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

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]com