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Oct 2021

Marine insurance insights

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Source: Asia Insurance Review | Oct 2021

This year’s International Union of Marine Insurance annual conference offered something for everyone – with sustainability and innovation taking centre stage. We dialled in to get a sense of the depth and breadth of intelligence being shared during this essential event.
By Amir Sadiq, Anoop Khanna and Ridwan Abbas
 
 
Standing still is not an option for marine insurance
Richard TurnerOpening this year’s IUMI (International Union of Marine Insurance) annual conference president Richard Turner said that within the current context of change, standing still was simply not an option for the marine insurance sector.
 
Presenting IUMI 2021 theme ‘Pathways to a sustainable, resilient and innovative future’, Mr Turner said a wide range of options were available to maximise marine underwriting, however, in determining the best course of action and optimum direction, the issues impacting the sector need to be resolved.
 
He said in the present circumstances, the main issue was the impact of COVID. “In its widest sense, the pandemic has exposed the frailties within our global supply chains leading to unwanted delays and disruptions. These need to be addressed.
 
“Within marine insurance, COVID has sped up the shift towards online placements, the development of remote-casualty surveys and the increased adoption of digitalisation.”
 
Mr Turner said, “Whilst the full impact of the pandemic is yet to be played out, these changes are here to stay. We are likely to continue to see underwriters conducting increasing amounts of business from home and international travel curtailed somewhat.”
 
Increasing pressure due to climate change
Speaking about environment and sustainability Mr Turner said, “The Intergovernmental Panel on Climate Change is predicting that coastal flooding one-in-100 year events could now become annual occurrences.
 
He said, “Thinking about the high exposure of cargoes moving through ports and coastal areas, the marine insurance sector could be disproportionately exposed to these pressures on our coastlines.”
 
Digitalisation and human skill are integral 
Data and digitalisation will increasingly impact marine underwriting, specifically on how risk is selected and priced; as well as how business is distributed and placed. It will also be integral to the premium and claims handling processes. Hence, an optimum ‘blend of art and science’ will be required.
 
“We need to understand the areas where human judgement is both valid and important. Future underwriting will be a combination of human and computer analysis. Digitalisation has the capacity to improve pricing consistency, risk selection, cut cost, improve service – but I would doubt that technology will deliver the complete picture and I foresee a continued role for skilled practitioners applying necessary judgement to the process,” said Mr Turner.
 
Green fuels should be made mandatory 
The shipping industry’s move to decarbonise is supported by IUMI but it wants this to happen with adequate risk management provision in place to underpin the transition. New fuel types such as ammonia and hydrogen are being promoted and their use will need to be properly managed and insured – and this requires regulation.
 
Mr Turner said “We should give our full backing to the drive towards decarbonisation but it must be matched by steps taken to ensure that safety is also prioritised and maintained. Some of the new potential alternative fuels are not without risk; and it will take a collaborative effort between all parties – plus no doubt some evolution in the regulatory environment – if we are to tackle this coming risk phase without mishaps.”
 
IUMI 2021
 
IUMI policy forum chair Helle Hammer said, “Environment-friendly fuels carry their own risks. Whilst we welcome the proposed safety guidelines as a useful starting point, they are non-mandatory and so can only be an interim measure. We urgently need mandatory requirements to be developed and implemented to facilitate the transition to greener fuels. Mindful of the time it takes for new regulation to come into force, we urge IMO and other regulators to begin work now.”
 
Ms Hammer said, “As these new fuel types are largely untested and the insurance industry has no history or loss records to help it assess the potential risks involved, we need to learn about these new fuels and educate our clients accordingly.”
 
“As marine insurers, it is our job to help shipowners’ transition to low- or zero-carbon fuels safely and with all associated risks fully understood and managed,” she said.
 
Loss prevention provides a ‘virtuous circle’ of returns
IUMI loss prevention committee chairperson Pascal Dubois said, “Marine insurers have to recognise the vital role that loss prevention plays in increasing overall efficiency and profitability of their entire business.”
 
Mr Dubois said it is important for the insurers to leverage new technologies to improve loss prevention processes further, particularly in addressing evolving risks such as climate impacts and changing industry regulations.
 
He said adopting loss prevention measures also contributes to the sustainability of the industry and match the environmental, social and governance targets.
 
Market improves but long-term remains uncertain
Global marine underwriting premiums for 2020 grew by 6.1% y-o-y to $30bn in a reflection of hardening rates after years of depressed pricing, according to figures released by IUMI. 
Europe remained the biggest contributor, accounting for 47.7% of premiums, with Asia being the next largest with 29.3% of premiums.
 
