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.

Advertisement




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.

Advertisement




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 editor of gtnews.com. He can be reached at riskletters.com.

More from Risk & Insurance

More from Risk & Insurance

2018 Power Broker

To the Ends of the Earth

From the frozen Arctic to the inferno of a high net worth divorce, Power Brokers go to extremes to find solutions for their clients.
By: | February 20, 2018 • 2 min read

Looking for the Power Broker Winners? Click Here.

Picture this: A bitter divorce so heated that the principals are only communicating through their attorneys. Then their house burns down. Imagine walking into that situation and trying to find solutions that will please both parties.

But that’s exactly what 2018 Power Broker® Jeff Kaplan, family office practice leader, Risk Management Strategies, did.

Kaplan, who won in the Private Client category, negotiated the sale of the property — forget the rebuild, let the new owner take that on, he counseled his clients — orchestrated a 30-day auction for its sale, and achieved a profitable result for every party in the transaction, each half of the feuding couple and the developer of the sold property.

To the client, Kaplan’s work, including his high degree of emotional intelligence, released him from the “seventh circle of hell.”

From that doused inferno, let us now cast our eyes to the frozen north.

Advertisement




The owner of a barge learned their property sank off of Nome, Alaska, (average temperature 27 degrees Fahrenheit). With an approaching freeze threatening to seal off the harbor, the owners, Phoenix Marine, risked losing valuable equipment.

Into action sprang George Andersen, a 2018 Power Broker® in the Marine category. With precious little time to lose, Andersen negotiated the claim and communicated proactively with the U.S. Coast Guard and other officials. Then he commissioned salvage divers from New York to travel to Alaska and retrieve the valuable equipment from the sunken barge.

Before we depart the Arctic, let us consider another 2018 Power Broker® from Aon, Christian Wise. To arrange cover for a defense contractor’s radio installations in a remote Arctic location, Wise dispatched a loss control engineer, complete with instructions on the use of a shotgun should polar bears interlope in temperatures that registered negative 29 degrees Fahrenheit.

One of the radio installations had already burned to the ground due to scant local fire protection, culminating in a $20 million loss. Despite that, working with London underwriters, Wise and his team were able to shave $1.3 million off an initial property premium cost of $1.8 million.

Power Brokers are judged by a team of Risk & Insurance® editors and writers over a three-month period each year. After interviews with hundreds of sources, winners are picked for their creativity and resourcefulness, their excellent customer service and their industry knowledge.

Not every Power Broker® required one of their associates to tote a shotgun. But many of them went to extremes for their clients; some of them waded into hurricane ravaged neighborhoods to document damage; others put their personal lives on hold, including one Power Broker® who delayed his honeymoon to attend a meeting on behalf of his client.

This year, 158 Power Broker® winners were chosen, as well as 55 finalists, spanning 25 industry categories. Congratulations to every one of these exceptional individuals. Click here to begin reading the profiles of this year’s winners. &

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