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article imageCost of Costa Concordia tragedy grows, causes insurer concern

By Marcus Hondro     Dec 29, 2013 in World
Insurance experts said on Saturday that all claims made as a result of the Costa Concordia disaster could easily end up being $2 billion, or more. Payments made already are at more than $1 billion.
The 114,500-tonne cruise liner went down just 300 meters off of the coast of the Italian island of Giglio in the Tuscan Sea on Jan. 13, 2012, with a loss of 32 lives. There were over 4,200 passengers and crew onboard and a great many lawsuits have arisen from the tragedy, with large amounts of money paid out. A larger cost is the aftermath and dealing with the ship and the environment.
“The increasing cost of removal of large wrecks, such as the Costa Concordia, is fueled by environmental pressures being applied to politicians and local agencies and the ever-increasing size and scale of vessels and wrecks being removed," said David Croome-Johnson, an underwriter at Aegis.
Avoiding Costa Concordia environmental disaster
Dealing with the Costa Concordia has meant painstakingly removing over 2,300 tonnes of heavy fuel and 200 tonnes of diesel oil from tanks and cleaning up the waters around the ship. The Costa Concordia went down in an area that is part of Europe's largest marine sanctuary; along with pristine waters and shorelines, there are dolphins, porpoises, whales and other sea life.
Titan Salvage of America and Micoperi of Italy are leading the way in cleaning up the mess. In the Fall, through a method called "parlbuckling," they managed to pull the ship upright and expect to have it towed to the port of Piombino for scrapping sometime in June. Their work is costly and such costs are giving insurers pause.
Insurers are being asked to expose themselves to large liabilities, in particular given that the equipment needed to carry out salvage operations is expensive and yet may rarely be needed. What if insurers became unwilling to take on the potential liability?
“If insurers cannot insure, trade cannot take place," Michael Kingston of the law firm DWF Fishburns told media. "The vast proportion of what we eat and buy, our cars and building materials, our tea and coffee, arrives on these enormous ships. In circumstances where salvage equipment is not in place for the ships being built because it is too costly for any one salvage company to have in place ‘just in case’, something has to give.
“Industry and government must work together and introduce a ‘pooling’ system," Kingston says. "Where industry and society contribute to a fund to keep equipment on standby. The consequences of an enormous ship sinking with 18,500 containers in the English Channel would be immense.”
Marine disaster costs mounting up
Carsten Scheffel, chief executive of Allianz Global Corporate & Specialty notes that this particular clean-up has been a difficult one and suggests that the cost is already approaching $2 billion.
“Due to the vessel grounding in an environmentally sensitive area the complexity of the wreck removal has added significantly to the costs," he said. "At the moment, the overall cost of the incident is in the order of $1.6bn, which may not be the final amount.
“This will be one of the biggest single marine insurance losses in history."
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