Costa Concordia disaster

A hundred years after the loss of the Titanic (April 1912), the wreck of Costa Concordia less than 100 meters off the coasts of the island of Giglio, Italy, stands as one of the most important losses ever reported by marine insurers.

This catastrophe which represents a huge financial loss for the ship owner and her insurers may also have serious ecological repercussions.

© Cezary Piwowarski, CC BY-SA 3.0

The giant 114 500-ton and 290-meter long and 35-meter wide ship had been on a Mediterranean cruise when she drifted away from her usual sea route by 3 nautical miles (5 500 meters), hitting a granite reef. During the sinking, occurring on the night of January 13, 2012, Costa Concordia had 4 300 people of 60 different nationalities on board (3 300 passengers and 1 000 crew members).

The shock has opened a 30-meter long gash in the ship’s hull. It was through this breach that water poured into the ship. It took only a few ten minutes to turn the Costa Concordia, the fleuron of the Costa Crociere fleet, into a wreck lying aside 50 meters off the coast.

By January 29, 2012, the provisional toll referred to 17 people dead, 15 missing and around 60 injured.

Moreover, the ship’s hulk, half submerged, 37 meters deep, may slide down and sink completely with 2 380 tons of fuel in her tanks. An environmental disaster is feared along the Tuscan coasts. The wreck’s evacuation, through towage or decommissioning, will bear ecological consequences on this area which harbors the biggest marine park in Europe.

Costa Concordia disaster: the bill will be heavy for owener and insurers

© Rvongher, CC BY-SA 3.0

The sinking of the Costa Concordia, which is already announced as the biggest marine disaster ever, is likely to cost between 500 million USD and 1 billion USD, 500 million USD of which for the ship, according to some analysts. Others have estimated the figure at more than one billion EUR (1.28 billion USD).

Costa Concordia disaster: cost for the cruise company

Carnival Corporation, the world’s number one maritime cruise travel company and parent company of the ship owner Costa Crociere, is poised to bear a heavy nasty bill. Having failed to underwrite a business interruption policy, the American cruise line is to sustain an immediate financial impact on its accounts comprised between 85 and 95 million USD.

Furthermore, Carnival will have to bear a deductible worth 30 million USD for the damages sustained by the ship and 10 million USD for the damages to third parties.

The final bill for the cruise company is likely to reach 200 million USD, that is, 150 million USD in direct losses and 50 million USD in rescue expenses and shipwreck recovery.

Costa Concordia disaster: cost for insurers

Marine hull insurance

This marine insurance policy underwritten covers all damages sustained by the ship hull, engine and installations.

As regards the damages sustained by the Costa Concordia, no less than 28 insurers will be involved. The cruise liner, built in 2006 for the sum of 565 million USD, is insured for 510 million USD. The claim will use up approximately 10% of the world’s marine hull premiums volume which amounts to 5 or 6 billion USD a year, excluding fish boats, river and recreational navigation.

Third party liability insurance

Third party liability insurance covers damages caused to third parties, be it passengers, crew or local residents in the event of pollution. For this kind of risk, ship owners pool up into mutuals: the ‘’P&I club’’.

For the Costa Concordia, two P&I club have been affected, the Steamship Mutual and the Standard Club, each of which will have to disburse 4 million USD. If the indemnifications exceed 18 million USD (a deductible of 10 million USD to be supported by the cruise company + 8 million USD for both P&I), a pool of 13 mutuals will chip in, supplying an additional payment of 52 million USD. Beyond the amount of 70 million USD, it is traditional reinsurance which will take over. Munich Re has already announced a bill of about 50 million EUR (64.7 million USD) while Hannover Re is set to disburse a minimum of 30 million EUR (38.8 million USD).

The coverage of cruise ships mobilises a substantial reinsurance capacity as the indemnifications granted to passengers added to the value of ship hull may attain very important figures per unit of transport. The Oasis of the Seas, the world’s biggest boat whose construction cost amounts to 1.8 billion USD, may accommodate up to 6 360 passengers and 2 000 crew members. In case of a loss, the amounts supported by insurers would be around 3.7 to 4 billion USD.

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