Indonesia: A Force with a Growth Spirit

Indonesia, the biggest in Asean and the 16th largest market in the world with a GDP of US$933 billion, is a force of its own even in the insurance arena. And this 23rd Indonesian Rendezvous with a good pull of some 400 delegates from ten countries bear testimony to its importance.

The Rendezvous with Mt Agung on the verge of erupting and with thousands in the north of the island being evacuated, might provide an ideal setting to discuss the NAT CAT risks facing the country as well as the wide protection gap. Non-life premiums only accounts for 0.51% of the GDP and the per capita spend on general insurance is only US$18.2 with a population base of 261 million in 2016. In gross terms, Indonesia’s general insurance premium is the 38th largest in the world at US$4.740 billion in 2016 according to sigma figures.

But everyone is banking on Indonesia’s growth potential which has been coming for a long time now. There are strong promises of infrastructural developments with more towns coming up and the attending construction projects too.

In many way Indonesia was one of the early movers in liberalising the market but it has taken many turns as well. And the focus for the past two years has been back to domestic to give a chance for the local companies to beef themselves up. Though being challenged internationally as being protectionist and against the spirit of free trade, internally it has started to bear fruit. There are now more local companies with a stronger capital base too. And now all eyes are on the new national reinsurer Indonesia Re with speculations rife as to will it be old wine in a new bottle, or a true force for change in this digital era where data and analytics is everything.

At this Rendezvous, networking aside, the stress is on the theme of fighting fraud. Fraud is a huge issue for the entire global insurance industry with estimates ranging from 10 to 25% of all premiums being eroded by fraud. Will technology make insurers smart at controlling fraud or in reverse, will the IoT make the claimants more fraud savvy and milk the insurers. Will companies be ready to admit they got scammed?

But the key point is that industry must be ready to document and share data of FRAUD from suspicions to actual evidence. But will the laws allow that? Can data protection laws extend to protect policyholders who are colluding in trying their luck with getting a claim paid?

Lessons from the Indonesia Rendezvous will be needed to be shared widely to help the industry as a whole, as in many ways Indonesia is the natural leader of Asean and the Asean Economic Community.

Here’s to a great rendezvous with fruitful discussions and enduring friendships!

Risk management key amid changing insurance landscape

Indonesia is in the midst of modernising its insurance industry, which brings both opportunities and challenges to a diverse range of insurers across the country. Current market conditions and a relatively benign catastrophe loss environment presents insurers with a prime opportunity to further strengthen their capital adequacy and Enterprise Risk Management (ERM).

Total insured property and engineering exposures have increased at a rapid pace over the last seven years in line with the overall growth of the Indonesian economy. Over the same period, reinsurance cessions and exposure adjusted reinsurance purchases have steadily declined and domestic reinsurers are now more exposed to large loss as a consequence. Regulatory changes since 2014 have helped to facilitate these trends.

As Indonesia’s insurance sector continues to develop, reinsurance remains a key risk mitigating strategy. As part of this holistic approach to risk management, well-structured programmes that provide risk-bearing capital at attractive costs are critical for the longer-term health of the sector. Over time, insurers with well-executed strategies will emerge in a much stronger position to underwrite, price and ultimately retain more risk prudently.

Property and engineering exposures were significantly higher in 2016 compared to prior years on a net of reinsurance basis. This is due, in part, to recent regulatory changes requiring higher per-risk retentions for insurers and compulsory cessions to domestic reinsurers.

Exposure-adjusted premium rates have fallen over time, including reinsurance rates, with property catastrophe rates declining by up to 20% p.a.

Recent trends point to a ‘rationalisation’ of reinsurance purchasing, resulting in limits remaining static and only modest increases in retentions compared to the rapid growth in exposures.

Nevertheless, current coverage levels still appear to be adequate on a 250-year PML basis, albeit with a reduced ‘safety buffer’ in the event of non-modelled perils such as flood or other non-accounted for exposures.

Since 2014, counterparty exposures of primary insurers have also shifted towards domestic reinsurers. Given the current regulatory landscape, this is likely to persist in the short term.

