Strengthen your defences

Much can depend on the extent of perils listed in a given insurance “package.” Much can depend on the extent of perils listed in a given insurance “package.”

Disruption to Egyptian ports during the anti-Mubarak protests, and storm-induced closures of terminals and choking of commodity supplies in Queensland, have had executives urgently checking their insurance policy wordings.

Covers respond in varying ways, and much depends on the extent of perils listed in a given insurance “package.”

Ports are rarely a deliberate target for shutdown during disturbances, and many policies exclude loss or damage resulting from strikes, riots, civil commotion and terrorism. Some port organisations do consider it worth paying something extra, to buy separate cover relating to civil unrest.

A more significant factor for insurers in the last decade has been the emergence of severe weather incidents. Underwriters tend to impose a catastrophe deductible which relates to recognised windstorm, flooding and similar perils. That inevitably will be higher than the standard operational deductible. They will look very closely at ports that are in zones perceived to be at special risk from earthquakes, high winds and flooding.

As they gauge the risk, underwriters especially want to see how efficiently terminal operators tie down their equipment, including expensive gantry cranes on wheels or tracks. A freak windstorm “after hours” can push a crane down the track to collide with another gantry crane or the accommodation block or communications tower of a ship at berth, resulting in substantial claims against the port operator.

The formidable nature of such challenges was illustrated when a tornado touched down at Freeport Container Port in the Bahamas for a mere 10 minutes in March 2010 and toppled a port crane, killing three people and injuring six. In all, six cranes were damaged. A subsequent government-ordered independent inquiry called for improved communications in relation to wind speeds, and made the point that emergency preparedness throughout the Caribbean and the Bahamas was geared toward hurricanes rather than tornadoes.

In the insurance market, a storm will be assigned a category number, and if underwriters take this into account there will be a greater deductible for the higher category storms. When port clients make a claim, they will have to bear a good portion of the loss themselves.

As to non-weather interference with trade, the standard policy includes any business interruption that is classified as “wet,” an example of which would be a ship getting stuck and blocking the entrance channel to a port so that other traffic is held up. This fundamental element of a port's insurance package is recompensed on a “per day” basis. The dry element, such as cargoes held up on land on their way to the port, is normally the subject of separate, non-marine coverage.

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