Starship and cargo insurance

[Black Globe Generator]

This is my first-pass at developing insurance for starships and cargo IMTU. The subject of real-world marine insurance is both extensive and arcane – my goal is to create options for players and referees, not an underwriting simulation, so what follows emphasizes playability and verisimilitude.

Generally speaking, three forms of insurance coverage are of interest to most merchant captains and commodores.</font>

• Protection and Indemnity: P&I is basic liability insurance for starships, covering mishaps such as crew, passenger, or third-party injury, illness, or loss of life, damage to cargo on-board, damage to starport facilities, environmental clean-up and remediation from fuel or cargo discharge, wreck-removal or towing, and collision costs exceeding the present value of the starship. The base premium equals 0.1% of the value of the policy, plus an additional 0.1% per crew member per month that the ship is in operation (i.e., not laid-up). P&I policies are generally offered in amounts of 0.25 MCr, 0.5 MCr, or 1 MCr, though other coverage amounts may be negotiated – the insurer will pay the assured for the actual cost of the mishap, however. Premiums are paid annually, in two payments. The policy includes a 5 KCr deductable.</font>
• Hull and Machinery: Hull and machinery insurance covers damage to the starship and its equipment, drives, and so forth. The premium equals 2.5% of the present value of the starship, paid annually in two payments. The insurer will pay the actual cost of damages in the event of a claim. The policy includes a 25 KCr deductable.</font>
• Cargo insurance: Cargo insurance may be purchased by speculators. The premium is a percentage of the value (i.e., purchase price) of the cargo based on the destination, as shown on the table below. In the event of a loss, the insurer will pay the assured the market value of the cargo at its destination at the time of the loss, plus 10%.</font>

Table 1: Cargo insurance premiums
Starport/Law Level.....0......1-3......4-7......8-9......A+
A............................25%...18%....18%....18%....25%
B............................25%...18%....18%....18%....25%
C............................25%...25%....18%....18%....25%
D............................n/a....25%....25%.....25%....25%
E............................n/a.....25%....25%....25%....n/a
X............................n/a.....n/a......n/a......n/a......n/a

Premiums may be affected by the condition, age, use, and claims history of the starship as well as its area of operations. Premiums may be affected by loss history across the industry – for example, if losses spike in a particular year resulting in increased pay-outs by insurers, the premium percentage may rise, passing the cost to the assured. (For example, the annual premium could fluctuate between 2.0 and 3.0% each year – the percentage is equal to 2 + (2D6-2)*0.1.) Another example is the increased-risk premium: ships entering an amber zone are required to pay an additional 1% premium for the duration of their stay. (Given that an entire subsector or sector may be declared an amber zone in time of war, this can be a significant increase for many starship operators.) Referees should feel free to adjust the percentages as desired.

Example: The twenty-year-old type A free trader Ulmo is valued at 29.632 MCr. Captain Vikkonnen, who is also owner-aboard, decides to purchase both P&I and hull and machinery coverage for the starship. The captain selects a P&I policy valued at 0.5 MCr to cover the ship and its crew of three (captain/pilot, engineer, and steward/medic) – the premium is 18.5 KCr for the year. The hull and machinery coverage premium is 740.8 KCr – the price is steep, but after weighing the cost of the policy against the potential loss of the ship, she decides to pay the 361.65 KCr due immediately, quietly cursing the underwriter under her breath as she does so.

Capt. Vikkonnen also purchases three tons of industrial-grade radioactives which she plans to sell three jumps hence. The cargo is valued at 1.5 MCr – concerned about Vargr corsair activity at the destination, and knowing that the cargo represents a significant portion of her investment capital, she decides to insure the cargo as well. The destination starport is C and the law level is 5, so the premium is 270 KCr – if she makes it past the corsairs, the policy is part of the cost of doing business, but if she doesn’t, it could well mean the difference between recouping her losses versus finding herself scrambling for work as a drive hand on a megacorporation’s bulk carrier...