The ability to write non-Indonesian business will therefore bring much needed diversification to domestic reinsurers. At the same time, increased regulatory retentions increase the need for insurers to have more sophisticated underwriting controls, ERM and capital management capabilities in place.

Given the large dependency on reinsurance as a source of risk-bearing capital, ensuring reinsurance programmes are fit–for purpose will be critical, especially in Indonesia which is heavily exposed to natural perils.

“While insurance and reinsurance premium volumes have grown in line with the market, this has not kept pace with the overall increase in exposures and risk”

Significant increase in retained exposures after 2015
While insurance and reinsurance premium volumes have grown by an average of 10% p.a. in monetary terms between 2011 and 2016 in line with the market, this has not kept pace with the overall increase in exposures and risk. In other words, exposure-adjusted premium rates have fallen over time.

This has been especially true for reinsurance rates, particularly after 2014 where the rate of increase has lagged behind primary rates. The lack of catastrophic loss activity in Indonesia in recent years is likely to be driving this continued appetite for risk and availability of reinsurance capacity.

Increased concentration in counterparty risk
While there is a general trend of increasing cession rates to domestic reinsurers, it is important to note this is not solely due to regulatory change. There are many other influencing factors such as reinsurance pricing, renewal terms and available capacity which come into play as well.

A share of the cessions to domestic reinsurers are also retroceded out to international reinsurance groups, so the true proportion of the total risks that are retained within Indonesia is lower than what can be concluded given the available data.

Overall, JLT Re believes that this pattern is likely to be similar across many of the reinsurance placements of all (or most) insurers in Indonesia, indicating an increase in concentration of risks across a smaller pool of domestic reinsurers.

The trends highlighted have implications for the risk management functions of Indonesian insurers and reinsurers. Proactive measures taken now in the areas of ERM, capital and risk management will enable organisations to differentiate themselves from their peers and reward those willing to make the investment.

ERM / Business / Capital Management
Many Indonesian insurers already employ internal ERM frameworks which encompass a range of risk mitigation efforts. However, increased dependency on a smaller pool of reinsurers highlights the need to monitor concentration risk more closely.

Increased retentions can be positive for insurers where accompanied by indepth consideration for risk tolerances, capacity optimization and underwriting discipline. JLT Re notes that this has been the approach taken recently by the Indonesian Financial Services Authority (Otoritas Jasa Keuangan or OJK). This also highlights the need for risk management strategies to consider more than reinsurance.

Catastrophe Exposure Management
The need to quantify flood exposures remains a challenge particularly with the large concentration in Jakarta. The capital is prone to regular flooding and has experienced significant economic losses in recent years, in particular, in 2013 with an insured loss of USD 250 million.

Many insurers and reinsurers make use of catastrophe vendor models to provide a view of their retained and ceded catastrophe risk, and keeping pace with current and future modelling changes will be important to supporting and improving overall ERM and accumulation control efforts.

A better industry

Pak Frans Sahusilawane, CEO of IndoRe, shares his thoughts on how the industry has changed for the better in the past year and what else it needs to do to continue improving.

How has the latest regulation on reinsurance cessions affected insurers in Indonesia?
There is a number of positive impacts, as I see it. First, the regulation requires insurers to increase their minimum per-risk retention. This resulted in a big increase in their retained premium income. Second, because of this, combined with RBC rule and the need to invest in new technology, we start to see companies increasing their capital way above the minimum requirement. I see the sign that this starts to bring about all those good things that come with the increase of internal resources in corporate’s strategy. So, a good sign for the future of the industry.

There had been a concern of possible knowledge-gap created because of reduced involvement of international reinsurers. This proved to be unfounded, as there is still an access to international market provided by the regulation.

There had also been a concern about potential ‘LMX-spiral like’ operation as recently experienced by Thai market in 2011/2012 flood. To this, I would like to say that after more than a decade of promoting catastrophe risk awareness within the industry and to public at large compounded by new knowledge flowing in the industry from various research, the knowledge and capabilities of our insurance players in catastrophe risk management has increased tremendously. I understand all our general insurance companies have their catastrophe exposure assessed by catastrophe model like RMS, AIR, Catalytics, and MAIPARK in programming their catastrophe reinsurance protection. Furthermore, I see the trend of general insurance companies reducing their involvement in uncontrollable exposure source of business such as proportional reinsurance treaties.

