Gloomy insurers look to 'virtuous circle' of loss prevention

LAST week's International Union of Marine Insurance (IUMI) conference was held online from Seoul. Such events are usually jovial affairs when the meeting is held in person, but this latest virtual event was not a barrel of laughs - and understandably so.

Marine insurers find little to be cheerful about these days. Rama Chandran, chairperson of the Ocean Hull Committee, expressed concern over the long-term sustainability of the hull and machinery insurance sector.

He said: "While it is encouraging to see the 2020 premium base growing from the previous year, alongside improvements in loss ratios, we mustn't forget that we are operating from a very low base, and that the premium base has only recently begun to creep up, following a sustained decline since 2012.

"The improvement in loss ratios for 2020 largely stems from reduced shipping activity during this pandemic, and hence a subsequent lack of claims."

He added: "The first half of this year has seen a potential deterioration in the overall premium base from 2020: It continues to develop, but growth appears to have slowed, or even plateaued since 2020.

"This is likely due to increased market capacity, particularly from London. As shipping activity returns to pre-Covid levels, it is inevitable that we'll see a rise in claims and that will dampen the encouraging loss ratios IUMI reported for the 2020 period.

"Overall, the ocean hull sector is improving, but it is not yet certain how sustainable that improvement will be."

Making money in the long term would, one would think, be a pressing-enough concern, but IUMI's Ocean Hull committee has identified three major threats hitting the insurance industry here and now.

It noted that Covid continues to affect seafarers; some vessels report up to half their crew affected. Getting seafarers vaccinated and changed over to fresh crews at certain ports remains a challenge.

Through no fault of the seafarers, many vessels are thus sailing with crew on extended contracts. For insurers, the concern is crew fatigue leading to more accidents, resulting in casualties.

Fires onboard large container ships continue to impact hull, cargo and protection and indemnity (P&I) insurance; sadly, some of these incidents have resulted in death and environmental damage. The main cause of such blazes appears to be wrongly declared or non-declaration of dangerous cargo.

Work is being done to address this, and IUMI is at the forefront of lobbying for change.

Decarbonisation

Decarbonisation of shipping is underway, but remains a long way from reality. Changes to fuel and propulsion types will impact the hull sector, and underwriters must understand the risks before adequate insurance products can be developed.

Technology and infrastructure must be developed and crews must be trained appropriately. Like others in the industry, IUMI is calling for a holistic industry response, together with governmental support, to achieve a low carbon future.

In each case, insurers - collectively and as individual organisations - are doing a lot of work to mitigate the problems. The mutual liability insurers, and the P&I clubs in particular, are actively doing so. Possibly confusingly to an outsider, the insurers refer to this activity as loos prevention.

At last week's conference, the chairperson of IUMI's Loss Prevention Committee, Pascal Dubois, called on marine insurers to recognise the "vital role that loss prevention plays in increasing overall efficiency and profitability of their entire business".

Using the concept of a "virtuous circle" to explain the value of loss prevention, he highlighted the need for insurers to "leverage new technologies to improve loss-prevention processes, particularly in addressing evolving risks such as climate-change impact and changing industry regulations".

Mr Dubois said: "Loss prevention is becoming increasingly important for marine underwriters to do their jobs efficiently, and rightly so. It not only concerns all categories of the business within the marine line - from hull to cargo to energy, for example - but it also affects all operational functionalities within every marine insurance company, from underwriters through to claims handlers. This is why, by improving loss-prevention measures and applying innovative approaches in risk assessment, insurance companies can increase their operational efficiencies, provide a better service for clients, influence changes to current in-force regulations and ultimately improve profitability. This is what I call 'the virtuous circle of loss prevention'."

He added: "Leveraging new technologies and solutions such as online audits, inspections and remote surveys, which create efficiencies and lower costs in applying loss-prevention measures, will improve this virtuous circle of loss prevention further."

Adopting loss-prevention measures also contributes to the sustainability of the industry and to environmental, social and governance (ESG) issues, Mr Dubois argued.

"Ultimately, loss prevention is really about delivering a better service for all parties, for the clients, for the companies, for the industry, for the environment and for the sustainability of our industry."

Well-thought-out

All of that sounds rather abstract. In reality, the P&I clubs' loss-prevention initiatives are usually well-thought-out and as effective as any safety propaganda can be.

A few days ago, I received an animated clip titled Good Catch on my computer from the American Club. At first, I thought it was aimed at the fishing industry, but, as it turned out, it was very much aimed at the mainstream shipping industry.

The punchlines are: When you identify a hazard before someone gets hurt, it's a Good Catch; when you fix a problem before something bad happens, it's a Good Catch.When you take responsibility for your own safety, that's a Good Catch too.

Simplistic perhaps, but probably effective in getting the message across.

Other loss-prevention initiatives are more technical and often involve instructional film clips and distance learning. All are worthwhile and contribute to raising safety standards in the industry. Whether they will really also contribute to a more stable outlook for the insurance industry - that is another question entirely.