Marine Insurance Industry Shaken and Rattled, but Ready to Roll

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By The Maritime Executive 09-18-2017 06:36:18

Opening this week's annual International Union of Marine Insurance (IUMI) conference in Tokyo, President Dieter Berg predicted an impending shake-up in the marine insurance sector driven by technology “disruption.”

Disruption, according to Berg, is the raft of technology and business innovation that is destroying existing business models and which extends to every corner of the business world. It is exacerbated by the current macro-environment of a stagnant economy and increasing national protectionism that is continuing to affect premium income.

Incoming innovation is already impacting activities such as electronic navigation and smart port logistics and is driving new initiatives including autonomous shipping and intelligent containers. Blockchain technology and the internet of things are two additional technological advances that will drive disruption further.

Although disruption will inevitably lead to a shake-up in marine insurance, the effect can be positive as long as the industry embraces the change, says Berg. "In the future, insurance will be placed on electronic platforms, as our next generation of clients will want 24/7 access to insurance products and instant responses. The insurance value-chain will shrink and the role of the broker will inevitably be impacted as well. Because of this, it is likely that global premium income will continue reduce, and this means that we, as marine insurers, need to change our game and find additional streams of revenue.

"Although the next generation of clients will demand a more rapid and responsive marine insurance sector, they will also require more customised solutions and that represents a significant opportunity for us. I predict a much greater future need for consultancy, claims management and loss prevention advice and the income we can derive from those activities will address the shortfall in future premium income. Digital innovation does not have to destroy value in our market".

Berg believes that the specific expertise required to insure the niche marine sector coupled with the high service levels delivered within an international marketplace and the strength of personal and business relationships will bode well for the future.

Global marine underwriting premiums continue to fall

The IUMI presented its annual statistical report on the marine insurance market at the Tokyo conference, reporting that global marine underwriting premiums for 2016 fell to $27.5 billion, a nine percent reduction on the figure reported for 2015. 

Vice-Chairman of IUMI's Facts & Figures Committee, Astrid Seltmann explained: "The 2016 number follows a continuing downward trend in marine underwriting premiums. In 2015, the adjusted figures of USD 30.5 billion was in itself a 9.9 percent reduction from 2014. We attribute part of the reduction to the strong U.S. dollar when compared with other currencies, but also to general weak market conditions in terms of the global economy, general commodity prices and the poor state of the shipping and offshore sectors. This worrying downward trend leads to an increasing mismatch between income levels and the marine insurer's obligation to cover major losses, particularly in light of the trend for larger vessels and greater accumulation of risks in port".

The 2016 total comprised income from the following regions:
- Europe                         50.2 percent
- Asia Pacific                  27.9 percent
- Latin America               9.5 percent
- North America              5.6 percent
- Middle East                  4.1 percent
- Africa                           2.7 percent

and the following business lines:

- Global hull                    25 percent
- Transport/cargo           54 percent
- Marine liability              7 percent
- Offshore/energy          13 percent

Cargo sector

Premium income in the cargo sector was reported as $15 billion for 2016 – a six percent reduction on the 2015 figure. Exchange rate fluctuations impact most strongly on cargo premiums and the recent strong dollar has "reduced" premium income from most other countries, this has made it challenging to identify any real market development.

The 2015 Tianjin disaster significantly eroded the performance of the 2014 and 2015 underwriting years. The final position of 2016 is still unclear due to the impact of the loss of the Amos 6 satellite and the current issues surrounding Hurricanes Harvey and Irma.

The trend towards higher value cargoes and increasing accumulation of values in ports is likely to continue and this will impact further on loss ratios. It is also impacting on premiums which are increasingly reflecting stock exposure rather than transit exposure. Added to this, increases and changes in trade patterns as well as the general economic and political environment is causing additional uncertainty in this sector.

Hull sector

The hull sector achieved a premium income of $7 billion which was a 10 percent reduction on the previous year. Although exchange rates may have been partly attributable for the decline, this has much less impact than in the cargo sector due to the global nature of the hull portfolio. 

Whilst the world fleet continues to grow, it also continues to age. A certain reduction in vessel values will follow with the aging of these vessels, but the two-digit drop in values from 2015, and particularly for bulk and supply/offshore vessels, must be seen in the context of the challenging market environment. Hull premiums have deteriorated in line with falling average vessel values, and there is now a mismatch between fleet growth and income levels.

Claims frequency continues its stable/downward trend and total losses are also continuing a positive trajectory albeit with a recent fluctuation of around 0.1 percent. However, falling vessel values increase the probability of constructive total losses, as these incur when the cost of repair exceeds a certain percentage of the vessel's value. 

In addition, the inflow of high-value vessels into the global fleet increases single-risk exposure and thus the possibility of even more costly single casualties. The occurrence (or not) of major losses in single years increasingly drives the volatility of hull results, but current income levels do not cater for the occurrence of such events.

Offshore energy

Premium income in the offshore energy sector dropped by 21 percent to $3.6 billion – this is on top of the 20 percent drop in the previous year. As the majority of business in this sector is transacted in U.S. dollars, poor exchange rates cannot be blamed for the drop in performance. The continuing depressed oil price – now hovering at around $50 a barrel – is the key reason for the downturn in activity and the postponement and cancellation of offshore projects. With peak exposures remaining at broadly the same level, volatility in this sector has increased significantly. 

More positively, lack of activity in combination with moderate weather impact has resulted in historically low levels of attrition, reflected by moderate loss ratios in recent years. This is however expected to reverse with the reactivation and start-up of new projects coupled with a general lack of seasoned market experience.

Severe weather has had little impact on this sector from 2009, but the effects of Hurricanes Harvey and Irma have the potential to reverse those good fortunes and impact underwriting years 2016 and 2017 severely.


The outlook for 2017 is challenging and uncertain. Donald Harrell, Chairman of IUMI's Facts & Figures Committee, says: "Global premium income continues to fall, and this puts pressure on our sector. Although, fortunately, we are seeing only moderate major losses currently, that situation can reverse at any time. Hurricanes Harvey and Irma are examples of this and their true impact is yet to be seen. Exposure to risk will only increase as vessels grow larger and values accumulate in port. A drop in premium income makes it challenging for underwriters to continue to cover their obligations, particularly in relation to major losses.

"Uncertainty exists throughout our market. Although the global economy appears to be improving, significant concerns or situations could lead to a stall and that will directly impact marine insurance. Global trade might be affected by Brexit as well as the current threat of a more competitive U.S. trading policy created by punitive import taxes and lighter regulation on manufacturing. These changes to global trade flows and trade agreements will affect our sector as they evolve.

“Similarly, the tough shipping market is continuing to adversely affect our premium income, despite the relentless growth in global seaborne trade. A sluggish oil price driven by the activities of OPEC and the rise in shale gas availability has dogged the offshore sector also. And, of course, natural catastrophes continue to pose a very real risk.

Continuing uncertainty is the only certainty for marine underwriters for the remainder of this year and beyond."

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.