As shipowners and shipping firms continue struggle with a depressed maritime market, insurers have raised concerns over the temptation to reduce spending on maintenance.
Speaking at the annual meeting of the International Union of Marine Insurance (IUMI) in Berlin, Simon Williams, head of marine and energy at insurer Hiscox, said underwriters needed to be more demanding when faced with clients that had reduced their capital expenditure.
He said: “We as underwriters need to be more interrogative when we see that there has been a reduction in capex. We should be asking for details as to why expenditure is down and how the reduction has been achieved.”
The fear is that the cuts will be in the maintenance of rigs and vessels, with the potential for disastrous results, should it lead to a loss, he added.
Williams is chairman of IUMI’s offshore energy committee and his views were supported by Mark Edmondson, chairman of the organisation’s ocean hull committee.
“It is a concern for us as hull underwriters,” Edmondson added. “However operational expenditure is under pressure not just in the shipping industry. It means underwriters have to be more diligent in the way they price risk.
“You need you ensure that your client’s culture, when it comes to risk management, is right. However, you also have to look at the sectors. A bulk carrier that is over 10 years old is different in terms of the potential to reduce spending on maintenance and risk management than, say, a cruise ship.”
Edmondson warned that a loss could be catastrophic for an owner and that looking to reduce spending on maintenance, for example, could be a false economy. “There is lot more at stake for a cruise ship operator, for instance. Your brand reputation is vital if you want to survive.
“If you think risk management is expensive, try having an accident.