Disaster could cost cruise industry millions in claims, lost bookings

Associated Press

NEW YORK

The capsizing of the Costa Concordia could not have come at a worse time for the cruise industry — right at the start of the peak booking season.

Even if passengers aren’t scared away, the accident will cost hundreds of millions of dollars.

It’s too early to tell exactly how much insurance firms will have to pay out to cover the damage to the ship and loss of life, but analysts have estimated that claims could total at least $500 million. One went as far as to say the total bill for insurers could reach $1 billion

“We would be surprised if any single player had more than 5 [percent]- 10 [percent] of the risk,” Numis analyst Nicholas Johnson wrote in a note. He said the risk is similar to that of the Deepwater Horizon oil spill, where no one company had more than 2 percent of the total insurance liability.

Costa’s parent company, Miami-based Carnival Corp., which operates 101 ships under several brands including Carnival, Cunard, Holland America, Princess and Seabourn, did not respond to requests for an interview about its insurance coverage. But the company is responsible for at least $40 million in insurance deductibles.

At least 11 people died in the accident with nearly two dozen others still missing.

The capsizing of the Concordia in the waters off Italy comes at the start of a three-month period that is the busiest time of year for bookings, known in the industry as wave season. Sales now set the tone for the rest of the year, which could be affected if passengers are frightened off by the chilling images of the stricken vessel.

Although the industry has been recovering slowly from the Great Recession, this incident could further damage bookings.

“The publicity is just going to kill them,” said Blake Fleetwood, president of Cook Travel. “They’ll stay quiet for a week or two. Then Carnival will have a blitz of sales. So for the consumer, it’s going to be a great time to buy a cruise.”

Other cruise lines will follow, slashing prices, Fleetwood said.

“The baby-boomer crowd, which the cruise lines are counting on to fill their cabins, is going to be especially spooked by this incident,” he added.

But some experts doubt the tragedy, which was extremely rare, will scare off travelers.

Stewart Chiron, CEO of CruiseGuy.com, a cruise- marketing company, thinks the only group turned off by the accident would be first-time cruisers who already were on the fence about booking. He said roughly 19 million people took a cruise last year without incident.

Gauging cruise demand is tricky. Unlike airplane tickets or hotel rooms, which are mostly booked online by vacationers themselves, a large bulk of cruises are sold through travel agents who are paid a commission for each stateroom sold. Tour companies also book large blocks of rooms in advance from the lines and then resell them at a profit.

Chiron notes that the only real way to judge demand is to see if cruise lines slash prices.

For the insurance companies, it also is too early to tell the extent of their liability. A lot depends on whether the ship can be repaired or not.

Carnival has two types of insurance policies that would cover the $500 million to $1 billion in claims from the Concordia:

HULL INSURANCE

This insurance covers damage to the ship. Carnival is responsible for the first $30 million in damage. The rest is covered by a network of insurers led by XL Group, an Irish insurer with executive offices in Bermuda. A company spokeswoman refused to comment.

German insurer Allianz Global said it has a “minor stake” in the Concordia claims. A third firm, London-based RSA Insurance Group is liable for up to $15 million, according to an industry source. Other yet-unnamed companies also will have to pay out claims.

Chicago-based Aon Corp. brokered the hull insurance deal, but a company spokeswoman refused to comment.

LIABILITY INSURANCE

The second type of insurance coverage purchased by Carnival is for personal- injury liability.

The company said in a statement Monday that it has a $10 million deductible on that policy.

That coverage would include any payments related to injuries and deaths of passengers and crew, the cost to clean up any leaking oil and the loss of cargo.

Claims would be paid out even if the ship’s captain is found to be negligent. The cruise company has said that Capt. Francesco Schettino deviated from his approved course.

Later, an Italian coast-guard officer ordered Schettino back on the ship to assist in the rescue.

Cruise lines and shipping companies join together in groups, known as protection and indemnity clubs, to spread out their individual risk.

Each member of the club pays in dues, and then claims are paid out from the collective funds.