The International Union of Marine Insurance (IUMI) opened its annual meeting on Monday in San Diego with speakers cautioning the industry continues to face difficult times and warning insurance rates may rise.
“Looking around us, the marine insurance industry is facing a pretty bleak ‘present’ with some old and well established – and some newer ones - marine underwriting entities facing downgrading and even closure as a consequence of the economic uncertainty,” said Ole Wikborg, president of IUMI, a trade group that has 54 national associations as members and provides an annual forum attended by marine underwriters and other maritime professionals.
“What continues to surprise me is that with one gone, new capacity quickly fills the vacant spot with a business model not very much different from the one that had to quit. In our practical day-to-day dealings, it may be argued that our business models are not very innovative,” Wikborg said.
The group said the past year has continued to produce challenges for marine insurance underwriters with both the hull and machinery and cargo segments “under pressure due to overcapacity and premium pressure from buyers, coupled with an adverse claim development. Some major claims have dominated the insurance scene.”
“A slump in the value of cargo transported, and the ongoing shipping crises also have an impact on our industry,” the group said.
If shipowners have income that is below operating costs because of high fuel and financial cost, that means they may cut corners on maintenance and other operational expenses to stay afloat, it explained. It said new regulations also are increasing costs.
On the positive side, the group says cargo volumes continue to grow.
IUMI said a rising number of total vessel losses in the first seven months of the year do not bode well for the global hull insurance market.
The group said 2012 reports will show 39 total losses to date, significantly higher than reported at this time in 2011 and 2010.
Astrid Seltmann, vice chairman of the IUMI Facts & Figures Committee, said her group’s ability to deliver a full picture of the hull market’s performance had been made extremely difficult by the loss of the Costa Concordia
on Jan. 13.
“What we can say is that the hull market will record its 16th consecutive pure underwriting loss,” she said.
Harry Yerkes, chairman of the IUMI Hull Committee, said insurance brokers need to prepare their clients for increased deductibles and rate rises.
Insurers face concerns over rising total losses in the year so far and the reaction of the reinsurers at renewal.
“There is still capacity and a lack of discipline in the market and we are becoming a little concerned,” he said. “The market seems to have shrugged off the Concordia
loss, but we are also concerned over the approach of the reinsurers and whether they will look to revise their approach to global hull risks at renewal.”
Yerkes added there was an increase in the size and scale of vessels in terms of exposures levels, but premium levels had not kept pace with those exposures.
He said there was some evidence that clients were looking for multi-year insurance coverages in some areas and while he did not believe that such deals would be agreed, it indicated there was some belief in the shipping markets that rates were about to rise.
The cargo market saw a rise in premium volume in 2011 to $17.2 billion, an increase of 9 percent. However, the rise is considered to be a result of an increase in cargo business rather than any ability of underwriters to increase rates.
The cargo markets' performance was affected by the natural disasters of last year, in particular flooding in Thailand and “sanctions and piracy are still a concern,” Seltmann added.
Overcapacity is also putting downward pressure on pricing of cargo policies.
“There is pressure on the market to compete for the available risks and that pressure has been increased by the ongoing overcapacity in the market and there are no clear signs that there is any capacity willing to exit the market at present,” IUMI said.
The group also said “we are seeing evidence that cargo forms are getting broader and this changes the dynamic for the market in terms of exposure." - Chris Dupin