The marine insurance industry is facing one of the most crucial periods it has ever met.
"The marine insurance industry is facing one of the most crucial periods it has ever met, and underwriters, given the devastating fall in volumes and values in global trade, will have to 'run hard to stay in place over the next 18 to 24 months, concludes the International Union of Marine Insurance, following an executive committee meeting in London. IUMI president Deirdre Littlefield (Starr Marine, New York) cited slowing demand, collapsing freight rates and a surge of new ship deliveries, despite ongoing newbuild cancellations and deferments, as the main causes. As a result shipowners and charterers were scrambling to reduce costs and increase efficiencies. Marine insurers could not expect to escape the consequences of this maritime maelstrom as owners strove desperately to cut operational costs wherever possible. "Unfortunately," Littlefield continued, "this pressure on pricing and conditions comes when underwriters are making equally desperate efforts to stabilize premium rates, and raise prices where the claims record justifies it, to compensate for the relentless increase in hull and cargo claims over the last few years. It has been a period, too, when owners benefited from soft premium rates.
"There is no doubt that the all-time historic profits made by owners during the halcyon period marked by the last five years were helped in no small measure by driving ships and crews as hard as possible.
"Inevitably, such a strategy impacts heavily on claims, and we expect that many ship repairs and onboard unit replacements, which have been deferred or ignored during the sky-high profit years, will start to surface, along with the results of skimped maintenance, leading to a further escalation of claims. And adding to the financial pressure on insurers, we will see spiraling requests for return of premiums applying to ships going into 'cold' or long-term lay-up.
"However, there are some positives in this deteriorating situation. We should see a sharp increase in the number of older vessels going to the breakers, thus greatly reducing the curse of substandard tonnage which should not be afloat.
"Also, with far fewer ships in service as the downturn bites deeper, it should ease the problem of finding sufficient numbers of trained and experienced seafarers, although recruitment going forward remains a huge problem when seen against the threats of piracy and the criminalization of mariners."
Insurers need to be focused and highly selective
Littlefield also indicated that it is clear that insurance and reinsurance companies' senior management would look to underwriting, not investments, as the key to profitability in the future, and would allocate scarce capital to those lines that promised above average returns. To attract corporate capital, insurers would need to be focused, highly selective and disciplined in their underwriting and pricing of business this year and next.
She also urged underwriters in facing the current turmoil to build a strong working relationship with their major clients. The more underwriters knew about their clients' business and the challenges and opportunities ahead, the better equipped they would be to design products and services to meet the changing and emerging needs.
On a more encouraging note, she said that IUMI was firmly focused on the education initiatives it was pursuing and ways to attract the next generation of marine underwriters.
"The current global economic situation offers the insurance industry a unique chance to attract the best and brightest people," she continued. "Financial institutions are no longer the undisputed employers of choice and so the insurance business, for the first time in nearly two decades, has an excellent opportunity to showcase the exciting and rewarding career prospects available to young people. "This is an excellent time to bring new talent into insurance and reinsurance," she added.
The IUMI's executive committee members, meeting today, were joined by the chairmen of IUMI's seven technical committees to help plan the themes and programs for the spring meeting in March in Miami and the important annual conference in September in Bruges (13th-16th).
The London winter meeting is sponsored by the International Underwriting Association (IUA) of London.