On life insurance side this kind of reinsurance exchange among direct insurers are second to none. After all, despite vast insurance premium produced on the life insurance side, I believe now coming up to IDR 200 trillion, the life reinsurance premiums is not big, since only mortality risks are reinsured. I believe the total life reinsurance premium this year will be around IDR 4 trillion only, and the biggest chunk of it has always been placed locally.

Fitch’s recent report on Indonesia’s Reinsurance market forecast high profits in 2017. How is Indo Re planning to take advantage of this growth, from a strategic standpoint?
We are building and enhancing our dynamic capabilities especially in three areas: financial capital, human capital, and technology. Financial capital has been taken care of by our shareholder with commitment of up to IDR 10 trillion additional capital depending on the portfolio we develop. Human capital and technology are in the pipeline of process. Apart from that with our product differentiation, especially through our unique “NES” Policy we were able to book a growth of 56% and 50% in the last two years and around 25% in the first semester this year.

The Indonesia Rendezvous will focus on fraud prevention in insurance. Are insurers doing enough to stop fraud and money-laundering? How much should the regulator get involved in this?
Insurance and reinsurance players, especially on life insurance side, are governed by a number of laws and regulations which are observed cautiously to prevent money laundering.

On insurance fraud by the insured, there have been a number of quite serious cases experienced in the Indonesian insurance market. Therefore, various measures have been on this, but they seem to be partial and uncomplete. I believe we need a much more comprehensive, wider and complete set of measures.

On prevention of fraud by insurance practitioners, all insurance and reinsurance companies and practitioners are subject to the same generic laws and regulations but you will see different set of rules apply in different group of companies. In all, if we can make comparison, our insurance industry is way behind that of the banking industry.

Welcome to the 23rd Indonesia Rendezvous

For 23 years now the Indonesia Rendezvous has been held as an annual affair, first starting out as the Batam Rendezvous before assuming its current name and location. Held in Nusa Dua district of Bali, the event has become a mainstay on the Southeast Asian insurance conference calendar for those active in the region’s largest market.

This year, the Rendezvous will be looking at fraud management as a priority – especially in the context of cyber which can be a trigger for new forms of insurance fraud.

And in the usual tradition, delegates kicked off proceedings last evening with the Welcome Cocktail and Gala Dinner. Below are some of the highlights.

The Continued Battle Against Fraud

At yesterday’s panel discussion, Pak Budi Setyawan Wijaya, CEO of PT. Admedika, laid out the 8 steps the industry can take in their fight against fraudsters.

  • Data protection and privacy – emerging digitization and the increase of data in recent years means that insurers have an even greater responsibility to keep customer data secure and confidential
  • Access to external data – external data improves the overall health of insurance portfolios by seeking the right balance in risk coverage. There needs to be a general improvement in data sharing between insurers and other bodies within the financial industry, as well as government agencies
  • Internal data quality – to make use of data to improve security within the industry as a whole, quality of data collected by individual insurers needs to be finetuned. The is an opportunity for improvement in how the industry records information and in changing the way registration systems are implemented
  • Commitment from the organization – fighting fraud should not be sole responsibility of the fraud department and the entire company needs to be involved. In order to fight fraud effectively, it is critical to establish fraud awareness throughout the entire organization
  • Cooperation with other insurers – beyond sharing information on claims histories and fraud cases, insurers also need to work together on a deeper level, by sharing relevant technologies and techniques
  • Understanding the modern criminal – successful detecting organized fraud activities will vary by culture and is usually a sensitive topic. Understanding how fraudsters operate will help an insurer stifle their attempts. As the effort to commit fraud increases, the desire to do so decreases
  • Integrating with IT – Advanced AI technology and comprehensive IT systems go hand-in-hand with most fraud solutions. These solutions become easier to implement and integrate into any core system and should complement each other
  • Updating internal fraud detection systems – possible fraud cases can be more efficiently pinpointed if all relevant information is available on one system. Unfortunately, many insurers still rely on manual processes, which causes significant delay in reaction time

What to watch out for when implementing fraud detection systems
Mr Kanny Lee, Executive Director of Fraud Investigations and Dispute Services at EY Singapore, also provided some helpful tips for insurers looking to implement their own fraud detection processes.

