Within days of any natural or man-made disaster, the insurance industry will start to estimate the cost of the damage. If a hurricane were to hit South Florida during the 2012 season, chances are good that within hours a headline would blare the news: "Hurricane Rocco damage could reach $2 gazillion," or something to that effect. For the cynics out there, the headlines are just one way for property insurance companies to justify rate increases in the coming year.
The Costa Concordia accident earned a few headlines this winter, as did the Titanic 100 years ago. In some cases, the newspapers reporting the estimates and the insurers making the estimates may share a motive. They may want to point out the safety problems or faulty construction trends or even the corporate culture that contributed to the losses. They may want the public to wonder why no one thought about the risk before, say, the ship went down.
In our last post, we were talking about safety standards for ships. According to one risk professional, the safest vessels on international waters are oil tankers. Why? Two words: Exxon Valdez. After the tanker spilled 11 million gallons of crude oil into Prince William Sound, Congress decided that tankers needed double hulls. Anything built after the Oil Pollution Act of 1990 took effect had to have a double hull. Anything already afloat would have to be retrofitted in the next 20 years.
Cruise lines had to make changes to ship design after the Titanic, too. Double hulls were already common, but only the bottoms were double-hulled. After Titanic, ships had double hulls up the sides, past the water line. Bulkheads were extended, too -- the Titanic's went just 10 feet above the water line, another decision explained by the White Star Line's need for speed. The higher bulkheads would have added significantly to the weight of the ship, and that would have meant slower crossings.
Another risk specialist who works with marine insurance says that risk managers at oil companies or cruise lines or any other kind of business have to take one thing into account: the unthinkable.
We'll finish this up in our next post.
Source: PropertyCasualty360.com, "Leveraging Hindsight into Foresight: Lessons from the Titanic," Anya Khalamayzer, Laura Mazzuca Toops, April 11, 2012