The Baltimore Bridge Disaster: Who is going to pay?

The collapse of the Francis Scott Key Bridge in Baltimore early Tuesday after it was struck by a container ship could trigger a wide swath of insurance and reinsurance policies, and the loss is likely to run into billions of dollars, sources say.

Beyond marine hull, cargo and liability policies, the incident could trigger various coverages including auto, contingent business interruption, inland marine, property, trade credit and workers compensation...

...London-based marine mutual insurer The Britannia P&I Club confirmed that the Dali is insured by the club for protection and indemnity liabilities. The vessel will also have hull and cargo coverage in place, sources said.

All 22 crew members on board, including two pilots, have been accounted for and there are no reports of any injuries among them, the owners and managers of the ship said.

In a statement, Synergy Marine Group, the vessel’s manager, said the owners and managers are fully cooperating with federal and state agencies. The exact cause of the incident has yet to be determined, they said, adding that there had been no pollution.

News reports said the ship may have lost steering after losing power before hitting the bridge. The bridge is valued upwards of $1.2 billion, though it is not known whether the insured limit on the property placement is that high, the Insurance Information Institute said. It is understood that Aon PLC handles the bridges and tunnels property placement for the state of Maryland.

Britannia Club is a member of the International Group of P&I clubs, an association of 12 P&I clubs that provides marine liability cover for 90% of the world’s ocean-going tonnage.

Individual clubs retain $10 million on any claim, and claims in excess of $10 million are shared between the group clubs. The group also buys group excess of loss reinsurance cover up to $3.1 billion in the open market. Axa XL leads the group excess of loss cover, according to information posted on the International Group’s site.

Excess of $30 million, the International Group pool is also reinsured by Bermuda-domiciled group captive Hydra Insurance Co. Ltd., an incorporated cell company. Each of the 12 Group clubs has its own segregated account or cell ringfencing its assets and liability from the other club cells.

The total cost of the bridge collapse and associated claims will not be clear for some time but is likely to run into billions of dollars and “well above the $100 million attachment point for the GXL contract,” rating agency A.M. Best Co. said Tuesday.

“The insurance issues due to the collapse of the bridge will take a long time to unravel and may involve several lines, such as property, cargo, liability, trade credit and contingent business interruption,” Best said.

“I would expect this event to exhaust limits, excess layers and reinsurance for most types of coverage carried by the ship’s operator,” Robert Hartwig, clinical associate professor and director, Risk and Uncertainty Management Center, at the University of South Carolina’s Darla Moore School of Business, said in an email.

Read the rest here.

Obviously the immediate concern is for those injured and the missing, who at this point are unlikely to be found alive. However, beyond the humanitarian concerns, a major component of transportation for Baltimore and the DC beltway region has been wrecked. One of the busiest harbors in the United States is now closed indefinitely with ships unable to enter and those already there, effectively trapped. President Biden has rightly promised emergency Federal aid to get the ball rolling on clearing the wreckage and at least beginning the construction of a new bridge. I don't think anyone needs an advanced degree in engineering to grasp that the current structure is a total loss and beyond repair. That said, the American taxpayer should not be on the hook for this. Marine insurance is a complicated business, but when the dust settles some very large checks are going to be expected. And while the economic damage is likely to run into the billions, I would hope that the first checks go to the families of those injured and killed. 

Prayers for all those affected. 

Lloyds and DNV withdraw Certification from all Russian Ships

These are two of the world's largest entities that certify ocean going vessels, including super yachts, for insurance purposes. What this means, is that any Russian ships certified by either of these entities may now be operating without insurance. This is a bit complicated as there are other certifiers, but these are the two used by the vast majority of ships and luxury yachts. In order to enter ports and refuel, most ships are required to show evidence of insurance. I'm not certain if this applies to all vessels owned by Russian entities or just Russian flagged ships. But this has the potential to be highly disruptive.

Update: At least one source is suggesting this is primarily being done to vessels owned by sanctioned persons, which would mostly limit it to luxury super yachts owned by Putin's cronies. More than a few of which have suddenly left their ports and turned off their satellite tracking beacons, which is against maritime law.

California Unveils Obamacare Insurance Rates

Amid anxiety over rising costs from the federal healthcare law, California received better-than-expected insurance rates for a new state-run marketplace, but many consumers still won't be spared from sharply higher premiums.

Three years after President Obama's landmark law was passed, the state unveiled the first details Thursday on what many Californians can expect to pay for coverage from 13 health plans offering policies in the state's exchange, in which as many as 5 million people will shop for coverage next year.

Developments in California are being watched carefully around the country as an important indicator of whether the healthcare law can deliver on its promise to expand health coverage at an affordable price. Many Republicans, insurance executives and other critics of the law have been warning that consumers are in for a shock next year when insurance companies raise rates to comply with the law's many new requirements.

Supporters were upbeat after an initial look at the proposed premiums, while critics remain unimpressed.

"These rates are way below the worst-case gloom-and-doom scenarios we have heard," said Peter Lee, executive director of Covered California, the state agency implementing the healthcare law. "But let's be clear, some consumers will have prices that go up. There may be some sticker shock."

Read the rest here.

California Insurer Says It Will Cap Earnings

Blue Shield of California, a large nonprofit health insurer that has come under sharp criticism in recent months for its double-digit rate increases, said on Tuesday that it planned to cap its earning and refund the bulk of any excess income to its policyholders.

The insurer said it would limit its profit to no more than 2 percent of its revenue and said it already planned to return $180 million, the profit the company says it made above its 2010 target.

