Shipping has long been a tough business, and nowhere more so than in Asia. The financial crisis of the late ‘90s may be over, but ship owners are preparing for the recession that many people fear is around the corner.
Indeed, there is some evidence that the recession may have started already. Reduced demand for raw materials, coming on top of increased shipping capacity, has already pushed down shipping rates. There have been instances, for example, of Panamax tanker rates in Asia falling from about $12,000 a day to $4,000, in only a matter of weeks.
It is hardly surprising, therefore, that ship owners are facing a relentless pressure to keep insurance costs to a minimum. The hard marine insurance market reported by underwriters in London is evident in Asia too, but to a lesser degree. Nevertheless, owners are understandably looking to reduce insurance premiums, in order to remain as competitive as possible in the troubled times that lie ahead.
Customers have, however, become much more sophisticated. Reflecting this, pricing is by no means the only driver in the marine insurance market. Quality is a growing issue: quality of capital, quality of service, and quality of the people factor.
Insurance in Asia has always been based around personal relationships, more so, probably, than in any other part of the world. It is especially important in the marine sector, where claims may take years to develop. There is a yearning for stable capital, and for insurers whose underwriters and claims handlers stay in their jobs. This feeling has been strengthened by the recent collapse of HIH and Independent Insurance, and by the withdrawal of the fixed premium providers.
When people talk about service quality, they refer overwhelmingly to the claims process and, increasingly, to loss prevention. Starting with claims, speed and reliability of payment naturally mean a lot, but they are by no means the end of the story.
A ship owner's first priority when there has been an incident is to ensure that his vessel and crew are released as soon as possible, and are able to become productive again. In addition, it is always a goal that any ill-feeling caused is at worst kept to a minimum, and at best and preferably avoided altogether.
If bodily injury is involved, the imperative is prompt, quality treatment and, where appropriate, rehabilitation. Any compensation should be fair, paid swiftly, and ideally without recourse to law. Such a response is in the interests of the victim, and usually saves money in the long run.
For these reasons, local knowledge and a local presence are increasingly valued commodities in the marine insurance sector. An Asian professional, empowered to make decisions, who speaks the language and is personally acquainted with conditions in the country where an accident has taken place is much more likely to achieve the desired results. It is also helpful to know the ship owner's company well, and to share the same time zone. The days when it was acceptable to handle these matters by remote control have disappeared.
Above all, there is a growing emphasis on the need to stop accidents happening in the first place. Everyone pays lip service to loss prevention as a means of reducing costs, and reducing premiums as a result. However, making it happen in practice requires hard work over a long period of time, and is a constant, continuous task.
The industry has seen very significant improvements in the quality of ships being used in Asia. Vessels are becoming younger and of a higher standard. Desirable as this trend is, a new ship does not automatically mean a safe ship. The vast majority of accidents at sea are the result of human error, so this is where most loss prevention efforts have to be concentrated.
Our analysis shows that losses are caused overwhelmingly by inadequate safety procedures (or failure to comply with adequate ones), poor maintenance, especially of hatches, and by collisions caused by navigational error. Frustratingly, accidents are nearly always the result of failure to do the simple things well.
On a visit to a member in Asia, for example, we noticed that the hatch covers in his entire fleet had small, but potentially disastrous defects. They were obvious and easy to remedy, but only when someone pointed them out. Defective hatch covers are one of the single biggest problems that we face. Who knows how much this straightforward remedial action may have saved?
Of course the best run ship in the world can have bad luck, but to minimise the chances of a loss one has to consider the ship's management as a whole, even more than the vessel itself. The assessment of a ship's crew, their competence and their working procedure is, therefore, an important part of any ship survey.
Philosophy and culture
A ship's condition is an indication of the company's management philosophy. To understand it, you need to meet the shore management team and discuss ship operation. Are cargo procedures adequate? Is the ISM non-conformity file in good order? Are the records of planned maintenance in order? Is accident prevention part of the crew's natural thought processes? Are bridge watchkeeping procedures in place, and are they followed?
Getting this type of factor right is only very occasionally about having the necessary knowledge or skill. It is more about creating an environment in which people make full use of the knowledge they already have, and ensuring that they routinely follow what they know to be good practice. It is, above all, about management. That, in turn, is about culture.
A particular problem in Asia is the number of accidents caused by navigational error. Often simple things like failure to prepare a passage plan in advance can be to blame. For this reason, we have produced a bridge management video in three languages, and have just distributed to our membership an interactive collision avoidance CD-ROM.
Some problems, of course, are caused by external factors, but that does not mean there are no loss prevention measures to be taken. Piracy in the region has already received much publicity, and once again a few easy measures can greatly improve your chances. For example, do not deviate from your planned route. Keep the vessel well lit. Maintain a vigilant watch.
If these rules seem obvious, they are. It is unfortunately tempting and easy to become complacent and take short-cuts on a long journey. Once again, a vessel's safety culture is all-important.
If there is one lesson we have learnt from experience, it is that money and resources devoted to loss prevention are well invested. Losses have been reduced by 50% in five years, and premiums by a similar amount, without compromising financial integrity.
Ship owners are aware that they can enjoy sustainably low insurance premiums only if claims are kept in check, and reduced over the long term. In many respects Asia is leading the way on this front, but the struggle as always is to bring the standards of the average up to those of the best.