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The mega-risks of giant ships

Faced with ever increasing ship sizes, such as the quarter-of-a-mile long Emma Maersk container ship and luxury cruise ships worth $1 billion, marine insurance underwriters more than ever need to keep up-to-date with technological advances and the changing risk factors within the shipping industry.

They should also look to bring in risk modelling techniques from outside the marine industry to improve their assessment strategies. Lou Kollakis, chairman of Chartworld Shipping Corporation, expressed those views to marine industry underwriters on the final day of the TradeWinds Marine Risk Forum at the Fairmont Hamilton Princess Hotel.

"Underwriters ability to integrate technology into risk evaluation process is important. As you look forward and try to safeguard the risk protection frontiers from an underwriter side I would encourage two things; one is to understand the technology to properly assess the risks you are underwriting and secondly use other technologies that are available outside the marine industry to impact the risk profiles of your assets," Mr. Kollakis said.

"There are a lot of modelling techniques in other industries that could be transplanted into the marine industry." He said the shipping industry is changing in ways that will impact the way risks are identified and managed.

Bigger and bigger container ships are one aspect of that. The largest container ship is the Emma Maersk, which is also the longest ship in the world at a quarter-of-a-mile. It has a capacity of 14,500 TEU (20-foot unit equivalent - a measurement relating to how many 20ft containers can be carried, although in modern practice containers commonly used now are 40ft.)

"We are seeing more complex, more sophisticated and much larger vessels being built that require shorter design cycles and we are seeing the next generation of container ships, 11,000 and 12,000 TEUs, and we are seeing the next generation of LNG vessels (liquefied natural gas carrying ships) of 260,000 cubic-metre size and the next generation of less sophisticated tankers and bulk carriers being built in yards that are just getting on the learning curve in terms of experience in building vessels," said Mr. Kollakis.

"There has been a lot of discussion about staffing and crew, especially when you are talking about the very large vessels. This next generation of container ships need very experienced captains to operate these 11,000 and 12,000 TEU ships, which are very powerful and could be driven into sea states that impact not only the vessel but its cargo."

Other driving forces of the changing landscape of the marine industry he identified include a greater emphasis on the life cycle management of ships and vessels to maximise their utilisation with minimal business interruption.

Then there are more stringent and complex regulations for marine operators.

And shipowners are seeing their vessels used in more challenging and dangerous parts of the world.

"Energy demand is causing all of us to go into harsher and more remote environments and this causes exposure because there is not a lot of experience in terms of operating these types of vessels in this type of environment," he said.

From an economics stand point, he said: "We are in an unprecedented market right now, all ship sectors and the offshore market are essentially aligned very well — it is at a peak. What is going on in Asia and China is driving this and this is going to cause the existing supply and demand curves in our industry at some point to converge. There will be some new dynamics that will come into our market place."

Mr. Kollakis concluded: "What does all this mean? This means that risks that we may have looked at and treated in isolation are not treated in isolation anymore. They are becoming boundary-less and everyone needs to look at their risk profile from that point of view.

"We are seeing more and more companies looking at enterprise risk management strategies that allow them to handle all their risks."