Looking Ahead: Marine Insurance In An Increasingly Volatile World

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2022 was the year of increasing geopolitical tensions, war within Europe, and growing signs of a more divided world. Sadly, 2023 has brought additional tragedies. The war in Ukraine persists, and on 7 October, the world turned its eyes to yet another brutal conflict: Hamas launched a massive attack on Israel followed by large-scale retaliation in Gaza. Dark scenarios include a possible regional escalation in the Middle East as well as increased tensions in the South China Sea.

A more divided world also affects international trade, shipping, and thus marine insurance. This article focuses on the latter: how marine insurance is faring in 2023 and what the crystal ball may signal about the future.

Impacts on marine insurance

Wars and conflicts have injected more uncertainty about the future. Prices of real goods and capital have increased, and inflation has persisted for longer than expected. Perhaps contrary to popular belief, war and geopolitical tensions do not necessarily lead to increased maritime claims (with the obvious exception of war risk claims, as recent attacks on ships linked to Israel have shown). The main driver of maritime accidents remains total trade volumes, the density of ship traffic in busy areas, as well as the speed applied, both literally and in decision-making, in the competition for freight. Maritime claims thus ebb and flow over time with a degree of randomness, especially as concern large incidents and claims. 

What to expect going forward?

So, what can we expect as an industry looking ahead? The old saying is apt: “It is hard to predict, especially about the future!”. However, there are some pretty clear signals on the radar.

Claims costs will remain volatile 

Inflation continues to be high. Maritime claims handlers need to have a high focus on cost exposure, and the ‘swing factor’ between best and worst-case outcomes. The use of lawyers, experts, and specialist contractors is an investment to achieve a better claims outcome. For high-severity cases, the daily burn cost needs to be considered while for more routine claims handling costs must not become disproportionate. 

Increasing severity 

We can expect more complexity in claims. As one response, marine insurers should continue to invest in outreach activities to establish trust and understand with maritime authorities and other key stakeholders. Building trusting relationships before an accident happens can make a significant difference. Gard invests a lot in its global outreach program, specifically for this purpose.

Improved loss prevention 

As technology, digitalization, and artificial intelligence (AI) continue to develop, we expect much enhanced opportunities for improved loss prevention services. This is especially important when considering how long it can take to amend regulations about changing risks. Shipboard fires, often originating in cargoes, continue to buck the positive trend in maritime safety and sensors are just one example of technology that can help to detect problems before they escalate. This may become especially relevant for fires involving lithium-ion batteries. 

As always with new technology, the caveat is that tensions between humans and machines can bring new challenges, but overall, it seems safe to say that technology will help to improve safety and reduce the risk of accidents at sea. 

Climate change and green transition 

Looking ahead, we should expect more claims related to extreme weather. Many insured assets are either stationary or can only be moved out of extreme weather paths if sufficient, reliable pre-warning is provided. Improved voyage planning to cater for weather risks will be expected, given the improved availability of forecast weather data.

Decarbonization and the ongoing shift towards cleaner fuels will accelerate and likewise, the need to understand risks associated with this transition, e.g., toxicity, fire, pollution, and contractual or legal disputes. The crew will need upskilling, and the same goes for repair yards. Fewer qualified yards and workers, and longer delivery time for spares, may cause extended time of repairs. Casualty handling aspects, ranging from salvage, place of refuge and pollution clean-up, will need to adapt to the properties and risks of the fuels concerned.

More focus on seafarers

International trade relies on sufficient and competent seafarers. Crew safety and well-being are crucial in their own right and will also serve to mitigate risks of ship operations. Hence, supporting shipowners in improving crew safety and well-being should be a very high priority for marine insurers. Covid brought the challenges of seafarers into broad daylight, including mental health issues. While the pandemic has largely receded, many seafarers continue to face challenging conditions.

This short article has touched on a wide range of issues that we have to focus on and work on in our industry. As conflict and regionalization seem to be gaining ground, the role of cross-industry collaboration, whether in the International Group of P&I Clubs (IG) or the International Union of Marine Insurers (IUMI), becomes even more important. The same goes for the UN and the International Maritime Organization. We need properly governed arenas where states, regardless of their other differences, can develop and agree on the legal frameworks needed to address challenges that transcend national and regional boundaries. Whether the purpose is to prevent and mitigate harmful incidents, ensure fair and predictable compensation, combat climate change, or protect the rights and interests of seafarers – on whom we all depend.

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Source: gard

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