Date post: | 30-Dec-2015 |
Category: |
Documents |
Upload: | marianna-carmel-carson |
View: | 230 times |
Download: | 0 times |
Loss of HireAnna F. Erlandsen – Norwegian Hull ClubOslo, 8th November 2013
The Nordic Association of Marine Insurers
What we will try to achieve during this session:• Introduction to the basic principles of Loss of Hire
insurance• Introduce the special features related to Loss of Hire
insurance• Present and discuss some practical examples• Discuss risk assessment for Loss of Hire insurance• Briefly introduce market dynamics
NOT to provide an indepth education in interpretation of Loss of Hire insurance clauses and claims adjusting
The Nordic Association of Marine Insurers
The vessel as an insured object
• The vessel is an asset -
= Risk of loosing monetary (financial) value through physical damage
• The vessel is a generator of income –
= Risk of loosing income (cash flow)
• The vessel is a carrier of goods –
= Risk of damage to the cargo
The Nordic Association of Marine Insurers
The vessel as an insured object
• The vessel is an asset -
= Risk of losing monetary (financial) value
through physical damage
• The vessel is a generator of income –
= Risk of losing income (cash flow)
• The vessel is a carrier of goods –
= Risk of damage to the cargo
= Liability exposure
The Nordic Association of Marine Insurers
The Nordic Association of Marine Insurers
It all started in 1957 with the Suez crisis
The Nordic Association of Marine Insurers
The Nordic Association of Marine Insurers
The effects of the crisis
Soaring freight rates
Demand for protection of high earnings
First Loss of Hire covers developed at Lloyd’s
Immature terms and conditions lead to large losses for underwriters
The Nordic market, lead by Vesta, adapted the product, adjusted the conditions and has a leading position today
The Nordic Association of Marine Insurers
What is Loss of Hire Insurance?
Covers loss of income
Indemnity is agreed at a certain amount per day
Covers loss of income due to a claim recoverable under the Hull & Machinery policy
No cover if the vessel is a total loss
The Nordic Association of Marine Insurers
What type of damage will trigger a claim?
Loss of time (and) income resulting from a claim recoverable under the Hull & Machinery policy, e.g.
• Machinery breakdowns
• Stranding / grounding
• Collision
• Fire
• Heavy weather damage
• (Special occurences listed in the conditons)
….starting at the time of the incident
Deductible days
The Nordic Association of Marine Insurers
What type of damage will NOT trigger a claim?
Total Loss
• Actual total loss
• Constructive total loss
• Compromised total loss
Wear and tear (non-accidential incidents)
Outbreak of war
Detainment, arrest, strike etc.
Ice
The Nordic Association of Marine Insurers
The daily indemnity
The amount agreed to be paid per day the vessel is out of service
Earning capacity:• Time charter or unchartered
• Daily indemnity adjustable during the policy period, if required
The Nordic Association of Marine Insurers
Deductible days
The Assured must assume part of the loss, deductible days
Always the first days of any delay
The deductible days apply to each single casualty (or incident)
The number of deductible days vary (and have an influence on the premium)
The Nordic Association of Marine Insurers
Indemnity days
A maximum number of days, stating the days an Assured may claim:
• Per claim
• Per policy period
• Fleet limit
The Nordic Association of Marine Insurers
The duties of the Assured
Give notice, for the underwriter to:
• Register a potential claim
• Arrange for surveys
Provide evidence
• T/C: Off-hire certificate
• Unchartered: Proof of actual time lost and evidence of freight rates during the period of time lost
The Nordic Association of Marine Insurers
Conditions
A B Stewart
Lazard Form
Norwegian / Nordic Marine Insurance Plan – Chapter 16
The Nordic Association of Marine Insurers
Characteristics (the Plan Chapter 16)
Loss of Hire claims: loss of time arising from any damage recoverable under the hull policy as a particular average (§16-1.1) and/or as listed (§16-1.2)
If a vessel is a Total Loss (actual, constructive or compromised), the Loss of Hire insurer is not liable for loss of time (§16-2)
If Hull & Machinery is written on conditions other than the Plan and accepted by the insurer in writing, chapters 10 to 12 are replaced by the actual Hull & Machinery conditions (§16-1)
The Nordic Association of Marine Insurers
Characteristics (the Plan Chapter 16)
Loss of Hire claims: loss of time arising from any damage recoverable under the hull policy as a particular average (§16-1.1) and as listed (§16-1.2)
Claims are measured in days, hours and minutes (§16-4.1)
Indemnity is an amount per day (§16-5)
Charter-parties serve as proof of loss (§16-5.1) or average freight rates (§16-5.2)
Daily indemnities may be assessed (§16-6)
The Nordic Association of Marine Insurers
Daily Amount
Two systems provided in the Plan: ’Open policy’ – Ref. § 16-5 ’Assessed daily amount’ – Ref. § 16-6
For all practical purposes, policies are written with assessed
Daily Indemnities (d/i’s) – but be aware of §16-14.2
The Nordic Association of Marine Insurers
Characteristics (the Plan Chapter 16)
Loss of Hire claims: loss of time arising from any damage recoverable under the hull policy as a particular average (§16-1.1) and as listed (§16-1.2)
Indemnity is an amount per day (§16-5), - claims are measured in days, hours and minutes (§16-4.1)
Charter-parties serve as proof of loss (§16-5.1) or average freight rates (§16-5.2)
Daily indemnities may be assessed (§16-6) Deductible in number of days (§16-7) – always the first
days of any delay and applied to each single casualty Specific regulations as to how repairs are carried out
(§§16-9 to 16-14)
The Nordic Association of Marine Insurers
Basis
The Loss of Hire basis is expressed in (number of) days
Structure: Deductible / Cover per claim / Cover in all
Example: 14 / 90 / 90
The Nordic Association of Marine Insurers
Time in days
Basis
Structure: Deductible / Cover per claim / Cover in all
Example: 14 / 90 / 90
Daily Indemnity: USD 10,000
Cover: USD 900,000 cover per claim
USD 900,000 cover in all per policy period
in excess of 14 deductible days
The Nordic Association of Marine Insurers
Features
Automatic Reinstatement Clause
Secures the reinstatement of the total number of days under the policy.
