We are finishing up our discussion of what insurers and the cruise industry have learned since the Titanic went down 100 years ago. Both Titanic and the more recent Costa Concordia disaster are great illustrations of how companies set priorities. Most of this has been in the context of third-party insurance coverage, the kind of coverage companies buy to help pay for damages or injuries suffered by someone on their property.
We are continuing our discussion of the Titanic, the Costa Concordia and other maritime accidents and what effect, if any, the disasters have had on the insurance and shipping industries. The Costa Concordia could very well cost more than the Exxon Valdez debacle. That doesn’t just include the damage to the ship, of course; if the crew or the cruise line is found to be at fault, the insurance company would have to pay any judgments awarded to passengers or their families.
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.
In the century since the Titanic sank, how much do you think has changed in the passenger cruise industry? Certainly safety measures improved — every ship has lifeboats enough for everyone on board. Still, the Costa Concordia accident gives one pause: Perhaps it’s been so long since a cruise ship went down that we have all been lulled into a false sense of security. As regulators and law enforcement scrutinize the problems with the Concordia and its Florida-based parent company, insurance companies are reevaluating their risk calculations.
The parent company of the Costa Concordia announced recently that a Florida company would be handling the salvage of the ship. A different contractor removed the stricken ship’s fuel in March, warding off an environmental disaster in the process. And a major insurance company reported that it, too, avoided disaster: The company took a hit from the Costa Concordia, but it still made a profit — there still may be customer claims and lawsuits, though, especially for the families of the 32 people who died.
Florida homeowners dread this time of year. For some, hurricane predictions may be harder to take than the storms themselves. It may be the sense of helplessness in the face of nature. It may be the fear of reliving that day in 2005 when the homeowner discovered too late that hurricane insurance benefits wouldn’t cover all the damage. It may be memories of the “chicken little” warnings over the past two years.
We are finishing up our series of posts to commemorate the 100th anniversary of the sinking of the RMS Titanic. There is something about the disaster, something that has particularly captured the imagination for the past century. For us, of course, it’s a great story about insurance coverage and claim payments. But for others, it is the folly of believing the ship to be unsinkable; or it is the appalling loss of life, or the fact that so many famous people were on the ship; or it is the sheer luxury of the ship that passengers enjoyed for a few short days. Titanic has become a metaphor for just about everything: hubris, glamour, human error and class differences.
The history of insurance is remarkably interesting. While gambling on risk dates back to ancient civilizations, most insurance wonks consider the introduction of “modern” insurance to date to the late 17th Century at Lloyd’s coffee house. Of course, if you ask some Florida homeowners, not much has changed in the last 300 years: It can still take months or years for an insurance company to pay a claim.
John Jacob Astor, Isidor Straus, Benjamin Guggenheim: These men were just three of the millionaires lost on Titanic. Their estates were worth millions — Straus, $4.4 million; Guggenheim, $3.5 million; Astor, untold millions, considering he left trusts for his unborn son of $3 million and his widow of $5 million. Their wealth was enough that their families may not have worried about their life insurance policies paying out quickly, or at all.
When the Costa Concordia foundered in January, insurance industry insiders thought the cruise line’s Florida-based parent company would avoid insurance and legal liability. It seemed that, with their ticket purchase, passengers agreed to pursue legal actions through the Italian courts. The venue for insurance claim disputes has been a source of contention.
