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Marine Insurance
Monday, December 1, 2008
Keeping boats afloat

With margins growing ever smaller in the South African fishing industry insuring against the possibility of sudden and unexpected loss or liability separates the winners from the losers in this high risk game.
Any business based on owning, operating or managing vessels involves both high risk and a huge capacity for loss – especially if the vessel is your livelihood.
“As such how fishing vessel operators mitigate loss and liability can become the make or break of their entire business”, says Grant Fugard, Senior Manager: Marine, Alexander Forbes Risk Services.
He uses a recent incident off the Cape West coast to illustrate the importance of Vessel Hull and Protection and Indemnity (P&I) insurance to fishing fleet operators. On a typically stormy Cape winters day, a fishing vessel lying at anchor was unable to restart her engines when cleared to enter port. Due to bad weather, the vessel began dragging her anchor. Her owners, unable to secure a tug from either Portnet or private operators, dispatched another of their vessels to attach a towrope to prevent the first vessel from running aground. While attempting to attach the rope it became tangled in the ‘rescue’ vessels propeller causing the second vessel to lose engine power as well.
In the end both vessels stranded on the beach.  Before a suitable salvage operation could be implemented the “rescue” vessel constructed with a wooden hull was battered to pieces by the high seas. Later the first (steel hulled) vessel was successfully hauled on to a flat bed trailer and driven to a slip in Cape Town harbour.
“Without insurance few fishing vessel operators could survive an incident like this,” Fugard points out.
Firstly, Vessel Hull insurance would cover any physical damage to the vessel as well as salvage costs – up to a point. That is, once the vessels were stranded Vessel Hull insurance would continue to cover any efforts to protect them on the beach as well as any attempts at salvage. Once the wooden hulled vessel broke up, however, Vessel Hull insurance ceased to apply.
“The destroyed vessel then became a ‘total loss’, requiring the Hull Insurers to pay out the Total Sum Insured (less any salvaged items of value). Furthermore, the Hull Insurers would cover any salvage expenses incurred while trying to rescue the vessel prior to her becoming a total loss,” he says.
Secondly, Protection and Indemnity (P&I) insurance comes in to play. This cover  provides the vessel owner with liability insurance against claims made by crew or third parties which arise out of his ownership, operation or management of the vessel in question.
In this particular instance, the P&I Insurers will be responsible for the costs of removal of the fuel from the vessels (prevention of pollution) as well as the removal of the wreckage of the wooden vessel after she broke up. P&I Insurers usually provide a limit of liability of US$ 500 million.
Generally speaking, says Fugard, “Hull Insurance is relatively expensive whilst P&I is less so – though all indications are that premiums are on the increase.  The relatively high rates are, however, understandable when you consider the risks to which a fishing vessel is exposed.”
That said, the age and construction of the vessel, the type of fishing that it is involved in, and the loss history of the owners all determine price.  Better well managed operators with newer well maintained vessels will benefit from more competitive rates.
Furthermore, the use of a qualified marine insurance broker who knows the fishing industry as well as the Marine Hull and P&I insurance markets will go a long way towards securing the most suitable and cost-effective cover.
“Given the costs involved in replacing fishing vessels and equipment, the cost of cleaning up oil spills, collision liabilities or the liability arising from the accidental death of crew members or third parties, the chances of surviving in the fishing business without Vessel Hull or P&I insurance are very close to zero,” says Fugard.
Looking to the future, he predicts that the issuing of long term fishing rights will bring more stability and predictability to the industry. This should prompt new investment in vessels, equipment and personnel. Furthermore, the capital costs required for this investment and the need to maximise returns is likely to see some consolidation within the industry.
Fishing has never been an easy business in which to operate. Competition is tough and with dwindling catch levels in certain sectors, cuts in the allocated quota and soaring fuel prices profit margins are being squeezed
“Under these conditions, having to replace vessels or cover an oil spillage clean up yourself may put you out of business. Now more than ever purchasing Vessel Hull and P&I insurance cover is not only a logical and prudent business decision - it may well be a matter of business survival,” concludes Fugard.

Copyright © Insurance Times and Investments® Vol:21.11 1st December, 2008
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