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Insurance Industry Impact from the Baltimore Bridge Disaster

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The collapse of the Francis Scott Key Bridge in Baltimore on March 26, 2024 has had a significant insurance industry impact, affecting various sectors and highlighting critical areas of concern. This event underscores the importance of infrastructure maintenance and the role of insurance in managing the associated risks.

Impact on Property and Casualty Insurance

The immediate insurance industry impact of the bridge collapse is the extensive property damage. The bridge itself was fully compliant with building codes when it collapsed and was considered a complete loss. The boat that hit the bridge sustained damage above the water line and was impaled by parts of the bridge structure. Amazingly, only 13 of the ships 4700 shipping containers were damaged in the collision. Forty seconds before impact the police were able to stop vehicle access to the bridge but three vehicles with drivers inside were recovered from underwater and members of a repair crew working on the bridge at the time of the crash were killed.

Barclays, Morningstar DBRS, Fitch Ratings and the Insurance Information Institute estimated that the insured losses or the insurance industry impact from this disaster could range from $1 billion to $4 billion. Moody’s Ratings officials said most claims would likely fall on reinsurance companies, about 80 of which provide some $43 billion in coverage to the boat’s insurers. The Maryland state government’s insurance for the bridge covers up to $350 million in damages, while the bridge cost about $302 million in 2023 dollars when it was constructed in 1977.

Liability and Legal Considerations

Determining liability is complex following such an incident. If negligence or failure to maintain the bridge is found, governmental bodies or construction companies could face significant liability claims. General liability insurance will be crucial in covering legal expenses and potential settlements.

On April 22, Baltimore officials filed papers accusing the owners of the boat of negligence, claiming the ship was unseaworthy and had an incompetent crew who ignored warnings of an inconsistent power supply before leaving port. The legal process could last up to a decade and has been described as likely being “one of the most contentious marine insurance cases in recent decades.”

Business Interruption and Economic Loss

Businesses in the vicinity of the collapsed bridge experienced disruptions, leading to business interruption insurance claims. Insurance policies designed to cover business interruption will help affected businesses recover lost revenue during the downtime. The broader economic impact on Baltimore’s economy could also lead to long-term insurance industry impact as the city works to rebuild and restore normalcy.

On April 25, a Baltimore-based publishing company sued the boat’s owners in a class-action lawsuit that seeks damages for local businesses whose revenues were reduced by the bridge collapse. The collapse blocked access to all of Baltimore’s marine terminals closing them to shipping. Diverting shipping cost firms late fees. Dun & Bradstreet estimated the weekly cost of the supply chain disruptions caused by the port closure to be $1.7 billion.

Worker’s Compensation and Personal Injury

The collapse killed six individuals and injured workers involved in maintenance on the bridge at the time of the accident. Injuries sustained in such incidents will lead to workers’ compensation claims, providing medical benefits and wage replacement for injured employees. Personal injury claims may also arise from individuals affected by the collapse, necessitating payouts from personal injury protection (PIP) or other relevant policies.

Reinsurance and Risk Management

Insurers will likely turn to reinsurance to manage the surge in claims and mitigate financial losses. Reinsurers provide additional coverage to primary insurers, spreading the risk and stabilizing the insurance market. This incident also prompts a reevaluation of risk management practices. Insurers may advocate for more rigorous inspection and maintenance protocols for aging infrastructure to prevent future collapses and minimize risk exposure.

Future Policy Adjustments

In the aftermath of the collapse, insurance companies might adjust their policies and premiums, particularly for infrastructure-related coverage. Enhanced risk assessments and stricter underwriting criteria could be implemented to better evaluate the condition and maintenance records of insured structures. Additionally, insurers may advocate for increased investment in infrastructure improvements to reduce the likelihood of similar incidents. All leading to significant insurance industry impact.

The Baltimore bridge collapse highlights the critical role of insurance in managing the multifaceted risks associated with infrastructure failures. It underscores the need for robust risk management practices, efficient claims processing, and continuous evaluation of policyholder needs to ensure resilience in the face of such catastrophic events.

Interested in hiring an Actuary? Contact Smith Hanley Associates’ Actuarial Science Executive Recruiter, Rory Hauser, at rhauser@smithhanley.com.

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