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  • What are the effects of the collapse of the Baltimore Bridge on the insurance market?

    DATE: 04/30/2024

    Published by: Horiens

    In the early hours of March 26 this year, the 32,000-ton container ship DALI hit one of the pillars of the Francis Scott Key Bridge in Baltimore, USA. The bridge collapsed, and the images were impressive. The repercussions of the accident are worrying different sectors of the market around the world, especially insurers, reinsurers and P&I Clubs.

     

    According to analysts at Morningstar DBS, an international credit rating agency, the collapse of the Baltimore bridge could have an impact of up to $4 billion. The estimate is based on the extended period during which the port must remain closed after the shock and the coverage of business interruption and lost profits that occur within this import and export space.

    To give us an idea, the cost of rebuilding the bridge alone is expected to exceed US$600 million, the equivalent of more than R$3 billion. Added to the damage to property, bodily injuries and deaths, there is an impact on the global insurance sector.

    In addition to seeking compensation for the blockage of business, a considerable number of policies involving indemnities for general and maritime civil liability (P&I), hull and machinery, port operator, operational risks and cargo, for example, must be activated.

    As far as cargo is concerned, if the shipowner declares gross damage, which is expected soon, the owners and insurers involved shall have to present the guarantee for gross damage so that they can remove their goods that have not been damaged or lost. This guarantee is offered by a transport insurance cover. And if the owner of the cargo does not have insurance, he shall have to make the payment determined by independent entities.

    Between suspicions of an electrical breakdown, poor quality fuel or even a lack of orientation in relation to the size of the ship and the bridge, the reasons that led to the accident are still unknown. However, investigators are investigating the situation and have already managed to get to the ship’s data recorder. The content of this object can help clarify what went wrong.

    Understanding the cause of the problems that led to the accident is crucial, given that the ship’s owner has filed a petition in the US District Court in Maryland to limit its liability for the accident to the amount of the vessel. The costs are estimated at around US$43.7 million, including the revenue from transporting the goods on board. This request can only be successful if the defects were not noticeable before the start of the trip.

    It’s situations like this that show how important it is for everyone involved to be properly insured. With this precaution in place, it is possible to avoid the risk of not having limited coverage in the event of a loss due to circumstances such as the person responsible for causing the damage not being adequately insured or there being any limitation of liability. When everyone is insured in different areas, such as life insurance, the guarantee of cover is considerably greater.

     

    It’s not the first time

    The case draws attention to the importance of having insurance cover for different types of business exposure. After all, it’s not the first time this has happened. In 2012, the sinking of the Italian ship Costa Concordia during a cruise generated $1.5 billion in insured losses. A record number of insured maritime losses in the world.

    Another more recent situation occurred in the Red Sea. Due to attacks by Yemen’s Houthi rebels with missiles and drones on commercial vessels sailing in the region, one of the world’s main trade routes is blocked. As a result, the alternative is a longer and more expensive route, including in terms of insurance, risking the supply of goods and products that have an impact on the results of companies and new businesses.

     

    It is essential to be prepared to mitigate risks

    Companies can find insurance products that cover damage caused by accidents similar to those mentioned in this short article. The important thing is that together, the company and the insurance market manage the risks well and pay attention to the policy clauses, which can vary according to the negotiation.

    Understanding these nuances and having the support of customized solutions and qualified, trustworthy professionals are the most effective ways of ensuring that the company makes the appropriate transfer of risk, with the aim of mitigating its exposure, and has insurance cover in the event of any incidents.

     

     (Reproduction image/Valor Econômico)

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