Marine insureds may need to adjust their policy limits to stave off the risk of underinsurance, says global head of marine risk consulting
Marine insurers are facing a significant hike in claims costs as inflation and rising exposures create a perfect storm.
Allianz Global Corporate and Specialty (AGCS) analysed more than 240,000 marine insurance industry claims worldwide between January 2017 and December 2021, worth approximately €9.2bn (£8bn) in value.
Damaged goods, including cargo, were the top cause of marine insurance claims by frequency and the third largest by value, AGCS analysis showed.
The most common claims were for physical damage, typically from poor handling, storage and packing. However, recent years have also seen a number of high-value theft and temperature variation claims – the latter can particularly impact pharmaceuticals.
Theft is the third most frequent cause of claims with criminals targeting consumer electronics and high-value commodities such as copper. Cargo is typically stolen from ports, warehouses or during transits.
The recent boom in container shipping has also affected cargo claims as a global shortage resulted in substandard and damaged containers being brought back into use, resulting in losses.
While fire and explosion incidents cause the most expensive insurance claims in the marine industry, rising exposures and inflation are testing the market.
With many countries seeing interest rates at or around 10%, inflation is compounding existing trends and driving higher claims severity, according to the study.
The rising prices of steel, spare parts and labour are all factors in the increasing cost of hull repair and machinery breakdown claims, said AGCS.
In addition, the value of both vessels and cargo has been increasing at a time of growing exposures associated with bigger ships, the largest of which can carry 20,000 containers at one time.
The combined value of the global merchant fleet increased 26% year-on-year to $1.2tn (£1tn) in 2021, while the average value of container shipments has also been rising as more high-value goods – such as electronics and pharmaceuticals – are shipped.
It is not unusual to see one container valued at $50 million or more for high-value pharmaceuticals, said AGCS.
Rahul Khanna, global head of marine risk consulting at AGCS, said: “The risk of theft and damage to high-value cargos needs to be addressed with additional risk mitigation measures, such as GPS trackers and sensors that provide real-time monitoring on position, temperature, moisture shock and light and door openings, for example.
“At the same time, cargo interests need to keep a close eye on insured values.
“Clients may need to adjust their insurance and policy limits, or risk being underinsured – we have already seen claims for high value container cargos where the cargo interest was underinsured by as much as $20m (£17.4m).”
- Insurance Times has converted dollar amounts into pounds using an exchange rate of £1 = $1.15 USD, which was correct as of 1 November 2022.