Insurance - Caution remains the watchword

Mar 29 2018

Against the backdrop of encouraging global economic growth and an improved outlook for the shipping industry, the International Union of Marine Insurance (IUMI) gave a roundup on the current state of the hull, cargo and offshore energy insurance markets at its recent Spring Conference held in Hamburg.

For hull casualties, the past three years saw the frequency of total losses within the global fleet stabilise at 0.13% by number (0.05% by tonnage).


This was largely attributable to an improved safety climate, improvements in naval architecture and marine engineering; and more effective regulation, IUMI said.


Total losses involving vessels younger than 15 years were significantly less during the 2013-17 period than the years 2008-2012. The frequency of serious casualties had increased since 2014 but appeared to be stable in 2016-17.


Concerns within the hull insurance market remain, however. "All hull markets acknowledge the severe volatility inherent in a typical international hull portfolio," said Mark Edmondson, chair of IUMI's Ocean Hull Committee. "The global premium base has been eroding year-on-year as a result of reduced asset values, reduced activity in some sectors, and reduced premium rates. Although the financial impact of major casualties was modest recently, increasing values of single risks bear the potential risk of new record losses, and attritional losses are a growing concern."


Alongside risks involved in operating ever larger vessels, IUMI was also concerned about advances in the digital applications involved with naval architecture and the operation of vessels – particularly crew training and their ability to manage cutting edge technology and large amounts of data. IUMI said it was seeing evidence that the frequency of collisions was increasing, possibly resulting from the introduction of modern technology.


As for cargo insurance, the marine cargo insurance market was improving and stabilising but remained highly competitive with an abundance of capacity, IUMI said.


Amongst the many challenges are larger and more complex risks, natural catastrophes (NAT CAT), vessel and port accumulations and larger costlier losses. The sector is facing a commoditisation of speciality lines, an increase in broker facilities with high commissions and rising expense ratios. In addition, underwriters must comply with sanctions and requirements for globally compliant programmes, including locally admitted policies, where required.


Cargo underwriters were being stretched to evolve and improve their products, explained Sean Dalton, Chair of IUMI's Cargo Committee. "The modern cargo policy has been significantly enhanced to include storage extensions, broad policy valuations and coverage provisions, such as Control of Damaged Goods that provide for 'fear of loss' and 'brand protection'. As underwriters, we are being challenged to improve our approach and utilise tools such as third-party data, sensor technology and predictive analytics."


"Cyber is also a concern", Dalton added. "Most policies remain silent on cyber issues, but the recent Maersk NotPetya attack highlights potential exposures and consequences. Policies that raise the greatest potential risks include Freight Forward Liability cover, such as NVOCC Legal Liability, Indirect Air Carrier Liability and Errors and Omissions."


Last year saw the worst NAT CAT losses in history for the property and casualty (P&C) insurance sector – caused by hurricanes Harvey, Irma, Nate and Maria, the earthquake in Mexico, monsoons in Bangladesh, storms in Durban and wildfires in California.


Since many marine insurers are part of larger P&C companies, they were also affected by these NAT CAT losses and now face increasing pressure to improve results. The losses come immediately after earlier, large claims, including the Amos 6 satellite, Tianjin port explosion and the insolvency of Hanjin.


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