Maritime Insurance Market Update, Q3 2020
‘Clients, advisors and insurers are in the same boat.’
Effective cooperation is necessary to keep risks manageable and affordable.
Erwin van Geyte, Broking Director Aon Netherlands
Peter van den Brink, Industry Director Marine Aon Netherlands
Consolidation of insurers
We have seen a wave of insurer consolidation in recent years. Where twenty years ago there were dozens of insurers focused on the risks of the maritime sector, now there are considerably fewer. This of course has an impact on insurance capacity, but also on the terms and conditions and premiums for which shipping, shipbuilding and offshore companies can insure their risks. Premiums have increased by about 10% to 15% in the past three years, even for companies with a clear claims record. “The corona pandemic has made insurers even more ‘risk averse’ than they already were” says Peter van den Brink, Industry Director Marine Aon Netherlands.
Hardening of insurance market
In addition, we see a general hardening of the insurance market due to the disappointing results experienced by insurers. The insurance market has long been an excellent, stable investment market offering a great deal in returns. However, there occurred a large premium erosion. Insurers received so much capital from investors that there was an overcapacity. This allowed premiums to be kept low, but due to poor results and changing market conditions, many investors have now withdrawn. As a result, insurers have less capital available to invest with. But premiums are still relatively low, which means insurers can only invest in manageable risks with a reasonably predictable positive return.
Erwin van Geyte, Broking Director Aon Netherlands:
“These are challenging times for Aon, but also for clients and insurers. We are all in the same boat. The insurance market for maritime companies has traditionally been a very international business – that’s why our good contacts with insurers in London, Singapore and the EU are crucial so that we can offer suitable insurance solutions.”
Insurance capacity within the maritime sector is declining
Companies in the maritime sector are doing increasingly well when you look at damage prevention and risk management. Nevertheless, in recent years the total premium has fallen faster than the total cost of claims, which meant insurers ended up suffering losses. This in turn drove up prices. What also makes this sector difficult is that ships are capital-intensive objects which are exposed to a huge variety of risks. These are large and often unpredictable risks at a time when insurers are looking for smaller risks with a more predictable return. Some insurers are withdrawing from the maritime sector altogether, while others are reducing their share of maritime risks. This causes a sharp drop in the overall insurance capacity.
COVID-19 poses additional risks
Globally, there has been a sharp fall in the willingness to insure risks. However, we also see that some insurers are using the situation as a chance to distinguish themselves from their competitors by keeping these risks as insurable as possible and thinking along with maritime businesses. It is necessary to determine what the risks are, to adjust them operationally and also to determine their impact on capital and liquidity. In addition, protecting and supporting the crew is more essential than ever.
The role of a risk advisor is even more important in these times
“These days, we notice that our conversations with customers are not only about short-term profit from a slightly lower premium. More important is to keep large risks insurable so that you can keep guaranteeing the continuity of companies” says Peter van den Brink. In this regard, the role as advisors is becoming ever more important, especially when you look at risk areas like COVID-19, fluctuating oil prices, geopolitical developments and cybercrime. Companies must be made aware of what could happen if things went wrong, prepare for them and have suitable insurance against them, wherever possible. To achieve this, choosing a good international broker is just as important as choosing a good insurer.
Companies can improve their own negotiating position
As a company, you do not have to wait patiently for next year’s new terms and conditions and premiums to be announced – you can play an proactive role in that process. To this end, it is important that companies consult their adviser on time, well before the annual renewals of their main insurance policies. An advisor can help them to draw up a clear risk profile. This profile consists of all information useful to insurers, such as the risk management policy, investments made in prevention, and details of inspections and risk assessments. As risk advisors, we can help companies uncover and present this information properly, which means insurers can make a better risk assessment. Based on that, they will decide upon the terms and conditions and premium for the insurance agreement. This means companies have a much better negotiating position.
Development of risk management; growth of intangible risks
We see that maritime businesses are increasingly aware of their risks and visibly investing in safety and prevention. And it gets results: the total cost of claims has fallen sharply over the past ten years. However, companies mainly focus on ‘visible’ risks and we should not lose sight of intangible risks, such as cybercrime. The urgency of this risk seems much greater in other sectors, so this is also reflected in the risk management policy. Within the maritime sector, the first concern is: can a ship still reach the coast after a cyber-attack? The answer may be yes, but the financial consequences of a cyber-attack might be more far-reaching. It is no different with possible future pandemics. It is wise to look beyond the corona crisis now and to think seriously about having a policy in the field of communicable diseases.
Be smart when using risk for competitive advantage
The maritime sector uses ‘risk’ to gain competitive advantage. Accepting or not accepting risks has a direct influence on the contract price and therefore on the winning or losing of contracts or market share. This involves managing the usual risks surrounding ships, but it also includes personnel, the crew, contract clauses and dealing with risks in politically unstable regions and even war zones.
Companies can negotiate better with their clients and close better deals when they have a solid understanding of (pricing) risk, developing scenarios, preparation and training. Insurers are noticeably more interested in these companies because their risk awareness also affects the entire business. The consequence of this awareness is not only a lower insurance premium, but also lower risk costs for the company and therefore a higher chance of winning contracts.
For more information go to Aon