Marine insurance is a niche area that requires specialist knowledge, but it is also a growing segment where brokers continue to be relevant.
The global marine insurance market is estimated to grow to US$39.75 billion, at a compound annual growth rate of 2.57 per cent during the period 2017-2021, according to a report from Technavio, a leading technology research and advisory company based in London.
All the projections point to the continued importance of the Australian marine insurance sector and brokers’ role as an advocate for the end client.
Multifaceted role for brokers
Harsh Chopra, Maritime Consultant and Surveyor, HC Maritime, suggests: “This is not general insurance, technical skills are paramount and specialisation is required. A successful broker for this segment would need either nautical or maritime law background.”
He says a broker’s role in marine is quite complex and multilayered. “They need to assess risks, adopt standard clauses and devise special boutique clauses to customise policy based on the clients’ needs, and know the best market to place the risk in.”
Another important aspect of this area that brokers should have an insight into is the fundamental differences between the Insurance Contracts Act and the Marine Insurance Act. The rules on non-disclosure and the way claims are adjusted are completely different under the two Acts.
Andrew Kidd, the Head of Marine at NTI, believes that the role of insurance brokers will remain as important as ever but states: “I fear price is continuing to take over from a deeper conversation about understanding risks. Partnering with underwriters who will work with brokers will ensure they continue to remain important”.
Indeed, marine insurance consists of different sub-classes including cargo, commercial hull, marine liability, carriers and pleasure-craft. So, when it comes to the other end of the scale, such as pleasure craft, Stephanie Muller, Group Operations Manager, Trident Insurance points out that it is a misconception that boat insurance is hard to understand.
She says that the most common mistake brokers make is to presume their client’s boat is just a small add-on to an account and not something to spend much time on. It is not just the big cargo ships that make important clients for brokers, marine insurance also can be big business for brokers who help cover high-end boats, yachts and pleasure craft.
“Trust us, your client’s boat is important to them and they generally want to talk about it and definitely want the best cover for it,” she emphasises.
“Someone with the ability to own a sizeable boat is likely to be a pretty important client, and from our experience, we’ve been aware of major accounts won and lost on the handling of the insurance for ‘the boat’. Don’t let the placement of the pleasure craft be a burden or an afterthought; it’s where your client spends their hard-earned leisure time and underwriters can offer the help you need to get it right.”
Digital has nothing on good old-fashioned personalised advice
Even in the age of digital disruption, technological advancement will struggle to compete with the intellectual intelligence that specialist insurance brokers can deliver.
Stephen Rudman, Practice Leader-Marine at Arthur J. Gallagher, says, “A broker plays an integral role in the client value chain which cannot be easily replicated by a digital platform, especially in the mid-market and corporate segments where the scope of the risk is likely to be more complex and specific to a client’s business.”
He explains that at this end of the market, a high-quality and differentiated experience are what resonates most with clients – ultimately, clients are looking for a trusted relationship, over and beyond the pure transactional.
A broker plays an integral role in the client value chain which cannot be easily replicated by a digital platform.
Rudman believes that this is even more reason why insurance brokers should have a specialisation and provide value to clients along with insights that are built on deep experience in the industry which is beyond the reach of most data and technology driven insights.
“With every challenge and disruption, there is also an opportunity, and I think technology leveraged in the right way is highly relevant for advice based businesses in the future.”
What are the evolving risks in this segment?
Rudman cautions that technology brings with it additional exposures which are being identified all the time.
“An exposure that continues to evolve and grow is cybercrime, which presents a complex and fast-changing risk profile which the logistics industry and insurers alike are still learning about and trying to adapt to by designing policy wordings that can adequately cover the exposures that are developing so that companies can transfer these risks away from their balance sheet for a premium.”
Kidd advises that larger vessels carrying an ever-increasing number of containers is another growing risk.
“These are now presenting numerous issues for the marine industry, not just insurers. We are seeing vessels such as the new China Shipping Container Lines ships carrying over 19,000 containers, meaning larger and more efficient port facilities are required to handle them. Not to mention, it entails bigger salvage challenges should a vessel be involved in an incident along with greater accumulated values for insurers.”