“With our 2 percent pledge, we hope to make coverage a bit more affordable for our members,” Bruce Bodaken, Blue Shield’s chairman and chief executive, said in a speech at the Commonwealth Club in San Francisco. “But more important, we want to demonstrate that health care affordability, which is the key to universal coverage, is Blue Shield’s top priority.”

In a telephone interview, Mr. Bodaken said: “It’s one further step in a long series of steps in which we believe that we and others all need to step up and reduce the cost of health care.”

While it is unclear whether other insurers will make similar pledges, the federal health care law is aimed at making sure insurers are not able to set their premiums too much above their costs. Some experts expect other insurers to take similar actions as the law goes into effect.

“This would be the logical next step,” said Timothy S. Jost, a law professor at Washington and Lee University, who said some insurers have already started considering similar refunds. Last September, for example, Blue Cross and Blue Shield of North Carolina said it planned to refund $156 million to policyholders.

Read the rest here.

Insured But Bankrupt Anyway

The New York Times is reporting that huge numbers of people who are facing bankruptcy over medical bills actually had insurance. This should not come as any particular surprise. There are a number of factors which contribute to the high rate of bankruptcies associated with medical bills. One is indeed a lack of health insurance on the part of a large number of Americans. This is a serious problem and one that needs to be addressed. But it is not the subject of my post.

The crux of the problem is that most Americans don't understand medical insurance, including what it is for. If you ask the average American if he files a claim against his car insurance when he has a flat tire or needs a routine oil change he would laugh at you. Likewise presumably most of us don't file a claim against our home insurance when the toilet backs up. We may swear a little as we run for the plunger, but we deal with it ourselves.

That's because we understand that our car insurance and homeowners insurance is for serious emergencies. A collision or fire or some other event that inflicts a high dollar bill on us. Why then do Americans feel that we need to call our insurance company to deal with routine maintenance or minor dings on... US?

Large numbers of people who have insurance either from work or purchased on their own tend to look for policies that will provide some coverage for routine medical expenses like the occasional doctors visit or a possible trip to the ER because someone gets stupid with a hammer and smashes a couple of fingers (been there and done that). But these same policies usually leave the buyer inadequately insured against the real danger to their finances and health.

That is not the flue or the measles or a smashed finger. It is the catastrophic medical crisis.

Being honest, most Americans who are stably employed could cover routine medical bills themselves if they set aside a little money in a rainy day fund. If you have around $5-10,000 in a bank account somewhere that is understood to be untouchable except for medical expenses then the average family could get the insurance they really need, which is major medical.

The vast majority of insurance policies held by Americans provide some coverage for the routine things and also some coverage for hospitalization and emergency medical care, a lot of which is unnecessary and merely adds to the cost of the policy. The only two things most Americans need to pay attention to on their insurance policy is the percentage of major medical expenses covered (hospitalization etc.) and total maximum lifetime payout amount.

The typical policy today covers around 70-80% of hospitalization bills. But that is frankly inadequate. The bare minimum needed to protect yourself from potential financial ruin is 100% coverage for major medical with a lifetime payout maximum of at least $3 million.

Consider a case from my own family. On March 30th of this year my step-mother collapsed while visiting her natural son in Florida. She was taken by ambulance to the local hospital which quickly diagnosed a massive stroke. Following protocols she was airlifted to a nearby regional medical center which specializes in neuro-medicine. She had emergency brain surgery performed on her that night. She spent the next 3 weeks in intensive care. And she is STILL in the hospital today, though not in ICU. I don’t know what her medical bills are but I would be surprised if they were not well north of a million dollars. Fortunately for her she is a retired teacher with excellent health benefits.

But a person whose insurance covers routine doctors visits but only 70-80% of hospitalization would be wiped out by this kind of event. Far too many Americans base their insurance needs on covering small minor expenses without considering what would happen if there were a serious medical crisis with very steep bills.

I can cover a few thousand dollars in bills from a quick trip to the ER if I needed to or even could arrange a payment plan if I was short on cash. But a high five or six figure medical bill would I suspect push me and most ordinary Americans over the financial cliff.

I believe the solution is for Americans to steer clear of the types of insurance that are most common today. They should save $5-$10k (depending on family situation) to cover ordinary expenses and low level medical emergencies. If the money is not needed then they are ahead of the game with money stashed and collecting interest. They should then purchase a major medical policy that will insure excellent care and protect them from financial ruin in the event of an extreme medical crisis. These policies are offered by most insurance companies with high deductibles of $3000 to $5000 (again you pay for the routine things) but they cover 100% after the deductible. They also have the added advantage of being generally less expensive than the ‘cover a little of everything’ policies most people buy because the insurance companies know they are not likely to have to pay out.

If many Americans are being bankrupted by staggering medical bills, I suspect it is in part a result of poor planning and bad spending habits.

In fairness many, indeed probably most Americans get their insurance from their employer. In some cases they have no real choice in polices and employer offered medical insurance rarely covers more than 80% of hospital bills these days.

In these cases the individual needs to consider his/her options.

There are essentially two ways to deal with the inadequate major medical coverage typical of employer provided insurance. The first is to opt out of the employer provided plan and buy the major medical policy on their own. The second, and usually the better choice, is to purchase a supplemental policy solely to cover any major medical expenses not covered by the employer’s insurance. As with catastrophic health plans, these policies are available from many providers and are usually quite inexpensive since they would only kick in in the event of a catastrophic medical crisis and then only to cover the 20-30% not covered by the employer provided policy.

But again for the math challenged, 20-30% of a six or seven figure medical bill is pretty substantial. A lot of families could not cover that on their own.