The insurance policies that consumers buy for their homes, cars, lives and other risks, such as perils they might encounter on holiday, are set according to the probability that major catastrophes–be they at the hand of man or nature–only happen about once every 100 or 200 years. While this isn’t a literal probability, it reflects the industry’s view that extreme catastrophic events are few and far between.
As 1-in-100-year events go, the Costa Concordia grounding and capsizing off the coast of Italy on January 13 was substantial. As it turns out, 2012 is the centenary of the sinking of the Titanic (for which Willis was the broker). At today’s prices, the Titanic is probably the largest insured marine loss in history.
However, the Concordia, which is owned by Carnival Cruise Lines, may very well sink the Titanic’s record. Although the Concordia wreck hasn’t claimed nearly as many lives (while tragic, only six deaths have been reported at time of this posting with 29 people missing), the incident is significant in the marine insurance world, both from a hull loss and liability perspective.
Class Actions May be Bigger Than Physical Loss
Forgetting for a moment the scale of the actual physical damage, which is still unknown as the vessel could be a total loss, there is the potential for far larger losses associated with pollution (especially, as one of our team told Reuters, if the ship starts to leak oil), lost revenues, and, of course, the damages that surviving passengers and crew and bereaved loved ones may seek.
Bearing in mind that Carnival Cruise Lines is based in the Land of The Class Action, the US, the associated lawsuits could easily seek damages that top any physical damages incurred.
Concordia Loss will Have a “Very, Very Long Tail”
Back to the ship itself. Its total value has been put at around USD$500 million. It could be several days before anyone can determine if the vessel is salvageable. This depends a lot on weather conditions and how quickly the ship can be restored to an upright position.
The immediate priority for Carnival Cruise Lines in the coming days will be to make sure all passengers are returned home safely and to rescue Concordia’s fuel. After that, it’s anyone’s guess.
The actual salvage could take a long time. Determining if it was negligence that caused the crash could take years and, of course, there is no telling yet what sort of reputational damage Carnival may suffer. The only certainty is that the Concordia disaster will have a very, very long tail indeed.
These are just our initial findings, by the time our next Marine Market Review comes out early March, we will have a lot more to say, so stay tuned to WillisWire. In the meantime, you might be interested in reading our latest Protection & Indemnity (P&I) Market Review for 2011/12 which gives an overview of the state of the P&I Clubs before the Concordia loss.