The global cargo sector has been badly hit by a triple whammy of COVID, climate change and a lack of digitalisation underwriters have been warned.
Speaking at this year’s International Union of Marine Insurance (IUMI) annual conference being held virtually from Seoul Isabelle Therrien, Chairperson of the IUMI Cargo Committee warned 2021 is not looking good for the sector or its insurers.
The warning comes despite an increase in the 2020 cargo insurance premium base (from 2019) of 5.9% to $17.2 billion alongside an improvement in overall loss ratios.
“We are continuing to see correction in the cargo insurance market (albeit at a lesser pace than in previous years) with a strengthening of the premium base and an improvement in our profitability,” Therrien said. “We’ve worked hard to inject some much-needed sustainability into our sector, but conditions are fluid and there are many factors we need to be aware of.
“On the positive side, world trade recovery is well underway and forecasts project that larger economies such as China and the USA will lead the way. Since the fortunes of the cargo sector tend to mirror global trade, this is good news for cargo underwriters.
“However, the frailties in global supply chains exposed by COVID are likely to result in a re-organisation and, perhaps, a move to bring manufacturing bases closer to consumers. Inevitably this will impact our business”.
Therrien said disruption continues to plague maritime supply chains with port congestion and activity suspension commonplace. The shortage of containers and the move to bring forward the movement of seasonal goods to ensure an uninterrupted supply during the upcoming holiday season has also contributed to the problem.
Other factors driving uncertainty for cargo underwriters included the effects of climate change and, in particular, an increase in nat cat events such as heavier weather at sea affecting the stability of container stacks on large vessels.
“These large vessels have also in recent years been increasingly impacted by onboard fires likely caused by mis-declaring dangerous cargo. The pandemic has also brought to light the fact that digitalisation needs to be in focus for the maritime industry. A shift is expected in the way the industry will embrace digitalization and insurers should prepare for how it will affect the future of cargo underwriting.”
Look at the performance so far this year Therrien added: “A number of events have conspired to make 2021 look less bright from a cargo underwriting perspective. General Average was declared on the Ever Given containership which blocked the Suez Canal and there have been a series of other high-value casualties this year, including X-Press Pearl; in addition, Hurricane Ida and other nat cat events such as wildfires and floods will have a negative effect on our result this year”.
“In the past four years alone, we’ve seen in excess of $3 billion of cargo losses and it appears that the severity and frequency of losses is increasing – a direct result of climate change, accumulation of risks, supply chain disruption and other factors. It’s clear that our sector needs to review how it models and prices risk and it must draw on a range of predictive analytics to more accurately understand the new risk profile that we are beginning to face.”