“Look to your front line. Your employees know best how fraud can be committed against your company, so get feedback from them,” he said. “Don’t confine the fraud technology divisions to IT.”

Further, he suggested against using predictive models, as prediction requires a concise and diverse historical data set. Beyond the challenge of collecting such data to an accurate enough level that the model requires, no insurer wants to be in a position where a predictive model has enough data to actually work well.

What an insurer should do is to figure out their own fraud patterns, beginning with an assessment that pinpoints issues that their business is facing. From there, understand the fraud activity will evolve, just as the security against fraud evolves. A transition from a rules-based toolkit that checks the necessary boxes to more robust behavioural analytics will aid in detecting and preventing more sophisticated forms of fraud.

Fostering a cooperative environment
“We need to be mindful of the importance of cooperation between stakeholders, enhancing the effectiveness of anti-fraud efforts in the insurance industry,” said OJK’s Pak Riswinandi, the new Chief Executive of Non-Bank Financial Organizations. “The stakeholder is not only within the insurance industry and the government, but includes board of commissioners, directors, internal auditors, claims handlers and other employees.”

He also encouraged roping in other professionals within the industry, including accountants, loss adjusters and intermediaries. “In the case of health insurance, it includes the medical professionals who handle the insurance and the insured,” he added.

“We implore the AAUI to take the lead and engage in optimizing each stakeholder in minimizing the existence of fraud occurrences,” he concluded.

Mt Agung still at risk of eruption

The Mount Agung volcano has threatened to erupt for weeks, with initial tremors beginning in August. Tremors and minor quakes continue to rock the island of Bali, while the volcano itself spews smoke into the sky.

Officials have declared the volcano to be in a ‘critical’ phase for weeks, with the island’s governor Mr Made Mangku Pastika, declaring a state of emergency on September 22 - which has since been extended to October 16. While more than 140,000 residents were evacuated due to the seemingly imminent threat, about half have already returned to their homes.

White steam continues to pour from the summit and officials have set up a no-go zone 12 kilometres from the crater. Monitoring of the volcano has also been increased, with the launch of five drones by the Indonesia National Board for Disaster Management (BNPB).

The island has been on the highest alert level for several weeks, and tourism has dropped since. Mr Made insists that the island is still safe for inhabitants and visitors, as majority of the island’s tourist activities are well outside of the danger zone.

Indonesia Insurance Dashboard

Potential Economic Development to Spur Insurance Growth

Fitch Ratings expects a boost to Indonesia’s insurance premium growth in 2017 following positive economic developments, as we expect GDP to pick up to 5.3% from 5.0% in 2016. Fitch expects growth in property, credit guarantee and engineering insurance, following a higher government budget in infrastructure which is up by 123.4% for 2017. This is despite slower growth of non-life premiums of 4.1% in 1Q17, affected by the slow recovery of domestic automobile sales.

Fitch expects moderate premium growth in the life sector, underpinned by the sustained demand for unit-linked products. We forecast the life sector will continue to dominate total industry premiums, with bancassurance and agency remaining the key drivers. Expansion to other channels should also continue, such as e-commerce which was up by 17.7% in 2016.

What to Watch

Loss Ratio Remains Manageable: The non-life loss ratio improved following lower expense claims for property and motor vehicles in 2016. Fitch expects this lower trend to continue along with manageable protection from reinsurance coverage and expected non-life insurance premium growth.

Rise in Motor Insurer Tariff: Fitch estimates motor premiums will not be significantly hurt by the tariff hike that has been effective from April 2017, since over 70% of vehicle sales and a large proportion of motorbike sales are sold through financing schemes, whereas vehicle financing requires the buyer to take an insurance package. Hence, demand tends to be more secure for this category.

