Schettino deviated from his approved course. Later, an Italian coast guard officer ordered Schettino back on the ship to assist in the rescue.
Cruise lines and shipping companies join together in groups, known as protection and indemnity clubs, to spread out their individual risk. Each member of the club pays in dues and then claims are paid out from the collective funds.
Carnival insured the Concordia through two clubs. The first, which has the bulk of the liability, is the Standard Club, according to a spokesman for the group. The second is through a club called Steamship Mutual. After Carnival pays its $10 million deductive, these two clubs are responsible for the next $8 million in combined liability claims.
The next $52 million in claims would be paid out by a larger collective called the International Group P&I Clubs, which represents 13 of the clubs, which insure more than 90% of the world’s ocean shipping.
After that, there is a reinsurance policy taken out with large firms that would cover losses up to $3 billion, according to the Standard Club. Reinsurance companies protect insurance firms against catastrophic losses. Carnival did not take out insurance for loss of use of the ship. The company said it expects to lose from $85 million to $95 million in bookings.
Scott Mayerowitz, The Associated Press on January 18, 2012
Photo Credit: AP/Gregorio Borgia
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