Loss of Hire policies are not as frequently purchased in Asia as in other parts of the world,  Scandinavia and Europe for example.  The traditional loss of hire policy responds to the net loss of income after a hull and machinery claim.  There are a number of deductible and limit options available but a 14 day deductible and a 90 day limit per occurrence and in the aggregate are reasonably standard.

In Europe and Scandinavia, the mortgagee banks often require this cover, which has driven a higher penetration and understanding of the benefits, whereas Asian mortgagee banks have not generally required it.

The problem with the standard Loss of Hire is twofold – a 14 day deductible means only substantial claims that require immediate (ie non-routine) off-hire of the vessel are covered.  Secondly, the cover is restricted to respond to claims where the H&M insurers have paid a loss.

So, operators need to have a substantial incident, that requires immediate off-hire, for more than two weeks, and which is a payable claim by H&M insurers.  Depending on the tonnage type, access to repair yards in Asia is good, meaning even significant damages can be repaired relatively quickly.  Frequently, loss of hire insurances will run clean for many years – in the current shipping climate, the premium is an unnecessary expense for a cover that may not fit the risk profile of many fleets.

However, there are alternatives which owners should consider carefully to maximize the cover available for their premium spend.  Trade Disruption Insurance (TDI) and Strike & Delay Insurance are two such options.

TDI is a more sophisticated version of a Loss of Hire policy which covers not only the traditional perils, but additional incidents that are more frequently experienced such as:

  • Fire or explosion on land affecting loading or discharging facilities
  • Infectious diseases being found or suspected on board
  • Delays resulting from rescue of refugees or other life saving operations
  • Stowaways
  • Obstruction of a berth or port blockage
  • Port closure through extraordinary weather or by governmental authority
  • Delays after the above incidents have ended but there is still port congestion (as is very often the case)

Operators with a good loss record are already managing the risk of a machinery damage claim, but it is extremely difficult to manage incidents happening on shore or through the actions of third parties.  The recent blockage of the St Lawrence Seaway is a good example, as would be quarantine from a suspected case of infectious diseases or indeed sudden and unexpected closure of ports such as has recently been seen in Yemen.

The deductible can be as low as 10 days, depending on the trade, fleet profile and loss experience, but the premium differential between TDI and a traditional loss of hire policy is often insignificant.

Strike & Delay Cover is more focused on risks that are away from the vessel but affect the efficient speed of trade required.  The perils insured are very similar to those listed above, but this cover does not respond to losses arising from an H&M claim.  It is narrower in perils than a Loss of Hire policy but the advantages are deductibles are as low as 1 day, with limits up to 10 days.  The narrower cover is reflected in the premium which is much lower than the Loss of Hire of course.  Strike & Delay insured incidents occur around once per week around the world, and a good current overview of those incidents can be found here.  This cover also extends separately to the congestion that almost inevitably follows an insured incident – so cover will be as much as 20 days, 10 days whilst the incident is ongoing and 10 days for the congestion after the incident has ended.

Importantly, Strike & Delay as well as Trade Disruption Insurance are available to both owners and charterers – if the vessel remains on hire during the incident, the losses are sustained by the charterer as they continue to pay hire, even though the vessel cannot perform.

We believe that a traditional Loss of Hire policy can still work well for some operators, but for many others there may be more appropriate options available.

We would be pleased to review your Loss of Hire placement and provide advice on products that are suitable, reflect the risk and are the most cost effective option for your exposures.  Please contact us at [email protected] for further details.

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