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The Key Bridge collapse is a major blow to insurance companies

AYESHA RASCOE, HOST:

Transportation Secretary Pete Buttigieg calls the federal government's initial $60 million to the state of Maryland a, quote, "down payment" on the cost to clear and rebuild the Francis Scott Key Bridge. Lloyd's of London's Bruce Carnegie-Brown estimated the total cost this way.

(SOUNDBITE OF CNBC BROADCAST)

BRUCE CARNEGIE-BROWN: It feels like a very substantial loss, potentially the largest ever marine-insured loss.

RASCOE: That's the insurance market's chairman speaking to CNBC Thursday. Carolyn Cohn covers insurance as a correspondent for Thomson Reuters, and she joins us now from London. Thank you for being with us.

CAROLYN COHN: Thank you, Ayesha.

RASCOE: The Washington Post reports that rebuilding the bridge alone could cost between 600 million and a billion dollars. Barclays estimates that the total price tag could be $3 billion, others more than that. What's included in that larger number, beyond the steel and concrete?

COHN: Sure. Well, obviously, there's the ship, as well, that went into the bridge, but maybe one of the most important costs is going to be for business interruption for all the ships that got, you know, stuck in port, can't get out, for the ones that can't get in, all the goods that are being delayed traveling around the world. Those ship owners or those cargo owners can claim on their insurance for that delay to their business that's going to cost them money. Also, obviously, we do sadly - you know, there will be compensation payments for the lives lost and any injury, so there's a lot of different things going on there, not just the bridge, obviously, as you mentioned.

RASCOE: Would you agree that Lloyd's is most exposed here? And what will that mean for that particular insurer?

COHN: I'm not sure that Lloyd's is most exposed. They definitely will be exposed, but there are - tend to be a lot of insurers involved in this around the world. We've got big insurers in the U.S. There are insurers based in Bermuda. We also have reinsurers who insure the insurers.

RASCOE: Can you talk to me about reinsurance? For the people who haven't heard of that before, how does that work?

CARNEGIE-BROWN: OK. So let's say you've got a ship, and I want to insure your ship. But your ship costs quite a lot of money. I might think that I can't afford that. And so I then go and buy some insurance from a reinsurer. So if your ship goes down, I pay you, but I can then get some money back from the reinsurer. So it's really all about the insurers spreading the risk and spreading...

RASCOE: All around.

CARNEGIE-BROWN: ...Their potential losses around the market.

RASCOE: Is there a reinsurer for the reinsurer?

COHN: There actually is. It's called retrocession.

(LAUGHTER)

RASCOE: OK.

COHN: And apparently, the people in the market is saying that the retrocession insurers could actually be hit by this. So retrocession only comes into play when there's a very big loss.

RASCOE: So currently, the most expensive marine insurance loss happened after the Costa Concordia cruise ship capsized in the Mediterranean in 2012. All in all, that was more than a billion and a half dollars. What was the financial aftermath of that disaster?

COHN: Marine insurance rates went up because that's what tends to happen whenever there's a catastrophe. We did actually have quite a few years then of sort of falling insurance rates because there was a lot of competition in the market. And then we've had the invasion of Ukraine, which affected shipping in the Black Sea. We've got the situation with Israel and Gaza, which is affecting shipping in the Red Sea. We've got a tax on ships there. All of that has been putting marine insurance rates up.

RASCOE: I mean, so is there any dollar amount that would make you rush to your pay phone and tell your editor and send a snap out really fast? You know, how much money would it take to really jolt the insurance and reinsurance industry?

COHN: Well, I'd say, I think, as you mentioned earlier, there's - some of the analysts are putting the level at 3 billion, or we've even seen 4 billion. I'd say that maybe if we saw double that, you know, if we saw six, eight, $10 billion...

RASCOE: It would take that amount.

COHN: I think so, yeah.

RASCOE: That's Carolyn Cohn of Thomson Reuters. Thank you so much for speaking with us.

COHN: Thank you very much.

(SOUNDBITE OF MILKDRIVE'S "ORION WALTZ") Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Ayesha Rascoe is a White House correspondent for NPR. She is currently covering her third presidential administration. Rascoe's White House coverage has included a number of high profile foreign trips, including President Trump's 2019 summit with North Korean leader Kim Jong Un in Hanoi, Vietnam, and President Obama's final NATO summit in Warsaw, Poland in 2016. As a part of the White House team, she's also a regular on the NPR Politics Podcast.