The challenges of shipping insurance
This year has presented a variety of challenges for the shipping and supply chain sector. The COVID-19 pandemic has brought a range of new – and time-sensitive – considerations into play. To provide effective insurance solutions, it’s important that the marine insurance industry understands the changing landscape and challenging conditions in which their clients are operating.
During this pandemic, we have seen usual supply chain and logistics arrangements being impacted, with restrictions on both the movement of cargo and the workforce in those industries. This has led to longer shipping times, reduced availability of ship repair and dry dock facilities, and increased accumulations at warehouses, ports, and aboard vessels. Laid-up vessels, which would ordinarily be spread across the globe, are instead aggregated together and exposed to the same hazards. From a pure risk and insurance perspective, accessibility for surveyors and risk management due to travel restrictions and quarantines adds further struggles.
All marine insurers will see reduced turnovers across a variety of customer segments. However, we are also seeing some customers diversifying and gaining traction during these difficult times. A reduction in global trade doesn’t necessarily mean a reduction in insurance exposures for underwriters. In Australia, we are liaising closely with our clients and their advocates to understand their challenges and, where possible, provide underwriting solutions to meet their immediate and projected needs.
Aside from COVID-19, marine insurance faces several other challenges. Comparable to other segments of the market, marine insurance is experiencing reduced capacity globally, which is more of a concern on programs with large limits and increased risk factors. We are seeing clients searching outside their traditional home markets to secure capacity, which causes challenges for global insurers with regard to consistency and channel conflict.
The 2015 Tianjin port explosion and the recent Beirut port explosion demonstrate that the global marine market can have significant aggregated insured values. Additionally, the cargo-carrying capacity of vessels continues to increase, as does the unit value of cargo being shipped. These factors mean insurers’ aggregations on land and sea can be substantial, thus increasing catastrophe exposures and potential general average contributions. The global market will need to work together to better understand combined exposures and mitigate risks; while insurtech and IoT will play a role in managing these risks, they remain a work in progress.
The push for cost efficiencies within the logistics chain also continues to increase risk and resulting losses. The introduction of the Chain of Responsibility legislation has yet to show its expected outcomes – however, it does show promise as a longer-term investment.