The withdrawal of capacity and the interpretation of marine conventions have made the marine insurance market a difficult place to do business.
However, as the International Union of Marine Insurance (IUMI) opened their annual conference in Toronto today delegates were told the challenge of creating a workable cyber solution for the marine sector had to be addressed.
Charles Fernandez, Chair of the organisation’s Legal & Liability Committee said there were a number of issues for the sector.
“The marine insurance market continues to experience a tough market environment, mainly due to the past year-on-year rate reductions,” he said. “In the Lloyd’s market, pressure has been placed on nonprofitable syndicates and non-profitable lines of business. This has led to a large number of withdrawals over the past 12 months, particularly in the hull and cargo lines of business because of their poor recent performance, and unsurprisingly this has caused collateral damage to the liability insurance class.
“The liability market’s profitability, though more profitable than hull and cargo in recent times, is also being tested by a number of large losses already experienced in 2019.”
He added that the marine sector was not immune to the need to tackle technology risk.
“One of the big challenges marine insurers are currently facing is insuring losses from a cyber-attack,” Mr Fernandez explained. “Our clients are exposed to cyber risks and we need to come up with a solution to protect them. Having said that there are huge challenges in insuring cyber risks.
“We do not have loss data and this makes it very difficult to price this risk. An even bigger challenge is how to control aggregation from a single large cyber event. Cyber exposure knows no boundaries and one attack could potentially affect multiple clients in different parts of the world.
“If not managed properly, this could cause severe impact on the finances of an insurance company. It is therefore vital that we are careful on how we deal with the cyber threat in the insurance market. There are various initiatives and actions already in motion with cyber, for example Lloyd’s have mandated that an appropriate clause – either that cyber is covered or not – be stipulated for property insurance (cargo and hull) from the 1 January 2020. Whilst we still have time in the liability sector to put such a clause in place it is important to get it right from the beginning.
“The most important factor for insurers to bear in mind whilst drafting cyber clauses is to ensure that they are not exposed to a systemic cyber event that effects multiple clients.”
Mr Fernandez added that underwriters and their clients also faced a challenge around the implementation of the maritime conventions across the world.
“Another concern is that certain countries interpret differently the provisions for insurance and limit liability in the relevant conventions,” he explained. “One of the main purposes of creating a convention is to have uniformity of laws but if some of the main features of a convention are interpreted very differently, it potentially defeats the objective. The International Maritime Organization (IMO) has created a working group to look into this issue and to make recommendations. This is a step in the right direction and we in the Legal & Liability Committee will continue to contribute to this discussion.”