Marine Underwriting

Hurricanes Sweep Away Soft Marine Market

After a year of heavy losses, marine underwriters are imposing rate hikes despite plentiful market capacity.
By: | February 13, 2018 • 4 min read
Topics: Marine | Underwriting

The marine insurance market might still suffer from overcapacity, but underwriters are adamant that the soft market of recent years has come to an end.

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At February’s winter meeting of The International Union of Marine Insurance, held at the Lloyd’s of London building, IUMI’s president Dieter Berg described 2017 as “an extreme year.” Hurricanes Harvey, Irma and Maria cost the insurance industry an estimated $75 billion to $100 billion and the California wildfires between $10 billion and $13 billion. The latter figure included last October’s losses in the Napa Valley vineyard region, which are part-insured in the marine market.

“These losses have put an end to soft market conditions, although it remains to be seen by just how much rates will now harden,” said Berg.

“We’re seeing moderate increases for even non-loss affected business with more significant rises for Gulf of Mexico windstorm risk, although there is still massive overcapacity in the market.”

More positive news is that the offshore energy market enjoys an improved market environment, with oil prices averaging $70 per barrel last year against $50 in 2016, coupled with the most encouraging global economic outlook for more than a decade. IUMI expects “synchronised growth across all regions this year” and for the marine market to benefit from increased activity.

The potential downside is greater geopolitical risk; particularly the threat of protectionist measures by the U.S. and retaliation from China. “So, overall we’re moderately positive while also recognizing there are massive challenges,” Berg confirmed.

Dieter Berg
President
IUMI

Foremost among the challenges is the growing exposure aggregation on vessels and in ports, with the biggest car carriers proving capacity for up to 8,000 vehicles and the growing evidence that climate change is transforming what were once extreme weather events into “the new normal.”

Asia and Africa

Berg identified three clear near-term strategies for IUMI. First is a greater focus on education.

“We must attract young talent to the industry and invest in new skill sets in response to a rapidly changing environment,” he added.

Second is building IUMI’s presence in the Asian market, following the opening of its Hong Kong office in October 2016. As part of this initiative, IUMI’s inaugural Asia Forum will be held in Singapore on April 24-25 to coincide with the city state’s Maritime Week.

Third is a strategy for Africa. “IUMI wants to be much more active in Africa’s emerging markets,” Berg confirmed. “We’ll deliver more on this on September 16-19, when our annual conference is held in Cape Town for the first time.”

This year’s theme: ‘Managing emerging risk and exposure – think the unthinkable’.

As he noted, South Africa’s second-biggest city faces its own ‘unthinkable’ as water supplies dwindle and the event will consider underwriters’ need to address risks they often haven’t considered before.

James McDonald, chairman of IUMI’s offshore energy committee noted that climate change is an issue demanding attention.

“It’s impacting on our balance sheets as the frequency and severity of hurricanes increases, causing more yacht and cargo losses as well as physical damage and business interruption in oil and gas production.”

The maritime industry is also being looked to in addressing environmental issues, with the BBC’s recent TV series Blue Planet 2 dramatically highlighting the extent of ocean pollution, particularly from plastics.

“Insurance isn’t marketing itself very effectively as it can help mitigate pollution and environmental damage,” he suggested. Innovation was lacking and underwriters could do more to devise new products for meeting new challenges.

Shipping companies had made a start in reducing their carbon footprint and reducing emissions through practices such as ‘cold-ironing’ – enabling berthed vessels to shut down engines and switch to a shore-based electrical supply – and new coatings for propellers and hulls that reduce friction to improve efficiency.

Slow Response

IUMI admits that cyber risk is one area where ship operators and their insurers have been slow to respond.

“It has certainly produced a response, but this has been from the non-marine market,” commented Frédéric Denèfle, IUMI’s legal and liability committee chair. “For a long time the marine community didn’t appreciate how its members might be affected.”

“Insurance isn’t marketing itself very effectively as it can help mitigate pollution and environmental damage.”– James McDonald, chairman of IUMI’s offshore energy committee

Last June’s NotPetya malware attack highlighted the threat. Danish shipping giant Maersk had to reinstall thousands of PCs and servers to restore service at its terminals.

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Berg and colleagues were also asked about the impact of the recent sinking of the Sanchi. On January 6 the Iranian oil tanker, carrying 136,000 tonnes of crude oil, collided with a freighter off the coast of China and sank eight days later after catching fire.

Secretary general Lars Lange offered condolences to the families of the Sanchi’s 32 crew members.

“The collision also created a massive environmental threat from discharged tanker fuel,” he added. “We’re in the early stages of responding to the loss and establishing the insurance position.”

The incident also raises the issue of industry sanctions against Iran, which IUMI supports and the ability of vessels serving embargoed countries to secure insurance cover.

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]