Today's marine shipping risks demand agent, broker expertise
The more goods are shipped by sea, the greater the risks as well as the opportunities for ocean marine insurance agents and brokers.
If you look around your office or home, you’ll see items that were transported by sea.
Michelle O’Donovan, North America product line director, cargo, International Marine Underwriters notes that most raw materials and manufactured goods are, at one time or another, shipped via vessel — imports into and exports from the U.S., including goods moving inland via barges.
“Globalization of markets has created great movement and exchange of goods between countries, not just over the past three to five years but over the last decade,” O’Donovan says. “Logistics providers have greater involvement in all aspects of transportation of goods from origin to final destination, and then on to end consumers.”
See also: The ocean marine insurance market is awash in opportunity
The more goods are shipped by sea, the greater the risks. According to Travelers, the annual global financial impact from cargo loss is $50 billion. These risks include:
- Bigger vessels. “Cargo-carrying vessels are getting larger, and this has created several challenges on the risk front: Namely, the accumulation of values on such large ships, and the complexity and cost to control damages and render salvage,” says William Luce, director, hull and liability, International Marine Underwriters. Indeed, as cargo-shipping activities increase and companies use more capacious vessels, the chance for catastrophic losses looms even larger.
- Misdeclared and undeclared cargo. Another problem that is growing and causing marine casualties is that of hazardous cargoes intentionally misdeclared by shippers to avoid higher freight rates, O’Donovan points out. “Shipping lines are now charging penalties for misdeclared or undeclared cargoes,” notes Keith Blair, executive vice president, Sentinel Marine Underwriters. “Misdeclared and undeclared cargo is a big issue that has been front and center of late due to the large fires on container vessels.”
- Higher accumulations of cargo. “Large and more valuable ships have higher accumulations of cargo onboard. These large ships have limited firefighting abilities relative to the potential risk,” observes Andrew D’Alessio, head of ocean cargo, Americas, AXA XL.
- Safety issues. International transport and logistics insurer TT Club has initiated a Cargo Integrity campaign to focus on safety issues in the container supply chain, particularly the incorrect processing of hazardous goods. TT Club records indicate that two-thirds of incidents related to cargo damage are due to poor packing practices, including securing, identification, declaration, documentation, and data transfer, resulting in a claims cost in the marine aviation & transport insurance sector of more than $500 million annually.
- Fires and explosions. One of the most notorious recent large container ship fires was the March 2018 blaze aboard the Danish Maersk Honam in the Arabian Sea, which was on its way from Singapore to Egypt. The $122 million ship was carrying 7,860 containers. Several crew members were killed, and the fire burned for more than a month before the ship could be towed to a port.
According to Allianz Global Corporate & Specialty (AGCS), a leading global corporate insurance carrier, fires and explosions on board enormous container vessels occur every 60 days on average, generating tremendous losses. “Fire on board ultra-large container ships is our biggest concern right now,” says Captain Rahul Khanna, global head of marine risk consulting at AGCS. “Insurers have highlighted this as a growing risk in recent years and, sadly, this has proven correct. This is a serious and concerning trend.”
The risk classes with the highest losses in the cargo space include perishable cargoes such as food and pharmaceutical materials as well as cargo in the automotive sector, Blair points out.
A boatload of opportunities
The risks associated with cargo offer great opportunities for agents and brokers, industry experts agree.
Marine cargo is very much a market that carriers still want to be in, stresses Samuel Chung, vice president of Sentinel Marine Underwriters. “Marine cargo is historically a high-margin line of business,” he says. “The challenge with high-margin products is the desire to replicate those results on a larger scale, which may compromise risk selection.”
In 2019, Chung says, profitability remains the priority for marine cargo markets. “This is a far cry from the recent past when top-line growth appeared to trump bottom-line results for some. Both brokers and underwriters alike are challenged when reviewing a prospective insured or retaining existing clientele due to increased CAT [natural catastrophe] activity, decreased capacity, and an ever-evolving political/economic climate,” he notes.
The most apparent change for practitioners, according to Chung, is seen on renewal business for cargo insurance, where both rates and terms and conditions are being scrutinized more closely than in recent years. “With markets exiting specific classes of business or exiting the product line altogether, there appears to be a hardening within the portfolio of traditionally challenging cargoes such as perishable food, pharmaceuticals, tobacco products, spirits and consumer electronics,” he points out.
Increased specialization
Despite initial signs of a correction, the marine cargo market is far from rate adequacy, as markets are continuing to reel in their product offerings in response to increased loss activity. Today, Chung observes, markets would rather de-risk than “cash-flow underwrite.”
“At present, we’re seeing increased selectivity on some of the loss-leading commodities mentioned earlier,” he notes. Chung predicts that in the near future, the cargo insurance market will see increased specialization from carriers, additional quota-share opportunities to manage line-size, and increased push-back from the underwriting community on larger, property-driven risks.
The benefits of globalization
“Globalization offers agents and brokers the opportunity to learn and offer expertise in respect to ocean marine coverages to their clients, which is important for any importer, exporter, distributor, or manufacturer,” O’Donovan points out. “Offering commercial lines services is not always an opportunity for ocean marine, but ocean cargo is always an opportunity for commercial lines business.”
Not capturing ocean cargo marine business leaves an opportunity for a competitor, she cautions. “The agents and brokers who offer the best solutions to complex marine placements as the underwriting market hardens will benefit most.”
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