Suki Basi, Russell Group’s MD, spoke during the Tuesday session on applying the lessons from other classes to Marine Hull. During his short presentation to delegates gathered, Suki spoke how events such as COVID and the Ukraine conflict have disrupted the natural order of business, creating geopolitical risk and economic exposure.
Dealing with the complexities of these scenario is difficult for corporates and (re)insurers, and this requires them to make more proactive decision-making.
Applying this to Marine Hull, Suki believed that there are some solutions that Marine (re)insurers and their clients should be looking at. This included valuing cargo and monitoring trade disruption based on good data and analytics models. Addressing the Conference, he said:
“We are a people business. We are a data analytics company for the specialty classes, and we've been on quite a journey for the last three years, particularly during the disruption caused by the pandemic.”
A lot has been said in terms of the disruption to the industry caused by various threats such as climate change, which is the key challenge and has caused, to some extent, the race for new commodities.
The industry is facing a bit of an inflection point. Basi said: “I would also argue that one of the key things that we're all experiencing is a skill shortage because we have not actually been in this situation before.” The industry has been gradually experiencing more and more exposure through rising costs and costs caused by disrupted trade.
The corporates are looking for different types of solutions, such as captives and the desire for reinsurance type solutions. The other thing that they have been talking about is the need for outcome-based covers. And the key driver for that is understanding of the threats and the quantification of those threats.
Basi said: “. The other thing to note is that the gross and net calculation for reinsurance costs has obviously risen, so the need to understand that, to me, is key, across all the lines of specialty business that we work in. We also need to have a better understanding of forward-looking exposure, peak accumulations, the effects of capital allocation and always need to optimise the reinsurance plan to get to a stable net position.
So how does it work from a Marine Hull perspective? Reinsurance is key. The ability to understand the net position from a Marine Hull underwriting perspective is essential, and the role that the brokers are playing in that is going to be key. The value of such an approach in cargo, whether that is caused by a disruption such as a trade union dispute, or a weather storm event, also holds true.
Environmental impacts need to be monitored closely. For example, there were recently storms in Southeast Asia, the size of the Taiwan Strait itself, which blocked shipping for several days in that part of the world. So, the natural world and political people risk take different approaches to causing disruption but ultimately result in similar outcomes.
Basi concluded: “Ultimately, we see among underwriters the desire to get better at analysis of an entire portfolio, moving to a more forward-looking position, through data and analytics.
“From that point, we must then move to a more meaningful position for the industry, not just for Marine Hull and Cargo but across all the specialty classes. That is going to create more opportunity for what we describe as leveraged outcome-based covers in the future.”
Offshore Energy underwriters have enjoyed an upward trend in global premiums since 2019 with the 2022 premium base being reported as USD4.1 billion. The uplift of 7.3% was largely reflective of the oil price and the corresponding increase in offshore activity, particularly jack-ups and deep-water vessels. Inflation and its impact on asset values was also a factor. Once again, macroeconomic and geopolitical changes continued to be significant including ongoing concerns over energy security with no end in sight for the war in Ukraine.
Over the coming few years, the fundamentals of the offshore energy insurance market were likely to shift much more significantly than other insurance sectors as Melanie Raven, Vice Chair of IUMI’s Offshore Energy Committee explained:
“As we approach peak oil, the growth in lower carbon technology is now accelerating. Floating wind capacity, as an example, is forecast to grow exponentially over the next few years as increased levels of investment are injected. The move to a low carbon future represents a fundamental shift for offshore energy underwriters and this will reach farther and deeper into our sector of insurance than any other.”
Marine underwriters will play a pivotal role in the pursuit of net-zero as new technologies give rise to new risks which will need to be understood and insured. This will require full industry cooperation as Helle Hammer, Chair or IUMI’s Policy Forum explained:
“Compliance with this ambitious new strategy will fall mainly on the shoulders of the shipowners but they will be fully supported by the marine insurance community who will underwrite much of the risk. Therefore, there needs to be comprehensive cooperation and knowledge sharing between owners, class, flag states, underwriters and others. This will be particularly important as the first movers begin implementing new technologies which will then, inevitably, be taken up by the remainder of the industry.”
A central role for IUMI is to ensure that marine underwriters are aware of and engaged with the evolution of the shipping industry. Helle Hamer concluded:
“We will face many challenges and unknowns as we move to net-zero and, as an industry, we must work together to ensure people are kept safe and the environment is protected. New risks must be understood, insured and mitigated; and underwriters are likely to seek more information outside their loss records as a result.”Going Digital
Digitalisation is making significant inroads into many aspects of global shipping and marine insurance must be ready to embrace this change if it is to reap the associated benefits. Patrizia Kern-Ferretti, Chair of IUMI’s Big Data and Digitalisation Forum said:
“Cargo insurance documents are usually transferred alongside bills of lading as a combined set of documents. Benefiting the entire supply chain, digitalisation has the potential to streamline that process adding efficiency, reducing errors and saving cost. But the big question is, “how will the marine insurance industry capture the value of digitalisation, not just for its own benefit but also for the benefit of the assureds?”.
At the same time, the way that goods are being carried, particularly unitised cargoes, are also changing. Pascal Dubois, Chair of IUMI’s Loss Prevention Committee, said:
“The sheer number of containers being carried on ships of 24,000 TEU or more means that, statistically, there is a greater chance of an individual cargo combusting. Sadly, there have been many fire-related incidents on-board large containerships in recent years. Tackling fires on such large vessels is an ongoing concern and a significant body of research is underway to find workable solutions to both firefighting and fire prevention.
High profile casualties, such as Grande Europa, Felicity Ace, and more recently Grande California, Grande Costa d’Avorio and Fremantle Highway, underline the reality where loss prevention methods need to be aligned and improved. Aside from the tragic loss of life, financial losses running to many hundreds of millions of dollars are often the result. However, Pascal Dubois urges caution when apportioning blame and wants the industry to rely on the science when it comes to preventative measures:
“Although we have witnessed a number of car carrier fires lately, none have been found, conclusively, to have been started by an electric vehicle (EV). We must take care to understand the cause and nature of any vehicle fire if we are to implement the required loss control measures to extinguish the fire and, as importantly, prevent them from happening.”
“Research shows that EV fires are no more dangerous than those caused by internal combustion engine (ICEV) vehicles – the growth rate, the peak heat release, and the total energy released is no different. That’s because most of the fire’s energy comes from sources within the vehicle, such as plastics, and not the battery. However, we must not ignore the potential for thermal runaway where the battery may self-heat and re-ignite. The risks are not necessarily greater but they are different and this is where we need a new and different approach”.
In his workshop to close this year’s International Union of Marine Insurance (IUMI) annual conference in Edinburgh, Scotland, President Frédéric Denèfle concluded:
“With new innovations and a changing risk profile, the need for enhanced information becomes paramount”, said Frédéric Denèfle. “It will be important for underwriters to receive and analyse data on ESG, economic and technical performance. In the past, we had relied upon historical information and statistics but today, real-time, dynamic data such as weather, geopolitical, regulatory, routing and engine information are all available to us. We need to capitalise on this, as some underwriters are already doing, to ensure our cover remains relevant. Capturing a range of new data from new and alternative sources will be key and the trick will be to adopt systems that allow marine insurers to make sense of what they are receiving and apply it to their risk portfolios. Predictive risk management and improvement to risk quality will, inevitably, lead to greater sustainability and profitability of our sector”.