Between large-scale vessel losses, back-to-back years of heavy catastrophes and an overabundance of capacity, the commercial marine insurance market has had a tough couple of years.
As underwriters look ahead to 2019 and beyond, what will need to change in order to continue delivering the kinds of products and services that are capable of effectively protecting commercial marine insureds from evolving exposures?
In the face of mounting losses, Patrick Barco, national product leader marine, Burns & Wilcox Canada, observes that marine insurers are “monitoring climatic changes more closely than before,” investing in technology and global-scale models “to better estimate the impact of losses on their business.”
“The marine market is ramping up its use of CAT modeling to influence line size, pricing, terms and conditions, as well as managing their overall aggregates on CAT-exposed static exposures, such as stock stored in warehouses, marine builders risk and fixed marine property,” agrees Jeffrey Loechner, underwriting manager, marine, AXA XL.
Cargo markets in particular are starting to “pay closer attention to CAT exposures and modeling,” Loechner says. “Historically, property exposures have migrated to the cargo market for a lower price, lower deductibles, and higher limits for CAT coverage, often without an annual aggregate. Due to large natural disasters and poor underwriting results, however, marine insurers are adopting the models that are the norm for the property insurance market.”
Beyond shifting modeling approaches, in the aftermath of major claims paid under CAT losses from hailstorms, flooding, heavy rainfall and hurricanes, Barco expects insurers to make some changes in 2019—including rate increases, higher deductibles and reduction of their offerings, “which will be based on exposures, accumulations, location and risk appetite,” he says.
Barco also expects insurers to look more closely at their reinsurance/treaty pricing—"a rate increase passed on to the policyholder, as the market pricing has tightened and is being closely monitored,” he says.
In light of loss and profitability issues, many underwriters are also “taking a hard look at their hull and liability books,” Loechner adds. “We’ve seen a trend to consolidate the first layer, ensure pricing is adequate for primary and excess layers, reduce line size, and exit or de-emphasize the insurance of certain types of maritime operations."
Correction in Asian and London markets is currently being driven by Lloyd’s underperforming syndicates, “some of which have ceased writing hull and cargo in the U.K. and other parts of the world,” Loechner explains. “That’s prompted some clients to repatriate their business back to the U.S. market. While the U.S. market is still unpredictable, we are starting to see some indications of very necessary, positive rate movement.”
“Companies are going to have to execute on strategies that are sound and consistent with their value proposition,” agrees Sean Dalton, head of marine underwriting for North America, Munich Reinsurance America. “It’s addressing technical rate adequacy, it’s addressing terms and conditions, it’s understanding the exposures you’re underwriting and developing risk-adequate rates for those exposures. All of that is key to having a sustainable offering in the marketplace.”
Despite ongoing challenges, Dalton sees plenty of reason for optimism in commercial marine. “The product and service offerings in the marine market are some of the broadest first-party offerings with accompanying claims and risk engineering services available in the non-life market,” he says. “You have to approach your business in a way that’s going to service your customers and business partners and also provide an attractive return for your capital providers. Right now, that’s not happening.”
Jacquelyn Connelly is IA senior editor.
