Marine insurance trade association confirms the sector ‘has much work ahead’ if it wants to keep pace with ongoing challenges
Marine insurers are facing a flood of challenges in the year ahead and will need to combat some of their most acute risks without the safety net of reinsurance cover, according to the International Union of Marine Insurance (IUMI).
The IUMI, which represents the world’s hull, cargo and offshore energy underwriters, held its annual winter meeting in London this week (7 February 2023). At the event, its president - Frédéric Denèfle – warned that the marine insurance sector faces huge threats to its clients and assets.
He added that the market is also battling the internal challenge of transforming its processes to better understand and evaluate the changing risk environment.
Denèfle emphasised that the marine insurance industry must remain positive and continue to deliver solutions for policyholders. However, the year ahead would test its members.
He said: “At the beginning of this year - with the world facing a downturn in trade, geopolitical tensions, the impact of inflation on the global economy and the importance of environmental, social and governance (ESG) - marine insurers are facing substantial challenges.
“IUMI has a responsibility to navigate and support the marine insurance industry. A downturn in trade, geopolitical tensions, inflation, ESG factors - as well as onboard safety - are all creating complexity.
“We remain fully committed to assisting our members and providing comprehensive guidelines to the larger marine insurance market.”
Lack of reinsurance backing
The biggest immediate and ongoing issue for the marine insurance market is the provision of cover for war risks in the shadow of the conflict in Ukraine – as well as amid rising tensions in the Persian Gulf and the South China Sea.
This challenge has not been made any easier by the decision from reinsurers to refuse to provide war risk cover at the January 2023 reinsurance renewals. This leaves insurers to underwrite this risk without their traditional safety net.
Denèfle noted that with more than 40 vessels stuck in Ukrainian ports - carrying an estimated aggregate insured value of $700m (£569m) - and their owners able submit claims for their total loss on the 12-month anniversary of the invasion on 24 February 2023, the industry is braced for significant claims.
“As a result of the ongoing war in Ukraine, the reinsurance market is unwilling to provide cover for risks involved in insuring maritime vessels in the region,” Denèfle added.
“Stakeholders had to find solutions to these risks and provide contracts on the hull and cargo side. The challenge insurance companies [now] face [is] how [can they] find their way around the risks without the support of reinsurers?”
Furthermore, war-related sanctions and embargoes from the US, Europe and Iran put additional pressure on marine insurers.
Denèfle continued: “Iran imposed sanctions on individuals and entities from the European Union and Britain.
“The impact of [this action] means that Iran will halt shipping trade against any nation that has raised sanctions and embargoes against their interests, which have enormous implications for the Persian Gulf.
“With the 10 most prominent and active ports globally in China and the most significant volume shipped from China, the marine insurance industry will have to monitor the ongoing threat in south east Asia and the increasing tension between China and Taiwan.”
Supply chain fluctuations
As for the impact of international trade on marine insurance, the “downturn” and “significant recent reduction in demand” here has resulted “in slower vessel turnarounds in ports due to low cargo volumes”, Denèfle noted.
“This, together with declining freight rates, shows that the market is decreasing. In turn, it impacts marine insurance as there is far less value to insure,” he explained.
The ongoing fragile global supply chain is another concern for marine insurers, according to Isabelle Therrien, chair of IUMI’s cargo committee. For her, there is no short-term end in sight for this particular problem.
“The supply chain challenges from 2022 will continue into 2023 and many supply chain managers and executives have reported significant disruptions,” she explained.
“Global political unrest, the looming risk of a global recession and the economic downturn have impacted the movement of goods globally. Furthermore, shrinking demand and easing congestion continue to push container rates down.
“With lower rates and new vessels impacting the market, container vessels will likely continue to protect their levels and monitor specific trades’ capacity concerning demand. This may result in further weakened rates in 2024.
“There is no question that the supply chain continues to evolve and that the aftershocks of the pandemic seem to be lessening. With that, cargo insurers must still be vigilant and focus on properly assessing their risk from a transportation or static risk perspective.”
ESG factors are additionally driving cargo insurance costs, Therrien added.
She told delegates: “Cargo owners are looking at alternative shipping methods to reduce their carbon footprint [and] contribute to a more sustainable future.
“Ocean freight versus sea freight is often one of the aspects considered by organisations to increase their green credentials as it is said that aeroplanes emit 500g of carbon dioxide per metric ton of freight per kilometre of transportation.
“In comparison, container ships emit only 10g to 40g of carbon dioxide per kilometre.”
‘Much work ahead’
Despite IUMI’s event citing a number of challenges for the marine insurance market, Denèfle confirmed that the “IUMI has a pertinent role to play” as an association.
He said: “It has to consider the association members and address the topics on its policy agenda - for example, providing guidelines [around] ESG.
“IUMI has to keep up to date on business evolution regarding data and digitalisation and, with this, the technical development of vessels and the ongoing challenges regarding fires on container and [roll on-roll off] vessels. IUMI has to ensure there are proper regulations to reduce these.
“IUMI and, on a larger scale, the marine insurance industry, has much work ahead.”