Why The Bridge Tragedy in Baltimore Really Hits Home For Me
By Anthony McKelvy, Managing Partner, NORTHERN RE
Baltimore will always be special to me. I was born in Washington D.C. but spent time as a kid in what the locals call Charm City. Rarely did a month pass by when my family and I didn’t cross over the Francis Scott Key Bridge, gazing out at the Patapsco River and Baltimore Harbor.
Watching the bridge collapse was crushing. I mourn for the innocent lives lost who were repairing the bridge. In my book they were heroes. Those who were simply doing their job to make our lives a little safer and easier. And I salute local law enforcement who prevented more innocent lives from being lost.
As the managing partner of a reinsurance business, I also took a moment to ponder the impact this tragedy would have on the lives of so many who depend on the port for their livelihood. And what role my industry could possibly have in making a difference for those negatively impacted.
So the question on many folks minds is – what happens now?
The International Group of P&I Clubs (the IG) is a not-for-profit association of the 12 principal underwriting Protection & Indemnity (P&I) Associations (Clubs) and their Affiliated Associations that between them provide liability cover (protection and indemnity) for approximately 90% of the world’s ocean-going tonnage. In simpler terms, shipowners and chartered members join this group to share in the cost of their insurance, and ultimately the group purchases reinsurance behind itself. To that point, the tragic event shines a light on the importance of syndicated reinsurance placements, as this limits the impact to any one reinsurer’s balance sheet. This allows the Intl Group of P&I Clubs (insured) to diversify their exposure to any one market, thus reducing credit risk in the event of such a large loss (e.g. one reinsurer becomes insolvent and is therefore unable to pay the claim).
Beyond the property damage to the bridge and vessel, all of the cargo on the ship would have been insured. This is coupled with the inevitable business interruption claims that will stem from the inaccessibility of the channel and cleanup of debris.
All of these different lines of business make the claims process complex, as reinsurers typically structure these placements in such a way that their exposure is reduced in any one occurrence. Additionally it will take time to parse through the language associated with each policy to determine which player has the primary coverage for the event.
The tragedy will likely continue to push rates in the marine segment higher and lead to increased market hardening, creating opportunity for reinsurers who believe there is price adequacy. Oftentimes this hardening will also spill into other sectors of the market as those reinsurers with large portfolios of marine exposure may need to reduce capacity allocated to other lines of business in an effort to manage aggregate exposure caps that come with higher premiums.
I look forward to the day the bridge is rebuilt and normalcy returns to the port. The cost of the tragedy in terms of lives lost for the family and friends of the victims is an uncomfortable cold calculus. Here is hoping that the insurance providers involved help curb the massive economic costs for all of those businesses and workers negatively impacted by the latest infrastructure catastrophe. The industry has a real opportunity to demonstrate why it exists, by responding in a timely manner and with the funding which allows those affected to bounce back from this tragedy.