Specific to the Australian context, Partner – Insurance, Transport and Trade at Mills Oakley Frazer Hunt explains, “Since November 2016, the Australian Consumer Law relating to unfair terms in contracts with small businesses has been in force and will make it harder for logistics operators, customs brokers, freight forwarders and others in the transport logistics chain to rely on contractual defences in their standard terms”.
At this stage, there have been no reported decisions in Australia regarding what may or may not be considered an “unfair” term for the purposes of the new provisions.
Brokers need to assess risks, adopt standard clauses and devise special boutique clauses to customise policy based on the clients’ needs, and know the best market to place the risk in.
However, he believes: “Shippers and importers would be well advised to arrange cargo insurance, rather than have the uncertainty and costs associated with litigating this new frontier.”
With these changes, it is suggested that brokers should be looking at the adequacy of the marine carriers policies that they have in place for their clients.
Where is the market headed?
Telematics, blockchain, data analytics and digitisation are changing the landscape of marine insurance. Technology is playing a role in the delivery of better risk management and has helped shape and evolve the logistics industry through access to data, ease of communication and the speed at which things can be done.
However, Kidd thinks that the days of insurers not fully understanding their portfolio and its exposures are over, particularly following incurred losses from the 2015 Tianjin port explosion.
“There has definitely been an obvious move towards automating the SME end of the market, and this is seeing analytics and actuaries playing an ever-increasing role in portfolio management across entire portfolios, which in turn is ensuring portfolios are technically priced,” he says.
Hunt says, “The industry is also adopting telematics in the form of remote tracking devices, by shippers and carriers to track and trace cargo and to ensure safe passage for their trucks and drivers along notoriously dangerous routes involving hijacking. Many insurers have reduced cargo loss by being able to track stolen goods.”
He explains that data analytics are providing marine underwriters with more information to assist them to assess and price risks relating to specific cargos.
For example, Maersk (ocean carrier) and IBM are developing a blockchain based supply chain solution for the shipping and logistics industry which should reduce exposure to risks over the medium term as the data is collected and analysed.
UK’s Automated Ships Ltd and Norway’s Kongsberg Maritime are building the world’s first unmanned and fully automated vessel for offshore operations which is expected to be sailing by 2018.
“As human error is the major cause of collisions, it is likely that there will be fewer accidents as this technology is embraced,” says Hunt.
What should brokers know?
There are clearly opportunities for brokers in this space as it evolves. However, heeding the warnings of Chopra and Rudman, for brokers faced with placing marine risks, what should they be aware of?
Rudman says, “The Incoterms is a common area that is not readily understood by insurance brokers when providing advice for a cargo policy.”
Incoterms such as ‘FOB’ (Free On Board), ‘CFR’ (Cost and Freight), ‘EXW’ (Ex Works) & ‘CIF’ (Cost Insurance and Freight) were introduced for the purpose of setting out a universal understanding of the respective rights and obligations of sellers and buyers involved in international trade transactions. They are intended to reduce or remove altogether uncertainties arising from different interpretation of the rules in different countries and are regularly incorporated into sales contracts worldwide. They appear straightforward enough but the processes that sit behind them can prove complicated and misunderstandings can result with costly consequences.
Indeed, not understanding such rules could mean a broker runs the risk of putting their clients at risk of significant financial loss. “[This] may translate into the client damaging commercial relationships pertaining to their business which will more than likely also create an errors and omissions exposure and resultant cost to the broker,” Rudman explains. “The knock-on effect is a diminished trust between the client and their broker which may lead to the client deciding to look elsewhere for professional advice.”
Chopra advises that specialist marine consultants could help brokers navigate the risks that they would be unaware of.
“A broker has to be a risk-manager and should know how to adjust claims, interpret and apply clauses and policy cover. Importantly, a broker should make cogent and strong arguments to an underwriter on a client’s behalf.”
However, Kidd says that brokers should be aware that there is still a high level of non-insurance in the market, driven mainly through a lack of awareness of the products and exposures in the marine market. This means there is a risk-cover gap that knowledgeable brokers can fill with their expertise.