Bancassurance as Main Life Channel: Bancassurance’s share of life premiums overtook that of agents in 2016, having contributed 43% of premiums – up 74% from the previous year. Fitch believes Bancassurance still holds great potential as the most effective distribution channel, taking into account its customer base, convenience and competitive pricing.

Ratings Impact: Neutral Fitch expects the credit profiles of our rated insurers to remain steady, underpinned by stable capitalisation and manageable investment risk.

Source: Fitch Ratings

Mckinsey Report: What Southeast Asia needs to become a major player in artificial intelligence

For artificial intelligence to take hold in Southeast Asia, the region needs more defined business use cases, better data ecosystems, and more concerted talent-development efforts.

Artificial intelligence (AI) is still in its early stages in Southeast Asia: the use of machine learning—an AI application in which machines are given access to data to learn from—is just beginning to have an impact on the region. If Southeast Asia wants to catch up to the United States and China, the two major hubs of AI development, it needs to coordinate efforts to put fundamental building blocks in place.

All member states of the Association of Southeast Asian Nations (ASEAN) are engaging in some level of AI research, with Singapore leading ASEAN in AI experimentation across multiple industries. While such sparks of activity are encouraging, the region requires nations to identify specific business use cases, to create more robust data ecosystems, and to better develop talent and capabilities if it wants to realize its full potential.

Properly nurtured and developed, AI research and development has the potential to bring about many positive outcomes. Machine-learning innovations can enhance credit models and financial inclusion, for example. AI solutions can also enable new types of preventive and remote healthcare, and may also improve diagnoses and accelerate drug development. In education, adaptive-learning algorithms could be used to develop individualized lesson plans and virtual classrooms.

Different sectors in ASEAN are currently at varying levels of digital maturity (exhibit). If AI development were left purely to market forces, early adopters in financial services and in high tech and telecom would be likely to extend their use of the technology. But much greater value in other sectors would remain largely untapped.

Capturing this value and realizing AI’s potential to improve social welfare will not happen organically, however. It will take structural interventions from policymakers combined with a greater commitment from industry participants. The region’s governments, for example, will need to commit to building a foundation of digital infrastructure and agree to systematize the collection and dissemination of large quantities of data. And while the marketplace ultimately will drive the development and adoption of specific AI applications, governments have a critical role in making sure that the benefits of AI—new products and services, increased productivity, and most importantly greater national income—are shared across the society.

To achieve these goals, governments would be wise to focus on three major priorities:

  • establishing a regional policy framework to support AI development and adoption,
  • developing AI talent and encouraging usage at the local level, and
  • focusing public debate on ensuring that AI contributes to inclusive growth and positive social outcomes.

These interventions are primarily about guiding an inevitable wave of change to quicker and better effects. For now, Southeast Asian nations can begin to ask some of the big questions that each society must answer for itself: Is it ready to share personal data? Will the digital divide only get worse? Which innovations are worthy of public funds and partnerships?
Bringing these questions into the open is the most important step in ensuring that AI advances benefit the region’s economies and create a better society.

Footnote: This article originally appeared on McKinsey’s website

Work needed for better treatment of seafarers in accidents

A high level code of investigative conduct should be developed for maritime nations in order to have a more transparent and efficient process when dealing with maritime accidents in sovereign waters, said Captain Jonathan Walker of the London Offshore Consultants in the Political Forum workshop yesterday morning.

Speaking on the topic ‘Government intervention impacting the cost of claims’, Captain Walker said that while the industry acknowledges the sovereign right of authorities to conduct investigations, detention and long delays still occur which, among others, may be due to a slow investigative process, convoluted laws and emotive local issues that may result in the criminalisation of seafarers.

Crucially in some cases, the grounds for such detentions have not been clear to the seafarers being detained or to the international maritime community, he added.

Captain Walker offered several suggestions which includes a unified approach by the International Maritime Organisation (IMO) to develop a marine investigation code to ensure greater transparency, as well as a call for the IMO and ILO to develop early release procedures for seafarers under investigation by member countries.

He added that many seafarers suffer emotionally and financially from the long detention of vessels, and much more needs to be done to protect them from unfair incarceration.

