Indian insurers face Ever Given rescue bill, but not much for cargo delays

Indian marine insurers will have to contribute toward removing Ever Given from the Suez Canal and the costs incurred to repair the ship if a process known as General Average is invoked.

General average is “all loss which arises in consequence of extraordinary sacrifices made or expenses incurred for the preservation of the ship and cargo losses within general average, and must be borne proportionately by all who are interested.”

While the exact cost is not known yet, experts estimate the whole disruption could cost the global insurance industry several hundred millions of dollars.

“Suez Canal blockade, a once-in-a-lifetime type of event is estimated to cause losses in billions of dollars for insurers and the loss of trade per day due to the blockage at close to US$ 9 billion. The insurance industry is waiting with bated breath at the direction from which claims can arise out of this canal blockage and of course what could be the enormity of the exposure," R Balasundaram, Executive Vice-president, Global Insurance Brokers, said.

There are various areas of claims to possibly come up such as demand for GA (General Average) and Salvage guarantee from cargo interests, there could be a claim under the H&M policy or damages against the vessel, business interruption losses, etc, he said, adding, that there could be losses due to perishable cargo or the cancellation of orders hence the claim demand.

Delays

The effect on the global supply chain due to the incident will also result in insurance claims. The claims will not come only from cargo on board the Ever Given but from cargoes on ships which will be delayed due to inability to transit the canal. Many of these ships face a difficult decision over whether to wait or to divert around the Cape of Good Hope, which is a longer and costlier voyage.

Cargo insurance

The availability of recourse against marine cargo insurance policies is also not a given as most marine cargo insurance does not cover losses due to delays. Delay will arise for vessels already near the entrances to the canal where the vessels decide to wait for the blockage to clear. Vessels that decide to divert from their planned voyage to take the longer route through the Cape of Good Hope will arrive later than their planned schedules.

The claims raised from India due to delays are expected to be minimal as general cargo insurance does not cover damages due to delays even if perishable goods are involved.

Recovery

The Indian insurers will be entitled to recover the sums they pay toward damage caused due to delays caused by the blockage from the protection and indemnity (P&I) insurer of the Ever Given. This includes cargo on the over 350 ships stuck near the canal waiting for the blockage to clear. P&I clubs are global non-profit bandings of ship owners and operators who insure their members against damage to third parties, including loss of life and property. The UK P&I Club, one of the 13 such mutual groups, covers the Ever Given and it will consider all valid claims in due course.

Source: The Economic Times