The allocation of the IG reinsurance costs across different types of vessels has been extremely contentious since 2013. All ship types were affected by the overall reinsurance cost increases in the immediate aftermath of COSTA CONCORDIA and RENA, but passenger ships were unmistakably affected by the greatest margin.
Operators of most ship types have reasoned arguments, when looked at from their own perspective, why the allocation of IG reinsurance costs could be considered inequitable.
For example, passenger ship operators could argue that the COSTA CONCORDIA case led to a disproportionate over reaction in terms of the huge increase in allocation of reinsurance cost to this class of ship (particularly as 85% of the total costs of the COSTA CONCORDIA case related to wreck removal liabilities which are not an exposure unique to passenger ships). Tanker operators could argue, again with some justification, that tankers (particularly clean trading tankers) have not been the cause of excess of loss level claims in recent years. Dry cargo ship operators could present a case to suggest that the IG should differentiate between container and non-container ships when comparing potential catastrophe exposures.
The overall cost of the IG reinsurance programme is negotiated with the world reinsurance markets.
The decision regarding the allocation of this overall cost against different ship types however is made by the IG Reinsurance Sub-committee. The IG Reinsurance Sub-committee is made up of a Chairman and one representative from each of the IG clubs. The underlying principle for the IG Reinsurance Sub-committee to follow is to match, as far as practicable, the premium contribution to the claims cost of each of the four ship types.