A reluctance of reinsurers to provide cover for risks involving maritime vessels in war-effected areas is leaving Insurance companies with the question: how do we find our way around the risks when support from reinsurers is lacking?
Proactive solutions for a naval corridor
The Ukrainian conflict and the tensions in the Red Sea have brought about significant challenges for marine insurers – that being said, it has also galvanised both proactivity and product innovation.
Given insurers were predicted to be unable to respond in a timely manner by some, this is a real positive for the market. One flagship example was the successful cover of vessels carrying grain out of Ukraine through the predefined naval corridor and the cooperation between global specialty insurer and reinsurer, Ascot Group and Marsh – this collaboration saw an insurance product for cargo being offered to customers within a very short time of the safe passage being announced. The product was contemplated by the market anticipating that the corridor would likely open. This came at a critical time, not just for the global food market, but also for insurance, which had arguably earned itself a bad reputation following Covid and the payment of business interruption claims.
Just seven days after the safe corridor was announced, and with a heightened risk profile, the new insurance facility dedicated to getting grain out of Ukraine was launched.
Working in unison
There is a feeling amongst industry leaders that the marine insurance sector needs to improve the way it reacts to the breakout of war and conflicts. Brokers receiving multiple notices of cancellations leads to major inefficiencies that could be avoided if regions were more clearly defined, and the enforcement of regulations was stronger.
Having a set of standard operating procedures would help alleviate confusion and maintain efficiencies.
The threat of cyber-attacks
Wars between nations are not the only threat looming over the marine insurance industry. Another major threat is cyber-attacks which have grown exponentially over recent years. While there is no doubt that the move towards digitalisation is bringing huge benefits to the insurance market, the potential downside is the increasing risk of being hit by a cyber security breach.
Last January’s ransomware attack on DNV’s ShipManager servers was too close for comfort for the market and, although the cause of US airlines being grounded in the same month was eventually found not to be a result of a cyber-attack, the thought that it very easily could have been sent waves of panic around the sector. Both episodes were felt to be unpleasantly near to home to not be concerned about.
Increased visibility
Lack of transparency of exposures remains a sticking point across the industry, and some in the profession believe that more pressure should be put on the customers and wider market to share their data.
Digitalisation is seen as the answer to improving the transparency issue, although it is accepted that it will take time to accumulate the adequate amount of data. Only when data is collated, can values and risks be accurately assessed.
As the technology march pushes on, the challenge is for insurance products to keep up. Andrew Yeoman strongly believes that “Data is going to drive visibility, which will force innovation in the insurance/reinsurance product to speed up.”
Policing the industry
Many of those who have been in the marine insurance industry for a long time observe unprecedented disruption in international trade, largely due to the proliferation of sanctions across over 30 countries, a concept scarcely conceivable a decade ago, let alone in the 80s and 90s. Moreover, there’s a notable shift in industry attitudes towards engagement with matters of war, sanctions, and environmental, social, and governance (ESG) concerns. Previously indifferent, insurers now feel compelled to take an active stance on what they insure, reflecting a significant departure from past attitudes. This change is partly attributable to technological advancements, making such shifts feasible where previously they were not.
Customer challenges
It is a well-known phenomenon that people do not like change. Explaining premium increases to marine clients, whether due to factors like war, supply chain disruptions, or contingent business interruption, proves arduous, eliciting objections.
While educating customers is crucial, insurance providers must also remain agile in responding to emerging events, swiftly offering new and essential products. Delaying action post-crisis does little to aid customers, emphasising the need for proactive adaptation within the industry.
Partnerships to better serve customers
In a recent Concirrus roundtable discussion, there was comment that partnerships where all parties appreciate the risk taken are necessary to expand insurance offerings and provide customer solutions. In the case of the product which allowed grain to be transported out of Ukraine, the solution offered was arguably life-saving. What the industry must not forget is that we are here predominantly to serve our customers and, as such, customers should be at the heart of our decisions.
