Marine insurers have been warned they face a range of emerging risks from decarbonisation to the ongoing threat of onboard fires due to the misdeclaration of cargo.
It came as IUMI president Richard Turner (above) said marine underwriters cannot afford to be spectators as their clients wrestle with the increased demands of ESG, adding climate change was a current not simply a future threat.
Speaking in Chicago as the IUMI (International Union of Marine Insurance) held its annual conference Rama Chandran, chairperson of the organisation’s Ocean Hull Committee expressed concern over the long-term sustainability of the hull and machinery insurance sector.
He warned: “Whilst it is encouraging to see the 2021 premium base growing from the previous year we face deteriorating loss ratios, albeit from a low 2020 base. Premium base has only recently begun to creep upwards following a sustained decline since 2012.
“The increase of 4.1% is lower than the 6% seen last year and the reducing quantum is a worrying trend. This is likely due to increased market capacity, particularly from London and Latin America which is a surprise for many.”
“The first half of this year (2022) has seen an increase in claims primarily caused by increased activities and inflation with higher steel price, higher cost of spares and labour cost,” Chandran warned. “As shipping activity returns to pre-COVID levels, it is inevitable that we’ll see a rise in claims and that will dampen the more encouraging loss ratios IUMI reported for the 2021 period. The 2022 outlook is worrying with increased losses and flattening of rates. Inflation could tip the profitability curve and see more capacity withdrawn.”
The move to sustainability continues but Chandran said there was still a long way to go for the maritime sector and its insurers.
“Decarbonisation of shipping is underway, but remains a long way from reality,” he said. “With the medium to long-term measures still under discussion, there is a lot of uncertainty and hesitation from both owners and insurers due to the lack of regulation and market-based incentives.”
Chandran continued the expectation is that there will not be one solution/fuel going forward, but rather a number of these – provided also that the infrastructure on land is in place.
“From an insurance perspective, focus is on identifying risks related to the new fuels, how to mitigate them and engaging with class and regulators to develop necessary rules, standards and guidelines to ensure a safe transition,” he added.
His views were echoed by Turner who said: ““The growing climate emergency, the rise of protectionism affecting international trade and the emergence of data and technology as a driver of huge change in all sectors have different ramifications for the world, international trade and by extension for us as a marine insurance sector.”
He added the increased pressure for enhanced ESG in the maritime sector needed underwriters to play a full part.
““ESG will be a dominant catalyst for change in our sector in the next few years. It is simply not credible for the marine insurance industry merely to ‘spectate’ on the issue and leave it to the ‘industry’ to resolve the problems. The growing pressures in society, in politics and regulation and in terms of investor expectations require us to participate and act.”
However, with the recent formation of the Safe Decarbonization panel at IMO which sets a clear path for collaboration and discovery through all stakeholders and the scientific community, underwriters should get more understanding of the risk and the rules to mitigate those risks.
The issue of onboard fires are still a concern Chandran said.
“Fires onboard large containerships continue to impact hull, cargo and P&I insurance and, sadly, have resulted in tragic loss of life and environmental damage,” he told delegates. “The main cause appears to be mis-declared or non-declaration of dangerous cargoes. Much work is being done to address the issue and IUMI is at the forefront of lobbying for change. There is also an increase in engine room fires which may reveal some underlying risk including crew competencies and modern technologies.”
Turner concluded: “No organisation can simply stand still. We cannot simply assume that the work we did in the last decade will be sufficient to see us through the next decade. The wider changes in the world make such an outcome unlikely. We will need to evolve if we are to stay relevant to the sector we represent.”