Standing in front of a crowd of several hundred members of the insurance community, San Diego Mayor Jerry Sanders must have hit the nail on the head during a speech to the industry in late September, because agreeable nods could be seen rippling through the audience – and many speakers that followed him at uttered similar references.
“This is an unpredictable time for your industry,” Sanders said at the annual International Union of Marine Insurance conference at the Manchester Grand Hyatt, a convention and hotel spot that looks out toward the city’s port, to which Sanders noted 42,000 jobs are tied.
Sanders kicked off sessions on that focused on industry trends, facts and figures, ever-sagging hull rates, piracy and the Costa Concordia cruise ship grounding early this year.
The annual conference was themed “Marine Insurance – Charting the Course through Economic Uncertainty.” Last year it was held last year in Paris. Next year’s IUMI conference is slated for London.
Other than a few bright spots, which include liquid natural gas and offshore drilling, “the rest of the industry is a disaster,” said Richard Du Moulin, with Intrepid Shipping LLC, who discussed risk management in shipping.
“We seem to take all of the risk and none of the management,” he said, referring to improving safety on the seas. “Seamanship to me is still the answer.”
He added that insurers must do due diligence by insisting on good seamanship and shipping management, which he said, is “where the rubber meets the road.”
Eric Smith, CEO of Swiss Re Americas Corp., talked about the resilience of the industry.
“We have just endured one of the worst natural catastrophe years on record and paid every valid claim,” he said.
And while low interest rates and depleted resources are “putting a lot of pressure on underwriters,” he said the industry is left with two choices: “Wring our hands or roll up our sleeves.”
Smith, who also talked about marine safety and urged the marine insurance industry to embrace technology, warned about the threat of commoditization.
“Commoditization costs us relationships,” he said, adding that it forces companies to compete on low rates alone.
He urged resistance to commoditization through superior service and offering a broad array of products rather than just delving deeper into subspecialties.
“Survival should not be the only goad of surviving this recession,” he said.
Another member of Swiss Re’s ranks, Patricia Kern, who chairs IUMI’s Facts & Figures Committee, offered a look at the macroeconomic environment in which the U.S. is slowly recovering from the recession, but where recession forces in Europe have intensified.
Those forces and a tight lending environment have impacted shipping, she said.
“Cost of borrowing money is growing massively,” she said, adding that has impacted shippers.
She offered an overall outlook for marine insurance as well.
“The situation is rather unstable,” she said, adding that for insurance she expects “weak to negative growth.”
An overriding reason for the negative outlook is lack of cargo volume due to the sluggish worldwide economy.
“The correlation between less cargo volume and less premium is immediate,” she said.
Kern and other members of the Facts & Figures Committee, which include Astrid Seltmann, an actuary for Cefor, and Erika Schoch, painted a bleak picture for hull insurance, which they said has seen an underwriting loss for 16 consecutive years.
In fact, delegates attending the conference’s Ocean Hull Workshop were told the market needed to see a turn in rates as soft pricing continued.
Harry Yerkes, the committee’s chairman, called on brokers to prepare their clients for a change in rates and terms as the insurers faced concerns over rising total losses in the year so far and the reaction of the reinsurers at renewal.
“There is still capacity and a lack of discipline in the market and we are becoming a little concerned.”
He added, “The market seems to have shrugged off the Concordia loss, but we are also concerned over the approach of the reinsurers and whether they will look to revise their approach to global hull risks at renewal.”
In fact, Seltmann noted that the Facts & Figure’s Committee’s ability to deliver a full picture of the hull market’s performance was made extremely difficult by the loss of the Costa Concordia when it ran aground off Italy on Jan. 13.
Richard Neylon, with law firm Holman Fenwick Willan LLP, talked about piracy, and stated the number of attacks is on the decline – dropping from 159 in 2011 to 28 so far this year. He attributed that to increased best management practices, more armed guards aboard ships and increased actions by naval authorities against pirate mother ships.
“There’s a chance we’re actually starting to beat this thing,” he said.
Speakers even covered global warming – both from the optimistic and pessimistic side of things.
Melting of polar ace and warming has longer sailing seasons in the northern route around the globe, said David Bellamy, with the Norwegian Hull Club.
“The overall picture of the ice situation looks promising or alarming depending on your point of view,” he said.
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