Casualty Rate Prediction for Oil Tankers

A model of oil tanker casualties is presented which permits an e.upected casualty ratefor each tanker to be calculated based on its age and casualty history. These expected rates are shown co be good predictors of both the actual cosuoly expertence and the probability of total loss. The model is based on thefindings that 1) the casualty behavior of an individual tankerfollows a Poisson distrtbution and 2) the Poisson parameters for all tankers of a specific age follow an exponential disttibzltion. As n result. Bayes' theorem can be used to calculateeach tanker's expected casualty rate given its age and casualty history. A brief summary of ocean marine premium-setting practices is given to provide context for the risk model presented.' A five-year average of claims is used as an estimate of the financial risk associated with small partial losses (eg. less than S100.000) of a particular owner's fleet of ships. A fleet of five ships with five years of claims history is often considered to be self-rating for this component of the hull 81 machinery insurance. Premiums also have to be established for large partial losses and total losses. These events are much less frequent, so. for most owners. having just a few ships. the rates are established using industry-wide statistics. These general rates are then multiplied by factors which reflect higher or lower relative risk of a particular fleet as compared to the larger fleet from which the statistics were taken. These factors. called 'relativities'. are developed for age, size. trade (ie. routes traveled). flag (ie. nationality of registered owner) and anything else that the underwriter believes might affect the risk of loss. Hull & machinery insurance is generally carried by commercial insurers so the attempt to define a specific fleet's (ie. owner's) level of risk is expected The underwriting cycles in ocean marine insurance. however. are pronounced hence the actual premiums that are charged may not always directly reflect that risk.' After several years of disappointing underwriting results, though. the early '90s have seen rates. deductibles and exclusions all increase dramatically. In addition to the overall rise in premiums, underwriters are making unprecedented efforts to identify 'substandard' vessels that require special attention even to the point of contracting ship inspections. The liability side of ocean marine insurance. called P&Z insurance for protection and indemnity. is largely handled by mutualized shipowner groups known as the 'PM clubs. 'Advance calls' are …