The Big Question: can marine insurance navigate the current complex market?

From tea to clothes and retail goods the current Plc results season has been littered with warnings that the months ahead will see the impact of the effects of a range of issues on the global supply chain as the world’s two busiest trading routes remain severely impaired.

While it remains an issue for businesses across the world the marine market, which carries the vast majority of the world’s goods from manufacture to retailer and consumer, has been particularly affected.

However, the issues for the marine sector stretch far further and the same came be said for the insurers which assume their risks. London remains the global leader for the world’s marine and energy insurance markets and continues to look to lead the sectors’ various marine committees looking to keep both contract wordings and terms reflecting the risks of the world’s maritime operators.

There has been a significant correction in the market as insurers have looked at the rising level of exposures as the supply chain and with it the marine market becomes ever more complex and interconnected.

Ian Summers, Global Business Development Leader, AdvantageGo

Calvin Gray, London Market Marine Director, at RSA Insurance says the marine sector remains complex and there are a number of emerging risks which are faced by the marine market at present.

“Climate change is becoming an increasing issue for the market. We are currently examining the ongoing impact of droughts in the Panama Canal on ship movements and the supply chain,” he adds. “Can this be viewed as a direct result of climate change? We have seen two of three years where we have experienced a quieter US catastrophe season, and there are increasing issues with droughts and their impact on the supply chain, and as such it is something we as an industry have to continue to monitor.”

While climate challenges will only increase, Gray says the industry has other challenges which in the short term are redefining risks.

“We also have the issues around the growing levels of political risk which we are seeing in the world. The Russian invasion of Ukraine has impacted the use of the Black Sea and with it grain exports. We now face the ongoing crisis in the Red Sea, which is seeing a shift in trade routes and the costs associated with marine transport,” he explains. “It has seen shipping routes that have been unused for some time now reopened.

“Even when the Evergreen blocked the Suez Canal marine traffic thought the vessel would be refloated and did not look to transit the Cape of Good Hope. However, we are seeing the route around the Cape being increasingly used and that will add to the costs of both transits and the cargo.”

“The impacts on the supply chain are becoming clear as we are seeing increasing transit times and with it, we are seeing goods now being delayed because of the extended journey times.”

Gray continues that the industry does have a degree of recent experience given we saw the disruption of the global supply chain during COVID.

“When the chip shortage we experienced was tackled we thought that the supply chain issues had been addressed, the events in recent months both in the Red Sea, the Black Sea and the Panama Canal have created new risks for marine insurers and our clients.”

The geopolitical situation has also had another unintended consequence for insurers and their clients.

“We are seeing increasing construction costs in the market at present,” he says. “The costs of a vessel may be agreed at the time that construction has begun but we are seeing those vessels emerging from the shipyards at a significantly higher cost than the initial budget. The geopolitical situation has seen increasing shipyard capacity being utilised for naval vessels. Australia for example has announced it is to increase its naval capabilities.

“As such the costs of individual vessels can be as much as $2 billion and for many companies, they will have a number of vessels on the orderbooks, which will create a need to understand the accumulation risks of having a number of vessels in the shipyards.”

Gray continues: “For example values in the cruise sector are now significant. The Icon of the Sea’s value is in excess of $2 billion, and owners need to understand the need for insurance programmes which accurately reflect the costs of the vessels and fleets.”

The transition to a green future is also an area of real interest for the industry.

“We are seeing a move to new types of fuels and with it new types of engines which will use those fuels,” says Gray. “The technology is developing rapidly and as insurers at present we are playing watching brief. I think we are all trying to get a grip on the technology and how that technology will be implemented.”

For insurers it has seen clients looking to see real leadership.

“In terms of the capacity what we are seeing is a real focus on the role of the lead and following markets,” says Gray.  “If you look at the London market there is sufficient capital in the market to allow clients to leverage their programme and have the ability to look at new solutions and new participants on those programmes.”

“Clients have the choice and increasingly a view on the lead and following markets with a clear distinction between the two.”

They are also looking at the role of the leader they choose for their programmes. “The leader in the current market has to understand what their clients do and what they need from their programmes. In the past it has often been a case of simply getting the programme across the line. That has changed.”