He also encouraged marine insurers to be more proactive in maintaining regular conversations with government officials, as appointed officials may change quite frequently in certain jurisdictions.

Both insurers and governments should also ensure that those dealing with marine casualties have the requisite knowledge and experience, as a lack of expertise would increase cost dramatically.

Two-thirds of all ferry accidents happen in 5 countries

Approximately 3000 people die every year in ferry accidents, said Mr Neil Baird of the World Ocean Council during his presentation on fatal ferry accidents. “I say approximately, because reports are few and far between, especially in the black box of local government.”

Mr Baird also added that 80% of all ferry accidents over the past 15 years occurred in ten countries, while 66% occurred in five - Bangladesh, Indonesia, Philippines, Tanzania and the Democratic Republic of Congo). “Fatal ferry accidents are overwhelmingly concentrated in the hot, humid, poor, corrupt and water transport dependent areas of the tropics,” he said.

In these danger zones, a lot of the vessels used are mismanaged or mishandled, lacking adequate safety measures and are poorly maintained. Most of them also suffer from overcrowding of passengers.

Even still, the best designed, built, equipped and ‘safest’ ship is doomed if its commander and officers fail to exercise good seamanship and common sense, he said. Human error is the cause of 98% of all fatal ferry accidents. However, there are still incredibly unsafe concepts for seafaring vessels, such as the monohull Ro-Pax and the Filipino motor bancas.

Governance and enforcement needed

Ferry accidents cause about 4 times more fatalities than aviation accidents, but remain woefully underreported. He brought up the ‘Dona Paz’ disaster in the Philippines in 1987, which had over 4000 fatalities, but remained mostly unknown by most people in developed countries. While the advent of the internet has caused a large spike of reported incidents – almost tripling the number of reports – there is still not enough done to resolve the issue, with local authorities appearing remarkably unconcerned.

“Poverty, corruption, ignorance, fatalism and negligence combine to contribute to the appalling record in these 5 countries,” he said. “With the exception of the Philippines, nothing is being done to improve the situation, with some of them getting slightly worse.”

The extent of corruption bleeds into all aspects of the ferry operation, to loading controls, safety surveys and awarding of certificates of competency, as highlighted in the inquiry reports of the Rabaul Queen (Papua New Guinea, 2012) and Sewol (South Korea, 2014) incidents. The Sewol disaster also revealed how even developed nations are not immune to this problem.

There seems to be no aid to be received from international bodies, either. “IMO mandate specifically excludes domestic travel, which is the majority of all ferry travel,” said Mr Baird. He criticised the IMO for their ‘token’ efforts in some of these developing nations, even after considerable urging from Interferry and Worldwide Ferry Safety Association.

Prediction of more regulations

During the panel discussion on regulation, attendees were surveyed about the current state of regulations. The answers below highlighted very obvious trends within the industry, as well as the concerns marine insurers have.

"Far too many regulators do not understand us at all, but they do control our destiny, which is why we have to try to get through to them," said Mr Neil Roberts, of Lloyds Market Association and Committee member of the Political Forum.

Do you think there will be less government intervention in the future?

  1. No
  2. Yes

The main driver for regulation will be

  1. Environmental concerns
  2. Safety concerns
  3. Disruption (technology, geo-policies)
  4. Financial

Is the industry prepared for a cyber attack on connected systems on board vessels?

  1. Yes
  2. A few companies are
  3. Most companies are
  4. No

Can regulation keep up with disruptive new technologies?

  1. Yes
  2. Yes - in 20+ years
  3. Not likely
  4. Never

Japan's fishing industry has recovered post-tsunami

The earthquake and tsunami that ripped through the Tohoku region of Japan in 2011 almost brought the local fishing industry to its knees. Six years on, the resilience of the Japanese people is evident, as Mr Koji Okumura of Munich Re reported that the Japanese fishing industry has hit 99% of its recovery targets.

The 9.0 magnitude undersea earthquake – the strongest recorded in Japan and the fourth most powerful earthquake since 1900 – triggered tsunami waves up to 10 meters high, leading to the destruction and damage of almost 29,000 fishing vessels and 319 ports. Combined with the losses in aquaculture facilities and stock, the total cost was just under US$16 billion.

