With the recent boom in shipbuilding and global ocean trade comes an increase in risk for underwriters. However the increased risk associated with more high value ships and higher value cargos doesn’t always translate into larger premiums.By George Lauriat, AJOTIn March, the IUMI (International Union of Marine Insurance), an insurance group with a membership of 54 national associations, which represents marine underwriters worldwide, reported a surge in ship losses. The IUMI said the “total figure for the 2006 year has jumped from an early estimate of 67 to 92 (all figures relate to ships of 500 gross tons and over), an increase of 37%.” Further the association indicates that total losses for 2007 are 82 (compared to 67 for 2006 at the same point). If losses continue at the same pace as 2006, the IUMI says by March 2009 the total will be 112 vessels. This would signal an end to the downward trend of total losses over recent years. Besides the concern over the increases in total losses, there has been an equally dramatic increase in major serious or partial losses. IUMI March report states, “727 serious incidents have been reported for 2006, a six percent increase since the last report, and a staggering 914 so far for 2007. This is a 270% increase in one decade, 1998-2008.” The trend is also cause for alarm as the increasing fleet size, rise in individual ship values, rise in cargo values and longer routes and shorter port calls, add risk that isn’t necessarily reflected in increases in premiums. Deirdre Littlefield, the New York-based president of IUMI, said: “These figures underline the relentless surge in marine claims that has come about due to a number of factors, not least being the shipping boom itself with ships and crews being driven harder than anyone can remember. Further, the figures dramatically demonstrate the volatility of marine risks.” Littlefield added, “Regrettably this dangerous spiking of the casualty graph is happening when the worldwide premium base for marine insurers is flat and competition is rife.” According to IUMI statistics (presented at Sept. 2007 annual meeting) global cargo capacity is expected to increase by a factor of 35% over the next five years from an estimated 2006 figure of 760 million gross tons to one billion gross tons in 2012. The huge increase in tonnage has placed q strain of manning. According to the IUMI statistics is currently a 10% shortage of trained seaman with 120,000 additional openings expected over the next five years. With the strain on qualified ship crews the “human element” in ship losses looms as a major risk factor. “Risk calculation, not risk taking, must be the underwriter’s primary concern.” THE CARGO CONUNDRUM One of the real conundrums facing underwriters is estimating the value of a box of cargo. Without fully understanding the value of goods it is extremely difficult for the insurers to estimate their exposure. The most common method of estimating the exposure is by “top-down” method. Basically, the underwriter multiplies the maximum number of containers likely to be exposed to a single incident (doubles it for a collision) works in factors such as port turnover, seasonality and multiply by the insurers’ market share. There are a number of problems inherent to this form of “average container” calculation. The estimates submitted by different groups vary enormously making any calculations iffy at best. Further without weight, commodity, route, port and warehouse information the estimates are relegated to odds of accuracy less than a roll of a dice a crap table. With so little transparency insurers tend to make extremely conservative estimates to protect themselves. As Littlefield says, “Risk calculation, not risk taking, must be the underwriter’s primary concern.” However, there are alternative methods that could more accurately reflect exposure both to the benefit of the underwriter and the insured. Essentially the alternative method begins with an accurate review of the cargo being s