Tag Archives: profits

Unmanned Cargo Ships

The thought of unmanned cargo ships sounds like a ghost story. Wrong! This is actually the future of shipping.

Rolls Royce is working with groups backed by governments across northern Europe. Rolls Royce aims to launch crewless ships by 2020.

Sea transport costs could thus be cut by about 20%.

Major shipping firms are expected to adopt this technology hoping that it will boost profits.

The U. S. Coast Guard estimated that human error is responsible for about 96 percent of all marine casualties. Piracy is a reality so crews remain vulnerable. Furthermore there is a shortage of skilled workers who want a career at sea.

44 per cent of a ship’s costs is made up of carrying sailors. This includes not only salaries but crews’ quarters and air-conditioning units. Other amenities take up space which could be used for cargo.

25 per cent of greenhouse gas emissions are a result of maritime shipping. Rolls Royce predicts that unmanned cargo ships will be 5 per cent lighter and burn 15 per cent less fuel.

Unmanned cargo ships will therefore present challenges for insurers. They will have to consider new types of risks. The demand for guards protecting ships from piracy will be reduced. This is an industry that has been booming in the last few years. However, there would be a need for increased cyber security insurance.

Marine insurers have approximately 5 years to work out the costs of covering unmanned cargo  ships for risks that can occur at sea. Without historical data to fall back on will complicate the process of underwriting the risks of unmanned ships.

A drone vessel that is being operated remotely from onshore will create unique challenges. These threats include pirates, a fire at sea and the time it takes to reach a ship if a computer malfunctions. There would n’t be anyone if there was a breakdown. Help for a ship in the Atlantic could be done in one week, but in the Pacific that would take a three week voyage.

Business Interruption Insurance

Many policies which insure commercial property have an endorsement added to guard against loss of business revenue. Additional coverage allotted by the business interruption policy covers the profits that would have been earned. This extra policy provision is applicable to all types of businesses, as it is designed to put a business in the same financial position it would have been in if no loss had occurred.

The following are typically covered under a business interruption insurance policy: –

Profits – Profits that would have been earned.

Fixed Costs – Operating expenses and other costs still being incurred by the property.

Temporary Location – Some policies cover the extra expenses for moving to, and operating from, a temporary location.

Extra Expenses – Reimbursement for reasonable expenses (beyond the fixed costs) that allow the business to continue operation while the property is being repaired.

Government-mandated closure of business premises that directly causes loss of revenue. Examples include forced business closures because of government-issued curfews or street closures related to a covered event.

In addition, businesses can purchase contingent business interruption coverage, which pays out when a business is unable to operate because of an event (such as a natural disaster) that damages the business premises of one of its suppliers, thus preventing it from engaging in normal trade.

The loss could be a direct, loss, damage or destruction by a covered peril. If a particular hazard is NOT excluded from the policy, business income insurance will cover the actual protracted loss caused by the covered peril. However, the insurer is only obliged to pay the dollar amount if the interruption of business led to a business revenue depletion, but will not exceed the pertinent policy limit.

Insurers are only obligated for revenue loss during the period of restoration, which is the time taken to rebuild, repair or replace the damaged property. The period of re-establishment starts when the damage occurs and ends when the property is replaced or repaired within a reasonable period of time.

Should the policy expire during the course of restoration, it will NOT terminate the re-establishment of repair or rebuilding. Some insurer forms as well as the Insurance Service Office (ISO) includes a 30 day extended period of restoration beyond the official time of repair or replacement. Provision has been made by the ISA that if necessary, by purchasing an extended period, an insured may choose to increase the limit in increments of 30 days up to 720 days.

The business income claim is one of the most difficult to prove because of its theoretical nature. As the period of interruption is analysed, other factors can occur that the insured might want to consider, such as changes in marketing and pricing.

The first consideration is determining what sales would have occurred had no loss taken place. To project sales, trends must be established and supported by the results of previous years’ experience and market conditions, as well as by factors that might influence sales and production achievements. Business interruption policies are based on sales that would have occurred, not sales that could have occurred.

For example, if a snowstorm occurs during the interrupted period, affecting sales in the local market, the insurers would be correct in calculating its effects on claim settlement. The storm would have occurred whether or not the business sustained the loss. Depending on the type of business, however, the results could vary greatly. A snow storm would have helped the insured if the company sold snow blowers, but hurt them if it sold bathing suits. On the other hand, if a new competitor emerged in the marketplace as a result of the insured’s loss, the carrier would NOT be correct in taking this into consideration.

The amount the company “would have earned had the loss not occurred” is essentially retroactively forecasted. This requires a methodology that looks at what would have happened in normal times and conditions during the period of loss. The methodology may incorporate many factors, including, but not limited to, the following: –

Facts surrounding the loss and its impact on the insured’s business
Company forecasts
Historical trends
Recent changes in capacity and product or service sales mix
Significant contracts
Marketing initiatives and plans
New product or service launches
Changes in the competitive landscape
Changes in the economy

Business income coverage will end when the damage is repaired, rebuilt, or replaced or date business is resumed at a new permanent location. While policy wording is specific as to the end date of business income coverage, it does not necessarily mean that the organisation’s “business” in terms of sales, income, or profit is back to normal. Certain industries may suffer a period of reduced sales, income, and profit even after all damage is repaired, rebuilt or replaced. Retail establishments (restaurants, clothing stores, dry cleaners, etc.,) as an example, may have to “wait” for prior clientele to come back after being out of business for a period of time.

Schools, such as colleges and universities, may need a special extended period of indemnity to address a loss of students even after the school’s facilities are repaired. The period of time needed to resume normal operations and normal income through tuition and fees may be long if students leave for other campuses to fulfil their needs for higher education.