Marine insurance’s ‘tough soft market’ has ended, IUMI chief says (source: Lloyd’s List)

In an interview, IUMI president Dieter Berg sees the opportunity to launch new products and position the marine insurance industry as more of a service provider.

The market is picking up and developing in the right direction, Mr Berg says

WHILE the pressure on margins has not completely eased amid overcapacity in the marine insurance market, the “soft market” has ended, according to International Union of Marine Insurance president Dieter Berg.

Even the recent tough times may have held a “silver lining” in the sense that it creates conditions for the industry to evolve and explore new possibilities, he told Lloyd’s List in an interview during the GIA-IUMI forum in Singapore.

“I am positive. The market is picking up and developing in the right direction. Asia is bottoming out. The US and Europe are also picking up. It is stabilising after the tough soft market in the past couple of years,” the IUMI president says, adding that he is “hopeful of a pickup next year”.

Reflecting the tough market in recent years, total marine premiums declined to $27.5bn in 2016 from $30.3bn in 2015.

Of the $27.5bn in premiums, Asia accounted for 27.9% while Europe accounted for 50.2%, based on a presentation by Donald Harrell from Aspen Insurance at the GIA-IUMI forum.

But there are reasons to be hopeful amid a forecast of 3.4% growth in seaborne trade in 2018 on the back of 3.9% growth in global gross domestic product and 85% of global trade being seaborne.

And the growing Asian economy is an important driver.

China’s One Belt, One Road initiative, known as OBOR, may play a key role in kick-starting the region’s catch-up potential for marine insurance.

China’s marine insurance market had already expanded to become the world’s second-largest market for cargo insurance and the world’s largest market for marine hull insurance during the rapid phases of economic growth.

But cargo insurers have seen a fall in premium volume in the country as growth slowed and competition increased from 2014.

OBOR can play a role in reviving marine insurance growth not only in China, but also beyond.

Noting that the insurance penetration rate among several countries involved in OBOR is relatively small, Mr Berg notes the promising potential to combine the huge element of infrastructure into new products.

In terms of size of the market along business lines, transport/cargo insurance accounted for 54% of total marine insurance premiums in 2016 while global hull premiums accounted for 25%. Marine liability accounted for 7%, while offshore and energy accounted for 13%.

He also believes more can be done to cater for shipbuilding risk, especially for northeast Asia.

“There is a need to develop further as China, Japan, and Korea are expanding in shipbuilding,” Mr Berg says, adding that some of these markets are very advanced.

China tops the global orderbook on compensated gross tonnage terms, with 37% at the start of 2018, followed by South Korea at 21% and Japan at 20%.

Extending the limits of insurability

The world is changing in other equally significant ways as well. While the transformation may not be painless, Mr Berg — IUMI president since 2014 and a senior official with Munich RE — sees a way forward.

Commenting on the diverse nature of the changes, he says “extreme weather patterns are the new normal”, citing hurricanes last year such as Harvey, Irma and Maria, with costs amounting to up to $100bn. These events affected cargo and port terminals. The massive losses incurred affected renewals.

Digitalisation is another game-changer, with a growing risk of cyber attacks on ships, ports and terminals in the shape of things such as computer viruses and distributed denial-of-service attacks.

Cyber cover has to be more customised. In the future, the industry has to think of extending the limits of insurability, such as whether it can cover entrepreneurial risk.

He believes these changes provide a chance to come up with fresh products and will position marine insurers much more as service providers. They will be able take on a consultancy role.

As the industry takes on a more positive turn, he might have more to say at the IUMI annual conference in Cape Town in South Africa in September 2018.