Ocean marine insurance is the oldest line of insurance and today represents a small specialty line in the property/casualty insurance industry. Since those early days, marine products have evolved as risks and exposures have increased in both size and complexity. The recent sailing of the MSC Gulsun, the world's largest containership at 23,000+ TEU capacity, with cargo values well in excess of $1 billion, is just one example of the increasing assets that are insured.
Today's marine industry is facing some tough challenges. On a global basis, reports show that many lines of marine business are unprofitable and have been so for several years, including the larger lines of cargo, hull and yacht. While some geographic markets as well as insurers within the market have performed better, none have been immune to the challenges facing the industry.
There are several reasons for this situation but a significant one has been an abundance of capacity entering the marine insurance market with relatively low barriers to entry and exit. This has resulted in the "commoditization" of this specialty line of business. In the simplest of terms, premiums have not been technically adequate to cover losses and expenses let alone provide a return for capital providers that meet their expectations.
As a result, the marine insurance industry is now seeing companies exit the marine market. Those underwriters who remain committed to the market are addressing their portfolios and reviewing rate adequacy, expenses, terms and conditions, deductible levels, and capacity/limit deployment. In the soft market many accounts were underwritten and priced based predominantly on the insured's past loss experience. Today, underwriters appear to be more focused on the insured's exposures, and brokers and insureds are seeing greater demands for information.
Natural catastrophe activity has also adversely impacted the marine insurance sector, most notably the yacht and cargo lines. The yacht market has undergone significant increases in premium, deductibles, and a lack of availability of coverage for certain vessels and geographies.
The cargo market insures a significant amount of property/contents in storage under warehouse/storage endorsements and "Stock Thru Put" policies. This has increased in the soft market as cargo insurers offered broader terms, greater nat cat limits, lower deductibles, and more competitive prices than were available under a property insurance policy.
However, there have been significant cargo storage losses as a result of the 2017 and 2018 nat cats as well as a number of well-publicized, costly fire losses in the past 12 months including Macy's, Jim Beam, and Tyson.
This year has also been a very active loss year with major vessel fire casualties including the Sincerity Ace, Yantian Express, APL Vancouver, ER Kobe, Grande America, Grande Europa, KMTC Hong Kong, Diamond Highway and the APL Le Havre. Tragically, some of these casualties have resulted in loss of life, injury and environmental damage. Shipments of hazardous materials and dangerous goods are expected to be a factor in most, if not all, of these casualties. Recently, shipping companies have taken the unprecedented step of announcing significant fines for misdeclaration of dangerous goods.
All of these casualties will result in cargo, hull, and protection and indemnity (P&I) claims. In addition, in January 2019 one of the largest and most modern new container ships, the MSC Zoe, lost 345 containers overboard in heavy weather in the North Sea while enroute from Portugal to Bremerhaven, Germany.
In the U.S. market, many marine liability and P&I underwriters are dealing with challenges similar to those faced by their non-marine casualty colleagues. These include the increase in claims costs driven by growth in social inflation, medical costs, legal fees, and larger judgments and settlements. All this is increasing adverse prior year development in results for insurers. Excess marine liability insurers face similar struggles.
Despite these challenges, the marine industry will continue to grow and require re/insurers that can offer quality products and solutions. There are emerging technologies that may enable new solutions to provide insurance products to meet the industry's changing needs, but insurers must get the basics right first to be in a position to capitalize on future opportunities. For certain, the industry will need highly qualified marine insurance professionals to address its needs and offer a sustainable approach to the business that meets the demands of the present and future.
About Sean Dalton
Sean Dalton is head of Marine Underwriting for North America for Munich Reinsurance America. He joined Munich Re in 2014 and has 30 years of experience within the maritime industry. He is based in New York and can be reached at firstname.lastname@example.org