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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

Cyber Resilience

No, Seriously. You Need a Comprehensive Cyber Incident Response Plan Before It’s Too Late.

Awareness of cyber risk is increasing, but some companies may be neglecting to prepare adequate response plans that could save them millions. 
By: | June 1, 2018 • 7 min read

To minimize the financial and reputational damage from a cyber attack, it is absolutely critical that businesses have a cyber incident response plan.

“Sadly, not all yet do,” said David Legassick, head of life sciences, tech and cyber, CNA Hardy.

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In the event of a breach, a company must be able to quickly identify and contain the problem, assess the level of impact, communicate internally and externally, recover where possible any lost data or functionality needed to resume business operations and act quickly to manage potential reputational risk.

This can only be achieved with help from the right external experts and the design and practice of a well-honed internal response.

The first step a company must take, said Legassick, is to understand its cyber exposures through asset identification, classification, risk assessment and protection measures, both technological and human.

According to Raf Sanchez, international breach response manager, Beazley, cyber-response plans should be flexible and applicable to a wide range of incidents, “not just a list of consecutive steps.”

They also should bring together key stakeholders and specify end goals.

Jason J. Hogg, CEO, Aon Cyber Solutions

With bad actors becoming increasingly sophisticated and often acting in groups, attack vectors can hit companies from multiple angles simultaneously, meaning a holistic approach is essential, agreed Jason J. Hogg, CEO, Aon Cyber Solutions.

“Collaboration is key — you have to take silos down and work in a cross-functional manner.”

This means assembling a response team including individuals from IT, legal, operations, risk management, HR, finance and the board — each of whom must be well drilled in their responsibilities in the event of a breach.

“You can’t pick your players on the day of the game,” said Hogg. “Response times are critical, so speed and timing are of the essence. You should also have a very clear communication plan to keep the CEO and board of directors informed of recommended courses of action and timing expectations.”

People on the incident response team must have sufficient technical skills and access to critical third parties to be able to make decisions and move to contain incidents fast. Knowledge of the company’s data and network topology is also key, said Legassick.

“Perhaps most important of all,” he added, “is to capture in detail how, when, where and why an incident occurred so there is a feedback loop that ensures each threat makes the cyber defense stronger.”

Cyber insurance can play a key role by providing a range of experts such as forensic analysts to help manage a cyber breach quickly and effectively (as well as PR and legal help). However, the learning process should begin before a breach occurs.

Practice Makes Perfect

“Any incident response plan is only as strong as the practice that goes into it,” explained Mike Peters, vice president, IT, RIMS — who also conducts stress testing through his firm Sentinel Cyber Defense Advisors.

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Unless companies have an ethical hacker or certified information security officer on board who can conduct sophisticated simulated attacks, Peters recommended they hire third-party experts to test their networks for weaknesses, remediate these issues and retest again for vulnerabilities that haven’t been patched or have newly appeared.

“You need to plan for every type of threat that’s out there,” he added.

Hogg agreed that bringing third parties in to conduct tests brings “fresh thinking, best practice and cross-pollination of learnings from testing plans across a multitude of industries and enterprises.”

“Collaboration is key — you have to take silos down and work in a cross-functional manner.” — Jason J. Hogg, CEO, Aon Cyber Solutions

Legassick added that companies should test their plans at least annually, updating procedures whenever there is a significant change in business activity, technology or location.

“As companies expand, cyber security is not always front of mind, but new operations and territories all expose a company to new risks.”

For smaller companies that might not have the resources or the expertise to develop an internal cyber response plan from whole cloth, some carriers offer their own cyber risk resources online.

Evan Fenaroli, an underwriting product manager with the Philadelphia Insurance Companies (PHLY), said his company hosts an eRiskHub, which gives PHLY clients a place to start looking for cyber event response answers.

That includes access to a pool of attorneys who can guide company executives in creating a plan.

“It’s something at the highest level that needs to be a priority,” Fenaroli said. For those just getting started, Fenaroli provided a checklist for consideration:

  • Purchase cyber insurance, read the policy and understand its notice requirements.
  • Work with an attorney to develop a cyber event response plan that you can customize to your business.
  • Identify stakeholders within the company who will own the plan and its execution.
  • Find outside forensics experts that the company can call in an emergency.
  • Identify a public relations expert who can be called in the case of an event that could be leaked to the press or otherwise become newsworthy.

“When all of these things fall into place, the outcome is far better in that there isn’t a panic,” said Fenaroli, who, like others, recommends the plan be tested at least annually.

Cyber’s Physical Threat

With the digital and physical worlds converging due to the rise of the Internet of Things, Hogg reminded companies: “You can’t just test in the virtual world — testing physical end-point security is critical too.”

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How that testing is communicated to underwriters should also be a key focus, said Rich DePiero, head of cyber, North America, Swiss Re Corporate Solutions.

Don’t just report on what went well; it’s far more believable for an underwriter to hear what didn’t go well, he said.

“If I hear a client say it is perfect and then I look at some of the results of the responses to breaches last year, there is a disconnect. Help us understand what you learned and what you worked out. You want things to fail during these incident response tests, because that is how we learn,” he explained.

“Bringing in these outside firms, detailing what they learned and defining roles and responsibilities in the event of an incident is really the best practice, and we are seeing more and more companies do that.”

Support from the Board

Good cyber protection is built around a combination of process, technology, learning and people. While not every cyber incident needs to be reported to the boardroom, senior management has a key role in creating a culture of planning and risk awareness.

David Legassick, head of life sciences, tech and cyber, CNA Hardy

“Cyber is a boardroom risk. If it is not taken seriously at boardroom level, you are more than likely to suffer a network breach,” Legassick said.

However, getting board buy-in or buy-in from the C-suite is not always easy.

“C-suite executives often put off testing crisis plans as they get in the way of the day job. The irony here is obvious given how disruptive an incident can be,” said Sanchez.

“The C-suite must demonstrate its support for incident response planning and that it expects staff at all levels of the organization to play their part in recovering from serious incidents.”

“What these people need from the board is support,” said Jill Salmon, New York-based vice president, head of cyber/tech/MPL, Berkshire Hathaway Specialty Insurance.

“I don’t know that the information security folks are looking for direction from the board as much as they are looking for support from a resources standpoint and a visibility standpoint.

“They’ve got to be aware of what they need and they need to have the money to be able to build it up to that level,” she said.

Without that support, according to Legassick, failure to empower and encourage the IT team to manage cyber threats holistically through integration with the rest of the organization, particularly risk managers, becomes a common mistake.

He also warned that “blame culture” can prevent staff from escalating problems to management in a timely manner.

Collaboration and Communication

Given that cyber incident response truly is a team effort, it is therefore essential that a culture of collaboration, preparation and practice is embedded from the top down.

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One of the biggest tripping points for companies — and an area that has done the most damage from a reputational perspective — is in how quickly and effectively the company communicates to the public in the aftermath of a cyber event.

Salmon said of all the cyber incident response plans she has seen, the companies that have impressed her most are those that have written mock press releases and rehearsed how they are going to respond to the media in the aftermath of an event.

“We have seen so many companies trip up in that regard,” she said. “There have been examples of companies taking too long and then not explaining why it took them so long. It’s like any other crisis — the way that you are communicating it to the public is really important.” &

Antony Ireland is a London-based financial journalist. He can be reached at [email protected] Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]