“This is having a negative impact on insurance premiums, and therefore premiums are down,” he says. “Volumes are down because of the uncertainty, of what is happening globally.”
Despite this, says Eldridge, investors are still looking for a home to put capital, and they are coming back to insurance after years of recession.
“Generally in the last three to five years capacity has increased, and it has ramped up incredibly in the past couple of years,” he says. “People are looking for a home to put capital, and they deem insurance to be a reasonably safe sector to deposit capital, notwithstanding the horror stories that make the headlines – such as the Costa Concordia for example.”
The Costa Concordia was salvaged last week – an expensive process that has been valued at $$800 million (the total liability claim being estimated at $1.1 billion) – and made more expensive by the environmental restrictions placed on salvage operations today, says Eldridge, ballooning the costs of insurance for such wreck removal operations.
“There is no question that the Costa Concordia will be the single biggest payout that I have seen in my working career,” he says. “Having said this, a year and a half ago it was thought the claim would cause substantial ripples in the insurance community. It did not. There was a payout of about $500 million on the hull, and it barely made a blip on the market. The third party liability claim of $1.1 billion, is affecting the P&I clubs and some of the big global reinsurers.”
The high cost of salvaging the Costa Concordia is attributed to the requirement to salvage the ship on site whole – instead of using the far less expensive method of cutting up the hull into pieces for removal, but creating a potential for an environmental hazard in the process, says Eldridge.