Navigating the challenges in the marine insurance market
The marine insurance industry faces myriad challenges including geopolitical tensions, uncertain macroeconomic conditions, ESG issues and a shortage of talent. Inland marine insurers are being further impacted by increased reinsurance costs and severe weather conditions, and as a result are increasingly turning to technology to improve the underwriting process.
Most carriers are maintaining underwriting discipline, in part due to higher capital costs and increased retentions.
The marine industry has been significantly impacted by looming recession, tightening labor market, rising interest rates, rising bank failures, skyrocketing inflation, tightening credit, and weaking consumer confidence are all impacting the industry, notes Ken Mueller, head of inland marine, AXA XL.
As inland marine insurers navigate these challenges increased reinsurance costs, reduced capital, higher catastrophe losses, disrupted supply chains, and secured delivery for the “last mile” are also adding further pressure, according to Muller. "In addition to this, the talent shortage is impacting the inland marine insurance industry as not enough new people entering the industry; and many underwriters are preparing to retire," he says.
Frédéric Denèfle, president of the International Union of Marine Insurance (IUMI) highlighted the key challenges facing the marine insurance market at its annual winter meeting earlier this year.
"IUMI has a responsibility to navigate and support the marine insurance industry. A downturn in trade, geopolitical tensions, inflation, environmental, social and governance (ESG) factors — as well as onboard safety — are all creating complexity,” explained Denèfle to delegates.
The International Union of Marine Insurance has a responsibility to navigate and support the marine insurance industry. A downturn in trade, geopolitical tensions, inflation, environmental, social and governance (ESG) factors - as well as onboard safety - are all creating complexity.
He further highlighted that one of the many challenges that marine insurers are facing is the reluctance of the reinsurance market to provide cover for risks involved in insuring maritime vessels in war-related regions. “The question insurance companies face: How would they find their way around the risks without the support of reinsurers?” said Denèfle.
Marine insurers are increasingly deploying pricing models that utilize risk segmentation, and have developed underwriting tools to better help them evaluate exposure.
For Joe Coffey, vice president, national practice lead and chief underwriting officer of inland marine at Travelers, one of the biggest trends he's seeing in the inland marine insurance industry is large to mega-size projects, from infrastructure to manufacturing facilities. “It’s not uncommon to see a builders’ risk project exceed one billion in total value,” he says.
Indeed, the trucking industry is facing various challenges, such as weak economic conditions, and according to Coffey this has even led to some small-to medium-sized companies closing their doors. "There has been a significant increase in strategic cargo theft where organized crime rings are using increasingly sophisticated technology and trickery to steal cargo."
“We are also seeing an increase in shipment values due to inflation as well as the high value of the cargo, including goods such as pharmaceutical products, equipment, and computer and technology accessories. In general, the transportation industry is gravitating to insurers that can offer value and expertise to deal with these types of challenges.”
Coffey points out that extreme weather weather conditions and a challenging reinsurance market are two of the biggest challenges facing marine insurers. "From large flooding events to wind and hailstorms to wildfires. There is almost no place in the country immune from volatile weather,” he notes.
The reinsurance market became more challenging in the fourth quarter of 2022, explains Coffey. "Rates have increased and capacity decreased, especially on catastrophe-exposed property. We are also seeing increasing claim costs due to a shortage of skilled labor and supply chain pressures for materials."
Rates have increased and capacity decreased, especially on catastrophe-exposed property. We are also seeing increasing claim costs due to a shortage of skilled labor and supply chain pressures for materials.
“Technology has advanced in many ways across the industry and much of it is designed to help assess or mitigate risk. At Travelers, we use systems that help with catastrophe modeling for severe weather. We also use advanced tracking and third-party services to help reduce cargo theft and manage fleets for trucking or contractors’ equipment.”
The inland marine industry is performing well, despite the current challenges it faces. “Despite significant challenges, marine insurance returns tend to run counter-cyclical to macro-economic performance,” says Mueller. “Most carriers are maintaining underwriting discipline, in part due to higher capital costs and increased retentions."
Though progress has been made to support underwriters in the industry, more needs to be done according to Mueller. “Insurers are leveraging internal and exogenous sources to help the underwriter make the best decision. While much progress has been made, however, we still have a long way to go,” he says. “Technology is a tool – it should not replace the sound judgement of an experienced marine underwriter.”