Each policy contains general terms and conditions – I will go into those in more detail in a later post.

A word of caution: There is a significant potential for abuse here! Felonious characters may decide that insurance fraud is preferable to speculative trade, and “lose” a ship and its well-insured cargo. Personally, I have no problem with this, because then I have a built-in encounter any time the action flags as the insurance investigators come charging over the hill...

This is a very preliminary effort, upon which I hope to build with your feedback. Your comments are appreciated.

 

[tewhill]

Well done, BG. Though, as an underwriter myself (casualty), I'm sure those rates are much too low. [ha,ha]
One question, why would you think that a high law level would push premiums up for cargo? Taxation, maybe. But inherent risk, I'm not so sure.

 

[parmasson]

Good idea, but the prices seem a little high to me. Not being in the commercial shipping business I have no way of knowing what the real world costs are. Edit: too LOW?! wow...

It seems that to make the policies attractive that big houses might keep the base cost down a bit with appropriate modifiers especially to those traveling to TAS Amber zones.

A jump 1 trip in the interior of the Imperium between two “A” starport, TL-13 worlds that are on an X-boat route with an imperial navy base in one of the systems is a really safe bet.

On the other hand that trip form Regina to the Sword Worlds is gonna cost…

Having an armed ship should decrease rates. A free trader with two triple turrets sporting missiles, sand and lasers is a better risk than a single beam.

Travel to or from a system that has an Imperial Navy base should help.

X number of parsecs (6 to12) from a border should decrease rates.

Of course history of piracy and personal history, should all be taken into account. A rouge with a history of arrests and petty crime may be charged more than a retired navy captain who is on a first name basis with the starport’s lord director.

Vargr might be charged more due to prejudice….unwarranted of course.

I can see a staff of Hiver actuaries dutifully crunching numbers in the backroom as the applications pour in.

 

[Black Globe Generator]

Originally posted by tewhill:
One question, why would you think that a high law level would push premiums up for cargo? Taxation, maybe. But inherent risk, I'm not so sure.

That was based on two facets of the TU:</font>

• First, in CT, the Bribery skill contains an interesting assumption: that it's easier to bribe an official on a high-law level world than on a low one (a succesful bribe is offered under the law level, you may recall). MWM was quite explicit about this: corruption is more prevalent under oppressive governments.</font>
• Second, higher law levels make it more likely that a crew will run afoul of an import/export regulation or some such legal requirement - there is a greater chance for a cargo to be seized. T20 refers to law level A and above as "extreme,", so that seemed like a good break-point beyond which the benefits of law and order begin to turn in on themselves.</font>

Thanks for the feedback, tewhill - most appreciated!

 

[Black Globe Generator]

Originally posted by Kurega Gikur:
Good idea, but the prices seem a little high to me. Not being in the commercial shipping business I have no way of knowing what the real world costs are. Edit: too LOW?! wow...

I took the "too low" comment as a bit of underwriter humor.

All of those numbers are based on real-world figures, btw.

Originally posted by Kurega Gikur:
It seems that to make the policies attractive that big houses might keep the base cost down a bit with appropriate modifiers especially to those traveling to TAS Amber zones.

When I first looked at numbers for different ship types, that was my reaction as well - hull and machinery coverage for a new type A costs almost a million credits a year in premiums.

The more I thought about it however, the more it made sense to me - most free traders are "self-insured," while the subsidized merchants have their insurance costs paid for by the government and the large lines make it up in volume.

From a metagame standpoint, high premiums also provide a reasonable cash sink to keep the players working on the edge of their margin.

Originally posted by Kurega Gikur:
A jump 1 trip in the interior of the Imperium between two “A” starport, TL-13 worlds that are on an X-boat route with an imperial navy base in one of the systems is a really safe bet.

On the other hand that trip form Regina to the Sword Worlds is gonna cost…

Absolutely - I could see cargo insurance dropping to 12% in the former case, or ballooning to 30% in the latter, at the referee's discretion.

