Why are marine insurers trying to defy gravity? asks Neil Macnaughtan
As the unprecedented good times for shipping and commodity trade continues, more and more insurers seem keen to join the scramble for a piece of the action. As a result, it is hard to find any corner of the marine insurance market where rates are not softening and profitability is not under severe threat. If, as the insurers say, the business is marginal at best why do insurers continue to flood the marine market, defying the rules of gravity?
Given the current opportunity for our clients to improve their marine insurance terms, Willis investigated this paradox by analysing the key global markets by class and came to the conclusion that there is no logical explanation why insurers continue to ignore the basic rules of supply and demand. We can only speculate why this strange situation exists.
Marine is the grandfather of insurance – it’s where it all began back in the days when Lloyd’s was formed. Perhaps in reverence of this tradition, most insurers feel it’s important to offer marine amongst their range of product lines, no matter how small or unprofitable. In addition, marine has often been viewed as a fairly predictable bet for insurers. It has fewer tendencies to major loss spikes and has minimal exposure to cat risks given the mobile nature of vessels and cargoes, which can usually be turned away from the path of an oncoming storm.
“With marine being such a large and competitive insurance market, thereâ€™s not a great deal of profit left for insurers
Neil Macnaughtan Managing director, Willis Marine â€“ Ship Owners & Special Risks
Perhaps the capital investors just prefer to see a more diverse product line providing greater spread, such as balancing the more catastrophe-exposed and volatile energy sector with the comparatively more stable and predictable marine market. However, with marine being such a large and competitive insurance market, there’s not a great deal of profit left for insurers. Could this be why capital is either unaware of or unconcerned about the danger of such fierce over-competition?
The only logical conclusion must be that competition will continue to increase until fingers get burned or the returns are truly seen for what they are and some insurers restrict their underwriting or even eventually withdraw. This makes it is a good time for assureds to look ever more carefully at the performance and financial strength of the insurance carriers they may be considering.