IUMI: Marine Cargo Premiums Inadequate to Cover Losses

The marine cargo market is in a state of ‘accelerating change’ as underwriters are taking action to address unprofitable results and improve performance, according to the International Union of Marine Insurance (IUMI).

“On a global basis, the cargo line is unprofitable and has been for a number of years. Premiums have not been technically adequate to cover losses and expenses and, as such, have not delivered an acceptable return for capital providers,” Sean Dalton, Chair of IUMI’s Cargo Committee, explained.

“A significant reason for this ongoing situation is the commoditization of this speciality line of business which has lowered entry barriers and attracted new entrants, some of whom are now exiting.” 

Speaking at IUMI’s annual conference in Toronto, Canada, on September 16, Dalton reported a 2.5% increase in 2018 global premiums to USD 16.6 billion, compared to premium income for marine cargo insurance in 2017. The modest increase was largely attributed to continued growth in world trade coupled with exchange rate fluctuations which tend to affect cargo premiums more strongly than other sectors.

Global marine premiums stood at USD 28.9 million in 2018, representing a single percentage point rise from 2017. This modest rise is not significant to herald an upturn in the fortunes of the marine insurance sector, IUMI said. The USD 28.9 billion global income was split between the following geographic regions: Europe 46.4%, Asia/Pacific 30.7%, Latin America 10.4%, North America 6.2%, other 6.3%.

World trade global growth is expected to achieve 2.6% in 2019 and 3% in 2020. This, coupled with governments in emerging markets investing in infrastructure and promoting domestic manufacturing, gives a positive outlook for cargo insurance. However, weaker economic projections and concerns over trade wars may dampen expected growth and are of concern.

As informed, 2019 has already been impacted by nine major cargo vessel fires. They have resulted in the loss of life, injury and environmental damage, such as incidents aboard Maersk Honam and Grande America. Misdeclaration of cargo appears to be the main culprit and is driving some shipping companies to take the unprecedented step of announcing significant fines to those responsible.

Ashore, there have been cargo storage losses in 2017 and 2018 from nat-cat incidents as well as a number of significant fire losses over the past 12 months. The marine cargo market insures a significant amount of property contents storage under Warehouse/Storage Endorsements and “Stock Thru Put” policies. The current soft market has increased this risk profile as underwriters have been offering broader terms, higher nat-cat limits, lower deductibles and more competitive prices than their property counterparts would provide.

“In addressing these issues, cargo insurers are encountering old and new challenges. These include compliance, sanctions, War and SR&CC, emerging risks and new coverage requirements. With each cargo insured loss there are related uninsured losses. These might include business interruption due to supply chain issues, trade disruption, or loss of market,” Dalton continued.

“Emerging technologies may provide tools and capabilities to enable the development of new products. To meet these needs cargo underwriters must get the basics right if they are to be in a position to capitalize on future opportunities. It is certain that exposures will continue to increase in size and complexity for the cargo underwriter and this will require a sustainable approach to the business to meet the demands of the present and the future.”