Originally posted by Kurega Gikur:
Having an armed ship should decrease rates. A free trader with two triple turrets sporting missiles, sand and lasers is a better risk than a single beam.

Good idea! Perhaps a drop in hull and machinery premiums of 1D6%?

Originally posted by Kurega Gikur:
Travel to or from a system that has an Imperial Navy base should help.

I took that to be subsumed in the starport rating.

Originally posted by Kurega Gikur:
X number of parsecs (6 to12) from a border should decrease rates.

I think an easier way is to increase the rate on approaching or crossing the border - maybe (2D6-2)*0.1 percent for hull and machinery coverage?

Perhaps certain polities are all treated as amber zones for insurance purposes.

Originally posted by Kurega Gikur:
Of course history of piracy and personal history, should all be taken into account. A rouge with a history of arrests and petty crime may be charged more than a retired navy captain who is on a first name basis with the starport’s lord director.

For P&I and hull and machinery coverage, I agree - a simple +/- 1d6*0.1 percent would seem reasonable to me.

Originally posted by Kurega Gikur:
I can see a staff of Hiver actuaries dutifully crunching numbers in the backroom as the applications pour in.

IMTU, underwriters are Bwaps!

Thanks very much for the feedback, Kurega Gikur - you raised some great points!

 

[Chaos]

Originally posted by Black Globe Generator:
</font><blockquote>quote:</font><hr />Originally posted by Kurega Gikur:
Good idea, but the prices seem a little high to me. Not being in the commercial shipping business I have no way of knowing what the real world costs are. Edit: too LOW?! wow...

I took the "too low" comment as a bit of underwriter humor. </font>[/QUOTE]To everyone except brokers, salespeople and, of course, customers, ANY premium is too low.
(I´m an insurance person, too - well, former insurance person, actually)


what you might want to consider, especially for H&M and Cargo, is to break down premiums into several insured causes of loss - like piracy, equipment breakdown, sabotage, war and internal uprisings - or even offer coverage for specific causes, i.e. near the Vargr Extents maybe a policy that does not cover piracy is decidedly cheaper?

You also ought to think about disqualifications. For example, in your example of a free trader carrying radioactives, all H&M damage and damage to other cargo stemming from irradiation causes by these radioactives might not be covered, since preventing that is the job of the captain and crew. Or, to use my example above, travelling to certain areas in the Vargr extents, all damage or losses through piracy might not be covered, because piracy is just too rampant there.
Also, in real-world insurance, damage through war and internal uprisings is NEVER covered.

 

[Black Globe Generator]

Originally posted by Chaos:
what you might want to consider, especially for H&M and Cargo, is to break down premiums into several insured causes of loss - like piracy, equipment breakdown, sabotage, war and internal uprisings - or even offer coverage for specific causes, i.e. near the Vargr Extents maybe a policy that does not cover piracy is decidedly cheaper?

All very good ideas, but probably a bit more detail than I'm prepared to add to my campaign.

I see insurance as chrome, and breaking down causes of loss is perhaps a shade too much bling for a humble little game like mine.

Originally posted by Chaos:
You also ought to think about disqualifications. For example, in your example of a free trader carrying radioactives, all H&M damage and damage to other cargo stemming from irradiation causes by these radioactives might not be covered, since preventing that is the job of the captain and crew. Or, to use my example above, travelling to certain areas in the Vargr extents, all damage or losses through piracy might not be covered, because piracy is just too rampant there.

I'm working on some general conditions boilerplate that will cover a short list of disqualifications - the referee is of course free to add more.

Again, this is a good idea.

Originally posted by Chaos:
Also, in real-world insurance, damage through war and internal uprisings is NEVER covered.

Good point.

The idea for an "amber zone" premium came from an increase in marine shipping rates on vessels entering certain ports in northwest India due to tension between India and Pakistan.

Thanks for the insightful feedback, Chaos - most appreciated!

