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Evaluation of total risk exposure and insurance premiums in the maritime industry

Author

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  • Knapp, S.
  • Heij, C.

Abstract

This study provides an empirical evaluation of maritime risk exposure expressed as the monetary value at risk (MVR), which incorporates life of crew and passengers, vessel value of hull and machinery, carried cargo value, third party liabilities, and potential external damages like pollution. MVR is based on individual safety quality data of about 130,000 vessels, on insurable values related to various potential damages, and on proxies for fractions of values lost at incidents. MVR provides a tool to enhance strategic planning of maritime administrations and insurance providers, which is illustrated by a high level comparison of annual risk exposure with insurance premiums for 2010 to 2014. The analysis reveals a global annual insurable value of 30.6 trillion USD with associated annual MVR of 38.8 billion USD for very serious and serious incidents. Although oil tankers show the highest risk exposure (1.75 million USD per tanker per year), safety qualities are found to be best for this ship type (1.4% annual incident risk) and worst for container vessels (2.8%). Annual growth rates in total risk exposure are mostly positive with highest value for dry bulk carriers (27.8%), whereas risk exposure tends to decline for pollution of oil tankers (-2.0%) and passenger vessels (-11.3%), and for loss of life of oil tankers (-1.9%) and dry bulk carriers (-1.4%) but not of passenger vessels (6.9%). A comparison across administrative dimensions reveals that most risk exposure lies with old open registries and with beneficial owners and DoC companies located in high income countries. Comparison with global insurance premiums suggests reasonably adequate coverage of maritime risks (excluding cargo). Our analysis indicates under-insurance of risk by around 5%, corresponding to about 1 billion USD per year, with some uncertainties remaining for the actual loss fractions of the various involved damages.

Suggested Citation

  • Knapp, S. & Heij, C., 2016. "Evaluation of total risk exposure and insurance premiums in the maritime industry," Econometric Institute Research Papers EI-1661, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    • Handle: RePEc:ems:eureir:98036
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    References listed on IDEAS

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    1. Vander Hoorn, Stephen & Knapp, Sabine, 2015. "A multi-layered risk exposure assessment approach for the shipping industry," Transportation Research Part A: Policy and Practice, Elsevier, vol. 78(C), pages 21-33.
    2. Kevin X. Li & Yulan Wang & Jie Min, 2009. "Quantitative analysis of materiality in marine insurance," Maritime Policy & Management, Taylor & Francis Journals, vol. 36(5), pages 437-455, October.
    3. Bijwaard, Govert E. & Knapp, Sabine, 2009. "Analysis of ship life cycles--The impact of economic cycles and ship inspections," Marine Policy, Elsevier, vol. 33(2), pages 350-369, March.
    4. Tony Alderton & Nik Winchester, 2002. "Flag states and safety: 1997-1999," Maritime Policy & Management, Taylor & Francis Journals, vol. 29(2), pages 151-162, April.
    5. Knapp, S., 2013. "An integrated risk estimation methodology: Ship specific incident type risk," Econometric Institute Research Papers EI 2013-11, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    6. Xin Liu & Kai W. Wirtz, 2006. "Total oil spill costs and compensations," Maritime Policy & Management, Taylor & Francis Journals, vol. 33(1), pages 49-60, February.
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    Cited by:

    1. Knapp, S. & Vander Hoorn, S., 2017. "A multi-layered risk estimation routine for strategic planning and operations for the maritime industry," Econometric Institute Research Papers EI2017-02, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.

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    Keywords

    shipping incident; monetary value at risk; risk exposure; insurance; pollution; loss of life;
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