The local government targeted 20,000 of those vessels to be repaired and returned to full function, of which they have hit 92% of the target as of this year. 99% of all affected ports have recovered to full operation and 99% of all wrecks have been removed from aquaculture and stationary fishing sites.

Improving Japan's fishing industry

However, there are still challenges that remain for the fishing industry. The number of fishermen have been declining over the past decade, with only 160,000 remaining as of 2016 (there were 222,000 recorded in 2008). At the same time, fishermen are an ageing population, with their average age at 56.2. There has also been a decline in the consumption of fish in Japan.

Furthermore, only 167,111 fishing vessels have been insured as of 2016, representing a steady drop since 2012, even less than the number of insured vessels in 2011.

However, several efforts have been taken to continue improving the health of the fishing industry. An expansion of the direct fishing market is underway, providing fishermen the ability the sell directly to customers and afford them better control of prices.

Improved risk management against tsunamis have also taken place, with the construction of more breakwaters and embankments, as well as updated evacuation simulations and guidelines.

Maritime sector faces evolving risks?

The maritime sector is seeing new and emerging risks and facing challenges. In this extract from a speech, Mr Todd Wilhelm of QBE Insurance gives an overview of the sector today.

Today’s marine insurance sector is as much in a forward-moving mode as it has ever been. Whether we like it or not, there is no turning back to a more predictable global economic environment and a calmer geopolitical situation.

There is also no turning back to what one maritime economist calls “The Marvellous Millennium”, the period between the late 1990s and 2008, when surplus capacity was a rare event, and when ship owners saw fortunes coming back in their favour. No turning back to the days of fewer regulations, lower compliance requirements and less disruptive innovation. Gone are the times of smaller, less complex ships.

Climate of uncertainty

Today, we operate in a climate of uncertainty. For example, today’s environment is one where a number of nations are negotiating more free trade agreements, yet there is also concern over increased protectionism in some markets.

What’s more, there are predictions that, over the next couple of years, global trade will grow at the slowest pace since the last financial crisis. We seem trapped in a place where variable economic reports and political instabilities impact business confidence.

For insurers, the concerns go beyond the growing sizes and increasing complexities of ships, not to mention worries about salvage capabilities when a large ship is lost. The conversation also includes concerns about the massive cargo values that these gigantic vessels may carry.

Ultra large vessels can quite quickly translate into ultra large losses. The concentration of risk is considerable when you think about: a US$200 million ship could be transporting 19,000 TEU that collectively might hold several hundred million dollars’ worth of cargo.

Insurers must know what clients/ brokers are looking for

Against this backdrop of continued uncertainty and rising risk intricacies, maritime insurers really only have one option. Like Cort├ęs’ men, they also need to move forward.

Obviously, this must be accompanied by our vow to continue providing and delivering insurance products that meet the particular needs of the maritime market.

Equally obvious is the fact that insurers cannot move forward as if we are on our own little island. We need to continue to collaborate closely with brokers, agents and end-customers to identify and satisfy their needs. We must be ready to offer bespoke solutions regardless of how complicated the issue. We also need to continue to share information and data, not only on products, but also on trends.

Ultimately, we need to be customer-focused in product innovation. Customer-driven in product design. Most importantly, we must be customer-centric in product delivery.

New breed of marine underwriters

The most acute need is for a new breed of marine underwriters who understand the evolving risks, and can tailor products to meet the marine industry’s changing needs.

As the President of the International Union of Marine Insurance has noted, marine underwriters are now facing levels of risk previously unheard of. This means that within the insurance industry, we need to continue to attract, develop and cultivate smart, solid, technically capable marine underwriters. It is imperative that we create and retain specialists with expertise not only in underwriting, but also in issues related specifically to shipping.

This article was first published in Asia Insurance Review, October 2016.

Cape Town beckons in 2018

The IUMI Conference moves to Cape Town, South Africa, next year where the organisation will hold its 144th Council Meeting.

We all look forward to another exciting edition of the conference against the splendid backdrop of South Africa’s enchanting southwest coast!