Automatic Reinstatement Clause:
All claims for which Underwriters are liable hereunder shall, to the extent thereof, reduce the limit of liability under this policy from the date of damage to the vessel. However, this policy shall after such damage be automatically reinstated back to the original limits of liability at an additional premium of 100% of the annual net premium pertaining to the vessel involved calculated pro rata on the amount reinstated irrespective of time.
What is the rationale behind this clause?
The Nordic Association of Marine Insurers
Features
Additional deductibles AMD – Additional Machinery Deductible Ice deductible (conditional trading) Cranes, spare parts, etc.
The Nordic Association of Marine Insurers
Time in days
Notation:14(21)/90/90
Examples
1. Notification for:
◦ 60 days cover any one incident
◦ 60 days cover per policy period
◦ 14 days deductible period
2. Notification for:
◦ Sum insured USD 3,600,000
◦ Daily indemnity USD 40,000
◦ 45 days cover any one incident
◦ 10 days deductible period
The Nordic Association of Marine Insurers
Examples
3. Notification for:
◦ 30 days machinery deductible
◦ 60 days cover any one incident
◦ 60 days cover per policy period
◦ 21 days deductible period
The Nordic Association of Marine Insurers
Pricing & Risk assessment
The Nordic Association of Marine Insurers
Pricing
The most common way of expressing premium is as a percentage of the sum insured:
(Sum insured = d/i x annual indemnity days)
Sum Insured x % = Premium
Another method is to express the premium in number of (indemnity) days:
Premium / Daily indemnity = Days
The Nordic Association of Marine Insurers
Pricing % – LoH Scale
The Nordic Association of Marine Insurers
Example
Basis: 14 / 90 / 90
Daily indemnity: USD 15,000
Sum insured: USD 15,000 x 90 = USD 1,350,000
Rate: 3%
Premium: USD 1,350,000 x 3% = USD 40,500
or
in No. of days: USD 40,500 / USD 15,000 = 2,7
Case: underwriting
The Nordic Association of Marine Insurers
Risk assessment
For the ship owner:
1. The probability of a claim resulting in loss of earnings.
2. Expected consequence of a Loss of Hire claim.
3. Ability and willingness to absorb risk
What are the relevant, unique features of Loss of Hire?
The Nordic Association of Marine Insurers
Risk assessment – Probability of a claim
Roughly 1/3 vessels experience a H&M claim each year.
Roughly 1/5 H&M claim results in a LOH claim.
i.e.: Approximately 1/15 vessels experience a LOH incident.
Which conclusions can be made from these observations?
The Nordic Association of Marine Insurers
Brief discussion…
• You are a shipowner and together with your risk manager you are considering whether or not to take out Loss of Hire insurance for your fleet. Identify various fleet- and market specific factors that you consider relevant to the discussion.
The Nordic Association of Marine Insurers
The Nordic Association of Marine Insurers
Probability
Consequence
Higher retention (?)
Retention more than 14 days?
or
Limit the cover?
Buy at all?
High retention
Cover the catastrophe
Minimize number of days for own account
Maximize number of covered days
High
High
Low
Low
Risk assessment – Expected consequences (as assessed by the Assured)
Risk assessment – Fleet records
What would the underwriter look for?
Burning cost?
Trends?
Clean record?
Claims type
Risk assessment – Fleet composition/dynamics
The Nordic Association of Marine Insurers
H&M quote
LOH quote
Market
In terms of premium volume, Loss of Hire is a ”small” line of marine business
The Nordic market has a leading position
Some variations: • Loss of Earnings
• Business interuption
The Nordic Association of Marine Insurers
Case - Tankship Ltd.
The Nordic Association of Marine Insurers