Allianz marine experts on why the salvage job was so costly and long

Costa Concordia

Fated cruise ship the Costa Concordia ran aground and capsized off Italy’s west coast in January 2012, killing 32 people. Two years on, it has already become the largest-ever loss for the marine insurance market.

The estimated claim so far stand at $1bn to $2bn for the hull and $1.2bn for the protection and indemnity (P&I). The parbuckling operation has so far been a success and the 114,000 tonne vessel was righted in September 2013. It is due to be towed for scrap early this summer.

Allianz regional head of marine Duncan Southcott, head of marine hull and liability Chris Turberville and senior risk consultant - marine Rahul Khanna offer their perspectives on why the salvage operation was so lengthy, complex and expensive.

Why was the cost so high?

RK: It was agreed between all the parties that the wreck had to be removed in one piece and not cut into various pieces. This was very difficult, first because of the sloping rocky seabed where she had run aground, and the danger of the vessel slipping into the sea. So the first step for the salvors was to secure her in her position by drilling onto the sea bed and making anchoring points with chains, bearing in mind the winter weather that time of year can get pretty rough. The second step was to make a subsea platform where the vessel would be righted, because she was lying on her side. Building up that platform was another big task.

While parbuckling and the building of subsea platforms had all been done individually before in salvage operations, bringing them all together and at such a large scale - to upright a ship like the Costa Concordia and eventually refloat her - was a huge task and has probably never been done before.

DS: Normally if you were to have a civil engineering project of this scale it would be planned for years in advance and then the project would take place. This is a situation which occurred overnight and therefore the cost increases to reflect that complexity and lack of time in the initial planning phase.

What is the final claims cost likely to be?

RK: In these sort of complex operations weather plays an important role, and she is at the moment going through the winterisation process. So we can’t at the moment put an figure on what would be the final cost, but roughly, the $1bn mark is what has been spent on the wreck removal. By how much it will exceed that is hard to say.

DS: It’s fair to say this is the largest wreck removal claim that has ever happened.

CT: As far as I’m aware, the $1bn [wreck removal costs] takes you to the end of the project. Unless they come up against some other barriers, which is always possible, the costs that have been publicised cover the remainder of the project.

Why couldn’t the wreck be removed in several pieces?

DS: There was a the fear of the additional pollution that might have been caused by cutting up the vessel, and there are a lot of interested parties who did not want that to happen.

CT: It’s an environmentally sensitive area and this is becoming more significant in some of these wreck removal and salvage projects. Over the last few years pollution is one of the really significant elements [in salvage operations] and the LOF [Lloyd’s Open Form] which is a salvage contract, was amended quite a few years ago to incorporate the ability to be paid for the prevention of pollution. This allows the salvor to be able to get recompense for any expenses he might have incurred in preventing pollution.

Does this set a precedent?

RK: In future, coastal states may want to see wrecks of this nature removed without any damage to the environment, and rightly so. They are well within their rights to ask for it, and this will put pressure on salvage matters and operations to do it as cleanly as possible. The Rena [oil spill off New Zealand] was another example where the salvage operations became quite complex because environmental issues were supposed to be at the forefront of the operation. The whole operation has been dictated by environmental concerns and this certainly pushed the cost upwards.  

DS: Underwriters on all the risks have to determine what the potential costs might be, and build that into their premium calculations, so it is very much about understanding the risk profile regardless of whether you’re looking at a hull risk, a cargo risk or an excess P&I risk.