London marine insurers have to adapt to the changing patterns in maritime trade from specific developments affecting individual risks to developments affecting the whole sector. Matthew Marshall explains how this is being done.
Maritime trade has changed radically in the past 30 years - especially so in the last 10. One of the more significant changes is in the growing proportion of the world fleet now owned in the Far East, with a large volume of trade in both industrial commodities and consumer goods involving Far Eastern origins or destinations.
While this might be expected to lead to a corresponding shift in the industries traditionally supporting shipping, such as shipbroking and marine insurance, in fact until now there has been little sign of any real shift away from the major Western centres.
London remains at the heart of international marine insurance and reinsurance, having written a total of $6.7 billion marine business in 1996. The overriding priority, however, is not to be complacent as a result of this lead, but to adapt to the changing face of the industry. The International Underwriting Association (IUA) is well aware of the challenges - from specific new developments affecting individual risks to the strategic directions taken by the entire maritime sector - and is focusing on how to meet them.
Year 2000 is one such issue, and it is our job in the association to highlight potential problems to marine insurers and shipowners. Through the work of the joint committees (whose members are drawn from the IUA companies [formerly the Institute of London Underwriters] and Lloyd's), the London market has provided specific information as well as electronic date recognition endorsements, for use as assureds and underwriters think appropriate.
A crucial date for mariners will be 22 August 1999, when the Global Positioning System (GPS) register will be full to overflowing with data, and will consequently rollover to zero. GPS positions satellites used in the navigation of ships, and unless owners have taken the necessary action to ensure their own equipment on board ship has been checked and updated, this could deprive much of the world's shipping of vital navigational information.
New developments in naval architecture, such as the increased size of passenger vessels and the recent jump in both speed and size of container and other cargo ships, all pose pertinent questions for marine insurers. These changes have introduced higher financial risks through aggregation of values, in addition to physical changes in the ships such as different stability characteristics.
It is not just the newer designs of ship which present such problems, however. Older vessels are under the spotlight, too, as a result of poor maintenance and general wear and tear. Ship safety is of growing concern internationally, and a striking new development has been a sharp increase in ship detentions by port state control authorities. Detention records provide insurers with an increasingly valuable source of information about shipping quality.
Under the practice known as “name and shame”, many governments, including the UK, are acting vigorously to ensure that pressure is brought to bear on the less reputable fringes of the shipping world. The IUA is at the forefront of collating this information to turn it into a valuable information resource for marine underwriters.
In terms of casualties, the industry has seen fewer substantial individual hull losses in recent years - although 1998 certainly saw some significant and very expensive casualties in the hull, cargo and marine energy fields which will depress results. The 1997 marine casualty statistics published by the ILU showed a more normal loss pattern for total losses, down from the peak of the early 1990s. These statistics have proved invaluable over the years, as underwriters, shipowners, governments and professionals throughout the international marine community seek to establish trends in losses. Building on the work of the ILU, the IUA will publish its first set of figures in March.
Changes in the pattern of risk management perhaps throw down the toughest challenge to insurers in markets throughout the world. Whether through much higher retentions or the establishment of captives to retain large amounts of risk in-house, in the energy sector in particular, the proportion of retained risks is rising. With in-depth knowledge of the complexities of the most sophisticated projects, underwriters in markets such as London have been able to consolidate their position. Indeed, London remains uniquely placed to handle such high-value risks as: project cargoes, turnkey projects, major new oilfield developments and the major art exhibitions, although, again, there is no room for complacency.
As an international organisation representing members worldwide, the IUA will service the world's maritime community whatever its future shape. The association looks forward to an exciting start to the twenty-first century and helping it anticipate fresh challenges.
Matthew Marshall is technical director of the International Underwriting Association, which came into existence on 31 December 1998, following the merger of the London International Insurance and Reinsurance Market Association with the Institute of London Underwriters. Tel: +44 (0) 171 4444; fax: +44 (0) 171 617 4440; e-mail: email@example.com