“It appears that the European market bottomed-out in 2019 and is now strengthening again; and the Asian market continues to enjoy a year-on-year increase that began in 2016. We see this primarily as a market reaction to the depleted premium base experienced in preceding years,” said IUMI facts and figures committee vice-chair Astrid Seltmann.
 
In general, cargo and hull underwriting results improved in 2019 and 2020 across all regions, helped by a hardening market and lower claims amid reduced economic activity due to the pandemic. However, the positive results are tempered by the fact that claims frequency and severity could rise again as economic activity recovers.
 
“This is a positive trend but as this recovery started from a very low base, it is not yet clear if the current improvement will be sustained in future years to give more predictability for shipowners, cargo owners and insurers.
 
“The recent claims environment has been relatively benign, which needs to be seen in connection with reduced activity in some shipping segments in 2020 (cruise, container trades) as a reaction to COVID measures,” said Ms Seltmann.
 
Cargo
The global premium base for the cargo market for 2020 was reported to be $17.2bn – a 5.9% increase from 2019. Growth in the Chinese market continues to be strong with moderate growth in other regions.
 
The fortunes of the cargo market tend to follow trends in world trade and predictions from the IMF are optimistic. “Global trade appears to have returned more strongly than expected post the outbreak of COVID which lends a positive outlook for business opportunities within the cargo market going forward,” said IUMI.
 
Hull
Meanwhile, global premiums relating to the ocean hull sector increased in 2020 by 6% to $7.1bn. Growth was particularly strong in the Nordic region but much weaker in the UK (Lloyd’s) market where the decline in recent years continued.
 
In general, loss ratios for 2019/2020 have improved across all regions returning the ocean hull market to a technical break-even position after experiencing many years of unsustainable results. But shipping’s return to full activity might negatively impact that position, said IUMI.
 
Shipping’s move to decarbonisation, while positive, would also impact the hull market. As new fuels and innovative propulsion methods are introduced, more and varied claims are likely to arise – and underwriters will need to understand these new risks fully and cover them accordingly, IUMI said.
 
Digitalisation for more resilient supply chains
Digitalisation and big data are components in the future of supply chain risk management. This was the underlying theme on the final day of the conference.
 
Setting the tone for the day, IUMI BDD forum chairperson Patrizia Kern highlighted how COVID-19 has made clear the need for more reliable and sustainable ways for moving goods around world.
 
“That will be delivered through increased transparency and transparency will be achieved through better real-time data along [with] enhanced digitalisation across the entire supply chain,” she said.
 
“Today, most cargo risk is underwritten based on experience rating or historical data. This will be largely irrelevant in tomorrow’s business environment and cargo underwriters will need to change how they operate.”
 
DSV Panalpina head of digital innovation Luca Graf added that digitalisation and big data can also improve the resilience of global supply chains by increasing the transparency and visibility into supply chains and offering more sustainable operations.
 
However, he said that while the technology required is available today, there remain roadblocks in its implementation, mainly around issues of data ownership, which have slowed down the industry’s adoption of said technology.
 
“Often we have discussions about who is owning that data. Is it my data? Is that data safe towards competition? And that hinders adoption and collaboration,” he said.
 
Leveraging the right technology to capitalise on data
As the world evolves, new data sources continue to emerge and IoT-sensor technologies are capturing more data than ever before. To leverage such vast amounts of data properly for predictive models, Concirrus head of technical sales Mita Chavda said the industry will require advancing technologies such as:
  • Natural language processing – which can take free text and convert it into a taxonomy that provides clear insights
  • Optical character recognition – for automatic scanning, removing the need to re-key data, thus removing human errors
  • Machine learning and AI – which help to draw patterns and connections between the data to provide an optimised view of exposure and experience rating
 
Leveraging these technologies will require a foundational framework that will allow the industry to draw data from anywhere and make sure that it is future proof.
 
“Combining data sources with new technology will bring about a new era of risk assessment, where creating meaningful rating factors that dynamically learn will be the ultimate goal,” she said.
 
“This will provide everyone with frequency, severity and the driving factors of risk, ultimately resulting in greater predictive power. This will pave a path for the industry to innovate and bring new tailored dynamic products to market.”
 
The IUMI annual conference was held online over a two-week period from 2-15 September 2021. Asia Insurance review was official media partner for the event. A 
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