International Union of Marine Insurance (IUMI) President Richard Turner opened the organisation’s annual conference with a warning that the sector needs to get back to delivering technical pricing.
Due to COVID-19 the conference is being held over the next fortnight on a virtual basis, but it did not stop Mr Turner calling for the marine market to recognise the range of challenges it now faces in his opening address.
Front and centre at present is the impact of the COVID pandemic.
“The uncertainty stemming from the coronavirus pandemic has significantly affected the global insurance industry and, inevitably, that has impacted on the marine sector,” he said. “The slowdown in world trade coupled with an earlier slump in the oil price should result in a reduction in the overall premium base.
“We are seeing disruption and delays at some ports with queues of vessels waiting for a berth, and this is building an unwanted accumulation of risk as a consequence. COVID is also disrupting supply chains which in recent years have become more globalised than ever before. Post-COVID, it is possible we’ll see a shift to a more simple and local logistics pattern as geopolitical tensions and the impact of the virus exert a longer-lasting effect.”
Mr Turner explained that the nature of the IUMI membership saw little exposure to liability covers but the impact on global trade and the operation of the maritime sector is testing the market’s resilience. He added that pressure of insurers across the world was to return an underwriting profit. Something the marine insurers have struggled to do for decades.
“Marine insurance tends to cover physical damage and so COVID isn’t impacting directly on our claims profile, but as part of a much larger insurance business environment, we are being affected indirectly,” he explained. With a recent history of unprofitable underwriting years, COVID is increasing the pressure on marine lines of business to return to a sustainable technical profit.”
The impact of the significant reduction in global trade has been coupled by a rise in protectionism and a move to greener economies, said Mr Turned. It will inevitably change the dynamics of the marine insurance business. The depressed oil price has slowed production and the commissioning of new offshore facilities, as well as writing-down the asset base of many oil companies – this will also challenge marine underwriters.
The economic woes come at a time when climate change continues to influence the size and severity of marine claims; and rising sea levels in areas where sea defences are weak (or merely sufficient to manage historic peak sea levels) will continue to exert pressure on the sector, he warned. In the longer term, as a large part of marine insurance is dominated by a reliance on fossil-fuel – either assets powered by oil, carrying oil, or producing oil – a move by society away from this type of energy will inevitably have an impact.
“Similarly, some other industries have the potential to become unsustainable (the future viability of the fishing sector is an example of what might happen if sustainable living conditions in the world’s oceans continue to be challenged), or less acceptable to insure (such as coal) and this will also have a negative effect. More positively however, the continued growth of new industries such as offshore renewable energy, has the potential to offset this predicted future loss of business,” explained Mr Turner.
He added that the move to greater digitalisation was “blending the art of underwriting with the science of data management and insight”.
He expressed concern that the marine sector was lagging behind other insurance lines, probably because of its relative size, marine insurance was ripe for change.
He said: “COVID has changed the way the market operates, particularly in London. Brokers and underwriters have embraced remote-working and we have seen more online placing than ever before. It is difficult to see this process reversing significantly once the pandemic is over”.