The marine insurance sector is readying itself for a period of more sustainable competition in the wake of the global financial crisis. Leading underwriters, insurers and brokers outline their expectations for 2011.
Generally speaking, the average cost of marine insurance claims has increased in recent years. This is due, in no small part, to changing environmental expectations.
Previously, if a boat sank or was shipwrecked that would be it.
Now insurers have to control environmental fallout and minimise the damage to the immediate area. Wrecks must be salvaged and removed.The cost implications are huge, putting more upward pressure on premiums.
Stephen Ford is the Managing Director of Associated Marine, the biggest marine insurer in Australia. He believes customers and brokers are increasingly aware of the need for compliant marine insurance.
“In the marine class, many insureds will have overseas exposures that will need local paper to be issued. So brokers and risk managers are showing increasing interest in compliant solutions,” he said.
“Machinery damage continues to be a major cause of hull claims but there have also been some significant total losses.
“Piracy is also a matter of increased concern to hull and cargo underwriters. Developing and adapting covers for the diverse range of infrastructure, mining and energy projects underway around Australia is a challenge.”
Fresh talent a necessity
Former Associated Marine CEO Adrian Norman believes that the industry will have difficulty meeting this consumer interest thanks to a growing shortage of skilled professionals.
Norman, now in charge of Great Lakes, a wholly owned subsidiary of global reinsurer Munich Re, thinks this will start to impact the market in the coming year.
“Combined with the growing sophistication of the commercial and corporate insurance buyer, there is a real need for underwriters to be able to provide genuine value-adding services to brokers and clients, including claims management services, marine risk management services, and contract reviews,” he said.
“Marine is different. It is governed for the most part by different laws and regulations than other segments.
“It has its own international courtsand in most jurisdictions even marine insurance is largely governed by separate insurance legislation to the bulk of general insurance.
“Then there’s the litigation risk, especially if pollution is a potential issue.”
Ron Johnson, the Regional Underwriting Manager – Marine, for Allianz Global Corporate & Specialty, agrees with this assessment, saying the lack of emerging talent is a major concern.
“There has been minimal training of new underwriter and claims staff in the marine market for some time, so the current workforce is aging rapidly and in high demand. This has resulted in a substantial increase in the cost of new recruitments, which further exacerbates expense ratios for marine portfolios,” he said.
“It is hard to foresee what may drive any changes unless expense ratios begin to bite on bottom-line results. Underwriters may then be forced to make the hard decision about continued participation in a mature market where total revenues are probably in decline.”
Johnson feels that Project Cargo business has been one of the few cases where the local marine market has seen some increase in revenue as a result of the construction of a range of large projects in Australia, with pre-assembled offshore modules of significant size and value needing to be transported to sites.
“Income streams can be severelyaffected by a delay in the delivery of critical pre-assembled modules or items, and this has fuelled strong demand for project-specific marine Delay in Start Up (DSU) Insurance,” says Johnson. “Again, the global knowledge base for the underwriting of such risks is limited and rests in the hands of a few specialised underwriters.”
Premiums will rise
Despite this, John Cupitt, the National Manager – Marine, of chartered loss adjusters and assessors, MYI Freemans, believes the market will be more buoyant over the next 12 months.
“In our opinion, new products and on-going competition will influence the pleasure craft and commercial hull market over the coming years,” he said.
“Claims are being more closely assessed and also declined if they are outside the policy terms and conditions, or adjusted by insurers to reflect wear and tear and market values where relevant.”
“The marine insurance market remains competitive and well-supplied, and has generally been stable in the past year. However, we have noted an increase in theft claims, which is likely a reflection of the tough times during and following the global financial crisis and rising interest rates right now.”
“With the increasing growth of our economy, we expect that the pleasure craft industry will prosper. This is good news for the marine and marine insurance industries, as is the steady increase in vessel ownership in Australia.”
Maria Dwyer, the Managing Director of Oceanic Insurance Brokers, sees marine insurers becoming more conservative with respect to the risks they accept, and is another industry insider who holds the view that premiums will rise this year.
“Premiums for commercial hull are beginning to rise and we are seeing renewals for claims-free accounts increasing by between 3% and 10%,” she said.
“Oceanic also has a large number of marine liability accounts and these also are seeing a soft rise in premiums.”
“In today’s world, risks to a vessel are still just as relevant, however this burden is now weighed down with new risks created by statutory legislation. Federal and State legislation today is very often subject to strict liability. That is to say the fact of the incident occurring and not the cause of the incident can trigger a possible prosecution under various legislations.”
This means the vessel owner nowneeds insurance that will pay not only for the cost of their legal defence but also the fine itself.
Generally, the marine insurance market has been very slow to recognise that over time the risks to a commercial operation have changed, with only a few insurers responding to provide ‘Fines and Penalties’ cover for vessel owners.
Dwyer maintains that more competitiveness is just around the corner.
“The cost of building a 15-metre tug is between $500,000 and $600,000 and the premium for the hull and P&I would be approximately $6,500 to $7,500,” says Dwyer.
“The high sums add to the insured’s need to seek out very competitive premiums.”
Although the broad marine insurance industry is not set for a massive upturn any time soon, most analysts agree that steady demand for competitive coverage options, along with our robust economy, will ensure it remains well and truly afloat.
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