 

[Chaos]

Let me give you an example, to see what I´m thinking of.

I used to work in household and (private) building insurance a lot.

In building insurance, coverage is broken down into three parts: fire, water (that is, plumbing-related) and storm damage. Each of that could be taken out separately, and (which is very fortunately for this example, since it shows different approaches) each part is priced due to completely criteria.

For fire damage, there are two basic premiums - a cheaper one for areas in which private insurance has to compete with cheaper coverage provided by public insurers, and a more expensive one for elsewhere. Then there are individual premium increases (it is always increases for bad risks, rarely reductions for good risks) for, like, a thatch roof or wooden walls, or having a fireworks factory next door.
For water damage, there are several premiums (I don´t remember how many) depending on how calciferous the tap water is, and thus how quickly the plumbing will accumulate calcification. Also IIRC there are increases based on how old the plumbing in the house is.
For storm damage, there are several premiums based on the geographical location. In the US I guess in Florida or in the Tornado Alley you´d have to pay a little extra for storm insurance.


An insurance company that underwrites insurance for a starship would also want that starship to be inspected... very closely, if the sum is high enough. They will make certain demands as to safety measures you have to take, certain behavior you are not to engage in (like refueling at lonely gas giants - too many pirates around!)
For a good roleplaying opportunity, you could play out the inspection by some safety expert, who insists in looking everywhere on the ship, see every little detail, object to all the sensitive equipment fixed with wire and duct-tape, the slightly warped internal bulkhead that doesn´t close quite airtight, the rust spots on the door of the ship´s locker... well you get the idea. A stuffed shirt, a nitpicker-in-chief. Technical experts working for insurance companies are like that... and for good reason.

 

[parmasson]

Oh man the bribes are gonn be stiff…

 

[Black Globe Generator]

Originally posted by Chaos:
An insurance company that underwrites insurance for a starship would also want that starship to be inspected... very closely, if the sum is high enough. They will make certain demands as to safety measures you have to take, certain behavior you are not to engage in (like refueling at lonely gas giants - too many pirates around!)
For a good roleplaying opportunity, you could play out the inspection by some safety expert, who insists in looking everywhere on the ship, see every little detail, object to all the sensitive equipment fixed with wire and duct-tape, the slightly warped internal bulkhead that doesn´t close quite airtight, the rust spots on the door of the ship´s locker... well you get the idea. A stuffed shirt, a nitpicker-in-chief. Technical experts working for insurance companies are like that... and for good reason.

Yes, absolutely! Insepctions are covered as part of the general conditions, which I'm still working on. (And yes, bribes would be quite stiff... )

As far as the fire/plumbing/weather analogy, I can definitely see where you're going with the concept. In marine vessel coverage, there are differences between blue (ocean) and brown (river) water policies, for example. I can see adding in some provisos to the general conditions (I like the idea of policies limiting wilderness refueling to emergencies, for example), but beyond that I'm not sure about breaking the policies down further. I drew from examples of ocean-going vessel coverage for P&I and hull and machinery policies, and to my (non-expert) eyes, the examples I read look pretty similar to one another. For instance, I didn't see Chinese menus of options with respect to hull and machinery policies: the examples I found all seem to cover the same things.

 

[Spinward Scout]

Ok, this all is a little too close to real life for me, but I always thought a really cool name for a Sci-Fi Insurance Company would be Galactic Life & Causality.

 

[Fritz_Brown]

Sir Toth, "GalacLiC"?

BGG, how about creating a bogus "contract" (much like the boilerplate you are writing) with very esoteric breakdowns of all the premiums? Maybe someone expert like Chaos or tewhill could write it up and make it totally incomprehensible. This would give you a prop with which to beat the rules lawyers - they start in about how insurance works for their house, and you can drop this document in front of them (preferably in very small type - 8pt or less). They can look for loopholes to their hearts content, and you can get on with the game (preferably inspecting the rules lawyer's bunk space....

).