In the latest of our guest contributor articles, Richard Turner, President of International Union of Marine Insurance (IUMI) shares his thoughts on current changes, challenges and opportunities facing the marine sector.
The Marine insurance sector is currently showing signs of a market that is in some degree of disarray. That is not unique to Marine in the Specialty sector, which as a whole is facing familiar and often new challenges. At our recent annual conference in Toronto, IUMI tackled this situation head-on with our common theme ‘Confronting the Chaos for a Sustainable Future’.
The current changes and challenges – but also the opportunities – facing the marine sector can broadly be split into three themes: the cyclical state of our business, the structural changes affecting the sector and the impact the external world is having.
Shift in pressure and expectation
Firstly on the cyclical nature of our business, we have witnessed a change in market behaviour in the past couple of years, with many capital providers running out of patience with Marine losses (and for that matter, other Specialty lines too). We have seen a shift in pressure and expectation. For many years, supply in the sector has outstripped demand for the product.
The sustained period of unprofitability in many parts of our industry has meant that supply of capacity is now contracting, or at least becoming more demanding. Sadly, one of the outcomes of this situation is that expertise is lost from the marketplace.
While it is not IUMI’s role to police the market or set rate expectations (pricing is the individual insurer’s job), we do wish to see a market which is healthy, attracting specialist capacity and expertise that is here for the long term.
Looking next at the structural changes affecting the sector, we are seeing rapid developments in our ability to assess risks using data and digital tools. Part of this is coming from the way that the wider insurance industry operates, another is to do with the digital tools being deployed in the broader maritime and transportation sectors.
A potential benefit is that we can now perhaps start to think in terms of improvement and enhancements to the products we offer. Many of the clauses in use today were designed decades ago, long before the computerisation of ships as we know them today. There is surely an opportunity to rethink some of the coverage that we offer and how we react to claims situations. Maybe new types of claims handling and loss triggers will become viable too.
We are already seeing shifts in the online placement of risks. However we feel about it, this is surely going to become the norm for our industry.
Macro environmental factors
Finally, the impact of the external world continues to challenge and shape the marine insurance sector. The significant trade shifts of raw material shipments into Asia, and the surge in manufacturing there have combined to materially change the geographical distribution of import/export business. That has had ramifications for the distribution of Marine insurance: Asia now has a 30% market share of the global portfolio.
At the same time, the size of ships – containerships in particular – has been expanding. Part of the consequence of this is that we now see a bigger and bigger concentration of values on-board and in ports.
There is a lot of economic and political disruption too. It is obviously highly relevant because these issues directly affect the industries and clients that we support. Perhaps most concerning is the growth in protectionism. It’s not unreasonable to predict that prolonged imposition of tariff controls will adversely affect the size of our sector.
Aside from protectionist measures, we can also point to current political instabilities. Insurance companies in the UK have recently spent millions establishing new subsidiaries elsewhere in the European Union, simply in order to be certain of being able to write insurance contracts for EU clients in the post Brexit period.
Then there is the impact of climate change, as well as related environmental and social considerations. I would suggest there is little doubt that climate change is affecting the frequency and severity of weather related claims. When Hurricane Dorian hit a few months ago, it was the 35th ‘Category 5’ Atlantic hurricane in history: 5 of those Cat 5 storms have occurred in the past 4 years alone.
But the impact of climate change is not just felt in the obvious areas such as nat-cat events: it is also relevant in terms of the impact it is having on regulatory change. A huge change affecting the shipping sector is the introduction in 2020 of low sulphur fuels, a development that brings its own set of new risk uncertainties for insurers with the potential for the new fuels to cause damage to the engines on board ships.
So in summary, there are challenges aplenty. But it is not all doom and gloom. It is worth remembering that the marine insurance industry, throughout its very long history, has always found a way to adapt. Cycles come and cycles go, although the shape of them might be changing, and this cycle – like its forebears – will no doubt work its way through the system. We have as an industry have consistently found ways to reinvent ourselves. The marine insurance industry has the means to be innovative and inventive, and this is perhaps as important a skillset right now as it has ever been.