The collapse of the Francis Scott Key Bridge near the Port of Baltimore, Maryland is expected to drive up to $4 bn in insured losses, with reinsurers set to bear the bulk of the claim amid concerns it could become the largest ever marine loss.

After the Dali container ship collided with one of the bridge’s support beams in the early hours of morning local time, leading to a major collapse into the Patapsco River, the port remains closed to ships as the rescue operation continues, according to Morningstar DBRS.

The value of the bridge itself could be about $1.2 bn, while there’s also been extensive damage to the container ship, which was deporting for Colombo.

This is a millions of dollars per hours question, which suggests that it could be the largest example of port blockage seen by insurers and reinsurers in recent times, according to Global Marine Insurance Market Review.

Francis Scott Key Bridge collapse insured losses

Francis Scott Key Bridge collapse insured losses

Depending just how long the Port of Baltimore is blocked for after the collapse of the Francis Scott Key Bridge, and the nature of the Port’s business interruption coverage, insured losses could land between $2-4 bn, according to analysts at Morningstar DBRS.

Even at the low-end of the insured loss range, it would still surpass the $1.5 billion insured losses of the Costa Concordia event, which capsized in 2012 and became the record marine insured loss.

The event is expected to trigger a large number of insurance policies, including marine liability and hull, property, cargo, and business interruption.

If the Port of Baltimore has contracted business interruption insurance, we estimate that total insured losses will be in the $2 billion to $4 billion range.

Despite the potential for this event to trigger a record marine insured loss, analysts expect that losses will remain will within the absorption capacity of the global insurance industry.

Business interruption insurance

Business interruption insurance

It brings into question business interruption insurance, and specifically a less common form of coverage which protects against port blockage or denial of access to the port.

This type of business interruption insurance effectively covers ships being unable to gain access to the quay whether the blockage is directly at, adjacent to or from an obstacle 500 miles away.

Aon brokered the bridge policy for its construction, value, and replacement, but reports suggest that any claims against this are expected to result in subrogation to the shipowner’s insurance coverage.

The Dali is owned by Grace Ocean and it’s been confirmed by marine protection and indemnity insurer the Britannia P&I Club that it provided part of the coverage for the ship.

Francis Scott Key Bridge accident will impact several lines of business

Francis Scott Key Bridge accident will impact several lines of business

While severity is still to be determined, it’s clear that the accident will impact several lines of business, such as property, cargo, liability, trade credit, and contingent business interruption, with marine insurers and reinsurers undoubtedly involved in the loss.

According to Key Risks for Marine & Cargo Insurance review, in terms of standard business interruption insurance for ports, protects against the loss of revenue after an accident that damages an insured’s owned or leased property, operators or ports and terminals often, but not always purchase this type of cover.

This type of insurance is by no means mandatory and the decision to purchase it tends to be driven by the risk appetite of the port or the stakeholders, such as the banks or lenders, who demand the ports protect their income in the event of a catastrophe such as this.

Establishing the quantum of a claim can be a significant challenge in a business interruption event as rather than paying a fixed amount per day or the total revenue declared on a pro rata basis for the time affected, any claim is subject to forensic scrutiny so operators, suppliers, and other third-party involvement will need to keep accurate records of their financial losses to establish the Business Interruption and work closely with their brokers and insurers.

Secondary factors and levels of business interruption cover can include insurance to protect the increased cost of working for operators. This is where operators can spend a dollar to save a dollar of revenue.

There’s also an additional increased cost of working factor, where operators can spend more than the lost revenue if it enables operators to maintain operations to prevent long-term harm to operations and revenue.

Reinsurers will bear the bulk of the insured cost

Reinsurers will bear the bulk of the insured cost

Liability cover for many vessels is provided by P&I Clubs – protection and indemnity insurers, a sector dominated by the members of the International Group of P&I Clubs, which together insure some 90% of the world’s ocean-going tonnage.

As part of the Group’s pooling arrangements, members mutually reinsure each other by sharing claims above $10 mn, while the Group also purchases general excess of loss reinsurance cover up to $3.1 bn in the open market.

Reinsurance companies will bear the bulk of the insured cost of the collapsed bridge, the event will have major implications for reinsurers and the wider marine insurance market.

Insurance claims will involve re/insurers and subrogation

Insurance claims will involve re/insurers and subrogation

The claim will likely involve several insurers, reinsurers, subrogation, and legal issues and will serve to add to the increasing challenges in reinsurance availability (see Aviation, Marine & Cargo Global Insurance Market Forecasts).

The collapse of the bridge will lead to substantial insurance claims against the vessel’s insurers related to the ship and its cargo, but more significantly the destruction of the bridge and disruptions to the port.

Around 80 different re/insurers provide some $3 bn in cover to the ship’s insurers, Britannia P&I Club and the International Group of P&I Clubs.

What’s clear is that this accident has the potential to become the largest insured maritime loss ever, exceeding the $1.5 bn+ cost of the Costa Concordia event, which capsized in 2012.

The Port of Maryland Authority and the port operators and terminals of Baltimore will be counting the hours and enacting emergency response and disaster recovery plans that are likely to be in place. Insurers and other experts will be at the ready as recovery begins and we start to understand the wider ramifications,.

It’s evident that this will be a very complex claim, and potential liabilities extend beyond the rebuilding of the bridge and must consider removing the bridge debris which is on top of the ship and at the bottom of the river.

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Nataly Kramer   by Nataly Kramer

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