An evolving risk profile for marine insurance

Richard Turner FCII, the International Union of Marine Insurance (IUMI) President and International Head of Marine, Victoria Insurance Holdings examines the issues which will test marine insurers in 2022.

Looking ahead to 2022 and beyond, I see the world of marine underwriting being dominated by three core factors, namely environmental, digitalisation and Covid. And whilst the first two of these will bring opportunities, all three have the potential to present a significant change to the current marine insurance risk profile.

Climate change is impacting heavily on natural weather patterns which is resulting in more frequent nat cat events. This recent period has seen a high number of severe flooding incidents and wildfires. Sea levels will continue to rise, at least in the short to medium term, and this will expose coastal maritime operations to greater risk.

The trend for larger vessels, larger ports and more concentrated warehouse and storage facilities is conspiring to accumulate significant risk in small physical locations. This exposes ever higher values to a greater likelihood of a major natural or man-made catastrophe.

The emphasis on environmental stewardship will only continue to grow over the coming years and IUMI is fully supportive of all efforts to decarbonise. It’s the job of the underwriter to take on the risks associated with these activities as effectively as possible. A fundamental switch from current vessel propulsion systems to new technologies such as ammonia, hydrogen or fuel cell will involve a change to the current set of risks and insurers will need to fully identify and understand the implications before they are able to provide adequate and comprehensive cover. This is also true for other eco-innovations such as wind, solar and tidal energies that will continue to grow and perhaps dominate in years to come.

It was gratifying to see digitalisation making much greater inroads into marine underwriting in 2021 and I’m confident that this will continue going forward. More placement is happening online and software solutions are increasingly being harnessed to understand, predict and price risk more accurately. But digitalisation brings with it the potential for cyber-attack – not just within an underwriter’s office but also within the range of clients we insure. Vessel operators, ports, cargo interests and service providers have all suffered from the unwanted attention of cyber criminals and insurers are increasingly being asked to offer greater protection. This issue won’t be disappearing and underwriters will need to adjust their cover and enhance their expertise to deliver for their assureds.

Sadly, Covid is still with us and although the vaccine programme has been a great success, the virus is likely to remain at large for some years to come. From a human perspective, we will continue to see the pandemic impacting heavily on vessel manning to exacerbate the current seafarer shortage as well as creating problems with repatriation and, sadly, the abandonment of crews. Fatigued crews will inevitably cause a rise in human-error led accidents which will, of course, impact our marine business.

The pandemic is also taking its toll on port workers and those responsible for the onward movement of goods. As a result, vessels are queueing for port entry (particularly in the US) and dwell times have increased. With the holiday season almost upon us, port accumulations are likely to increase and indicators suggest no let-up during the early part of next year.

More generally, our own IUMI statistics show that cargo and hull underwriting returned to break-even in 2020 after many loss-making years, although 2021 could bring fresh challenges. However, the maritime sector continues to evolve, particularly to align itself with much-needed environmental goals and policies, and so marine underwriters will need to adapt accordingly. But as the oldest line of insurance, marine underwriters have a successful track record of adapting to new technologies and I have no doubt that our sector will continue to deliver in the face of these issues and other challenges that will inevitably present themselves in the future.

The trend for larger vessels, larger ports and more concentrated warehouse and storage facilities is conspiring to accumulate significant risk in small physical locations. This exposes ever higher values to a greater likelihood of a major natural or man-made catastrophe.

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