Marine insurance prospects in Asia are good but the intense competition has translated into overcapacity and under-performing businesses. Mr Todd Wilhelm of QBE Asia Pacific addresses this concern as well as the need to boost the talent pool, invest in technology as well as incorporate risk management as a tool to provide value-added services to the maritime sector.
To paraphrase the immortal drawings of Peanuts creator Charles M. Schultz, the marine insurance business is a lot like a deck chair on a cruise ship. There are some passengers who prefer to face the back of the ship, so they can see where they have been. Others like to point their chairs forward, so they can see where they are going. A few, it seems, cannot get their deck chairs unfolded.
The moral of this comic strip wisdom for maritime insurers in Asia: we need to make sure our deck chairs are open and facing in the right direction. Namely, forward.
Since the turn of the 21st Century, Asia has been powering the growth of the world economy, becoming the undisputed centre of global manufacturing in the process. Going forward, Asia will eventually also become the centre of global consumption. This in turn will result in a rise in intra-regional flows, which will translate into increased maritime activity in the region going forward.
Asia’s maritime sector has been a key contributor to the region’s growth and as the numbers suggest, also a benefactor. Nine of the world’s 10 busiest ports are in Asia. The top five shipbuilders in the world are all Asia-based. Four of the five top shipowners are in Asia, along with two of the largest ship finance centres.
With Asia now playing a more prominent role in the global maritime sector and intra-regional activity expanding, marine insurers in the region should have it pretty good. After all, there should be a correspondingly high demand for more marine-related insurance services in Asia.
The reality, though, is somewhat different.
Market competition and the long-term outlook
Although the current economic volatility is having a negative impact on markets, businesses and sentiments, the long-term outlook for the region remains positive. Insurers willing and able to look past the short-term are still interested in expanding their presence in the region.
In mainland China for example, the number of domestic and foreign insurers has roughly tripled in the last decade. Or to again use the deck chair analogy: we are seeing an increasing number of insurers all desperately seeking the same sun.
The result has been overcapacity in Asia, which is translating into some under-performing businesses caught in a continuing soft market cycle. Profitability is becoming increasingly elusive for the individual underwriter and largely absent even on a global basis.
The intense competition means there is going to be some winners and some losers amongst insurers. The losers will be the insurers who try to compete on price alone, hoping they can grab a slice of Asia’s expanding marine market. The winners will be the insurers who look for long-term relationships and who strive to bring value-added services to their partnerships with Asia shipping clients.
QBE, for its part, sees Asia’s maritime sector as one of the strategic pillars of our continued growth in this region. Our aim is to be a leader in this market segment.
What will drive Asian insurers going forward?
Currently in Asia, there is a shortage of product expertise to handle the increasingly complex needs of the maritime sector. As an industry, we need to invest more heavily in technology and in building the knowledge, the capabilities and the capacity to better participate in Asia’s growth story.
As an industry, we need to broaden the existing but rather limited talent pool by increasing collaboration between educational institutions in Asia and insurance associations like the General Insurance Association of Singapore. We also need to do more to promote insurance as an attractive career choice for young people just starting out and for others who are seeking a career path change.
As individual companies, we should look at providing more opportunities to attract new entrants to our industry. Increased numbers of internships in cooperation with educational institutions in the region is one obvious possibility.
Technology is also playing an increasingly important role in what we do and how we do it. In addition to attracting top talent, we need to be at the forefront of developing and using technology to increase our productivity and to provide seamless connectivity to our intermediaries and to our customers.
Modelling is another area that is vital to our success in serving the maritime industry going forward. We should be using the widest range of modelling tools to manage our portfolios. Indeed, the amount of data that is available to an underwriter today is absolutely mind-blogging. We can choose to use this data to our advantage or be overwhelmed by it.
The significant and steady flows of information we now have – together with the right modelling tools – should enable us to achieve and to deliver a more consistent approach that is in line with our business objectives. While no model is perfect, the benefits of using modelling tools still far outweigh the downsides of not using them.
Risk management enhances service quality
Another area that should not be overlooked is the advantage of using risk management as a tool to provide value-added services to the maritime sector. Risk management helps minimise the potential of a loss occurring, as the majority of losses are due to human error. Risk management also helps to improve the overall standard through the sharing of best practices.
Clearly, a soft marine insurance market is not good over the long term for the maritime industry, in part because it removes incentives for shipowners to continue to improve their standards over time. What is also clear is that Asia is not the only region facing this issue.
In London, there have been calls for insurers in general, and underwriters in particular to change the way they think amidst such a soft market and the way they work with shipowners.
Specifically, insurers need to be better at differentiating risks between the shipowners with good records and the poor performers. As a result, the shipowners with the highest operating standards should be able to enjoy benefits that come from having lower insurance premiums.
Now, some might believe that shipping is unlike all other sectors that we serve. After all, the shipping sector is dealing with everything from low freight rates, high operating costs and over capacity to tougher regulations and tighter environmental rules. Meanwhile ships themselves are increasing in size, in complexity and in tonnage. Although losses are now generally fewer and farther between, the severity when something does happen has increased.
I submit that shipping is actually very much like most other sectors that our industry serves. Indeed, the key to our mutual success lies with insurers recognising the unique risks shipping customers face and helping them find solutions for their particular needs. This means insurers and brokers need to work together to build a balanced, economically viable and sustainable partnership with the shipping sector.
In short, it means that as insurers, we need to be seen as much more than just passive passengers lounging in the deck chairs, along for the ride.
Mr Todd Wilhelm is Head of Underwriting at QBE Asia Pacific.