As Cargo Sensors Improve, a Flood of Shipping Data Will Follow. But Then What Will We Do with It?

When confronting the loss of cargo during shipping, insureds face challenges on multiple fronts. But experts are optimistic that more data will help bring clarity to risk aggregation in the field — and to pricing in the back office.

By: Gregory DL Morris | April 5, 2023

Cargo containers stacked in a warehouse in a shipping port.

The causes of cargo loss during shipping are many, from supply chain delays to damage from improper handling to outright theft. But as the use of sensors in cargo becomes more widespread and the available data on loss becomes more abundant, experts are optimistic that our ability to address these challenges will improve.

“With each year, we get closer to robust data sets to inform pricing, aggregation and allocation,” said Drew Feldman, senior vice president and marine business unit leader for CNA. “In marine in particular, it has been difficult to get clarity on aggregation aboard a vessel or in a port.”

He is most excited about shippers themselves using technology to track cargoes and reduce their own risk. “The more information a shipper can gather for itself, and then provide to an underwriter, the better that underwriter can determine appropriate pricing, allocation, terms and conditions,” said Feldman. To that end, CNA formed a partnership in 2021 with Overhaul, a supply chain risk management firm.

“Shipping is a very large, very diverse global industry,” Feldman noted. “It runs from the highest technology to low tech to no tech. For example, the primary cause of shipboard fire is misdeclaration of cargo. I hope that technology will make it more difficult for dangerous cargoes to be loaded and stowed” without proper documentation and precautions.

For the most part, the shipper has responsibility for “stow and load” — putting the cargo into the shipping container and arranging to have the box put on the truck, train or vessel. Other than what is listed and described in the bill of lading, the carrier usually does not know about the contents.

A Bit of the Wild West

Darin N. Miller, national marine manager and senior surveyor, Sedgwick

“There is no mass aggregation of sensor data from the cargo,” said Darin N. Miller, national marine manager and senior surveyor at Sedgwick. “It’s not until a problem is discovered that the shipper calls the insurance company, and the insurance company calls us. I try to give my clients as much information [as possible] to help determine when and thus where the loss occurred. But I can only request data from the shipper.”

This is a very exciting area, said Richard Soja, global head of inland marine at Allianz. “It’s a bit of the Wild West, with everyone doing their own thing, with no consistency yet. The data aggregation services play a role, but for privacy, the data gets scrubbed over and over, and that eventually dilutes its usefulness.”

For example, insurers know about hot spots or specific routes that have higher loss histories. That information can be the starting point for conversations with insureds about their loss-control practices.

Specialization and customization are growing trends in sensor technology and data aggregation, Soja noted. “We have one client that has developed their own proprietary sensors and software,” he said. “The artificial intelligence trains itself to modify the parameters if necessary. If there are damages but the sensors recorded everything — [and] temperature, tilt and impact are all within tolerance — then there have to be tweaks to the parameters.”

That said, “we are a along way from centralizing that level of sophistication,” Soja added. “We can’t yet do that today. We would love to have sensor data rolling up to central processing. That would enable underwriters to decide if they want the risk or not, and if so, at what price and under what terms and conditions.” It can already be done in some places under some circumstances, but it’s far from standard or ubiquitous.

The Burden of Effort

Richard Soja, global head of inland marine, Allianz

Effort and expense, of course, are factors. “Even if sensors are cheap, there are costs to install and maintain them, to collect and interpret data,” Soja said. He added that algorithms for interpreting data are a significant differentiator and will continue to grow in importance. That includes the ability to aggregate and interpret both proprietary and public data.

Ronnie Adcock, senior vice president at Sedgwick, explained that data, whether from individual sensors or aggregated, is complementary to the work of human surveyors. He related that a client shipping high-value, temperature-sensitive materials was experiencing multiple claims. Sensor data showed temperature spikes after the goods arrived at a major airport, but it was an on-site surveyor who determined that the airfreight containers were being left on the tarmac too long, exposing them to the weather.

“We are a claims management service,” Adcock noted with a laugh, “and getting that problem solved meant fewer claims for that client. So technically we lost business, but we certainly gained loyalty from that customer.”

If theft is reported to us as soon as it is detected, said Miller, “we have the best chance of recovering the goods. But sometimes we don’t get the report for days, even a week. At that point, the chance of recovery is all but zero.”

Handling the Logistics

Ronnie Adcock, senior vice president, Sedgwick

All losses, damage and theft, are expected to increase as economies recover from the pandemic and logistics difficulties are addressed.

“The supply chain is being ironed out,” said Adcock. “The major challenge is becoming the labor shortage. That is a factor in all aspects of commerce. There is a shortage of drivers, of stevedores, of forklift drivers and warehouse staff. There is also a shortage of people in insurance. That has created an opportunity for us in the staffing business, so we are eager to hire.”

For certain routes and locations, underwriters may require unattended-vehicle warranties or armed escorts for high-value shipments. Holiday weekends are notorious because both opportunistic pilferers and organized theft rings know that goods will be sitting there for a few days. And while there may be security, there will be significantly less activity, the normal coming and going.

“If we have clients who recognize that there are risks to their goods, then we can work with them,” said Kevin Wolfe, president and chief executive of Marcato Marine Insurance Services. “We can find better practices. We are seeing more of the supply chain, and welcome insureds and their partners who are active in supply chain management and loss control. And then there are the shippers that consider claims to be a cost of doing business. They simply end up trading premium dollars for claim dollars. But that does not solve any problems. Their premiums and their retentions are just going to go up.”

There are no quick fixes, Wolfe stressed. Underwriters cannot directly address security at facilities or route selection by transportation companies. “We are eager to collaborate up and down the supply chain,” he said. “That includes vendors and service providers. It’s the clients — the shippers — who have the most influence because they are the ones that pay for the services. We would not flat-out say a client cannot ship through a certain port or via a particular route or method. We would address the risks through terms and conditions, warranties and premium.”

Striking an optimistic note, Wolfe stated, “There are ways to fix things. And we have the same goals as our clients: to help them operate safely and profitably.” &

Gregory DL Morris is an independent business journalist currently based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected].

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.