Howard Kingston, Global Head of Marine at Zurich Insurance Group, shares his thoughts on the top risks affecting the marine business.
In June, Risk & Insurance® caught up with Howard Kingston, Global Head of Marine for Zurich Insurance Group. Here are some of Kingston’s observations on the maritime market, edited for length and clarity.
Risk & Insurance: Thanks for meeting us Howard. We were curious to know what some of the main risks impacting the marine environment might be.
Howard Kingston: If you look at risk from a freight perspective, the biggest impact has come from COVID-19 and global lockdowns, which have led to supply chain issues. Our customers are still facing issues with delays in shipping goods to their customers, and this has been exacerbated by the war in Ukraine.
If you look at the marine insurance industry in general, the frequency of claims has gone down, including on the hull side. There has been a downward trend in the frequency of claims, including the frequency of total losses, despite some of the big incidents you hear about in the news.
Despite the general hardening of maritime markets over the past three to four years, there are still a number of challenges to be faced, including fires on container ships. A big problem which is exacerbated by the false declaration of cargo in containers.
In addition, the pandemic has caused a lot of congestion at ports. For example, seven or eight months ago ships were queuing outside the port of Long Beach in the United States, but we have seen the same situation outside other ports around the world, such as Singapore .
Although there is now a better balance and much of this backlog is gone, we should not forget that China has just come out of lockdown and industrial production has started again.
Challenges related to logistical infrastructure, for example, the availability of drivers, in the United States and elsewhere, remain.
As we address the upcoming seasonal traffic for the Christmas season, I believe it is inevitable that we will again encounter similar problems at the Port of Long Beach and around the world with ships queuing to load and unload goods.
R&I: Is it fair to say that the driver shortage problem will be with us for some time?
Hong Kong: Yes, and it’s not just an American problem, by the way. We also see it in Europe and elsewhere, but perhaps to a lesser extent. The shortage of drivers is only one element of the port congestion problem which also poses problems of accumulation.
Buildup is a major concern for insurers, with port warehouses packed to capacity as goods are not moving fast enough. Our customers are led to look for new storage facilities, which may be unknown to them and not necessarily meet their expectations in terms of construction or risk management.
As an insurer, we are obviously concerned about the impact on the quality of risks, but also about the increase in the accumulation of static electricity in the main ports or locations. In particular, considering the issue of climate change and the increase in Nat CAT events, windstorms and the like that can impact these accumulations.
Everything turns into what you might call a perfect storm. All this happening at the same time creates a difficult environment for companies and insurers.
R&I: I guess we could call all of the above direct risks. What indirect risks do you see?
Hong Kong: There are economic issues such as food shortages, basic material shortages, microchip shortages, etc. These economic pressures have an indirect impact on the Navy because what we are likely to see, for example, is an increase in crime. Theft, looting and the like are likely to become more prevalent as populations experience economic hardship.
Another factor that can accompany economic hardship is civil unrest and civil unrest. If populations protest against measures taken by governments, this can have an indirect impact due to the impact on goods in storage and goods in transit which may be stolen or damaged as a result of the unrest.
R&I: Thanks for that. Can you tell us about premium rates and coverage availability?
Hong Kong: There is plenty of capacity available, but that said, there was a need for correction as prices had reached unsustainable levels. The global market over the past 10 years had become very competitive, but we have now experienced a period of two to three years of significant premium rate increases.
However, this has recently begun to level off and the pace of rate increases is slowing. Of course, there are geographic differences and some markets may still need correction.
The evolution of the market could be influenced by other events over the next few months. For example, the seizure of planes in Russia could represent a potentially huge loss for the reinsurance markets. And this can have an impact on the marine market in terms of reinsurance cost.
I think we also have to think about the upcoming CAT season. I understand the forecast now is that hurricane season could be tough, and it could be tough for reinsurers and insurers.
R&I: Reinsurers are struggling, in general, aren’t they?
Hong Kong: They have challenges. I think they will reward customers who have said, more vanilla programs and can demonstrate a conservative underwriting approach and risk appetite. I think these insurers will probably be able to make decent renewals, but a lot will depend on how the CAT season goes.
R&I: Given everything we’ve talked about, what advice would you give your policyholders to help them get the best results?
Hong Kong: I think it is essential for our customers to have a good understanding of their supply chain, not just their main suppliers, but all the way to the raw material suppliers. We encourage our clients to strengthen the link between the risk manager and the logistics teams. There are still companies where it’s more of a casual relationship.
Marine is one line of business that is not the biggest insurance expense for the customer, but what it ultimately protects is getting the goods to their customers; so it is very important for revenue and reputation to deliver these goods.
Also, be transparent with your insurer. Talk to your insurer. We have expert logistics risk engineers who can help you identify issues in your supply chain. You may not be able to completely eliminate the risk, but we can certainly mitigate and improve it.
R&I: Would you like to comment on how you see the rest of the year going in terms of some of the supply economic issues that we mentioned?
Hong Kong: With the geopolitical tensions we’re seeing, I don’t see supply chain issues setting in anytime soon. Inflation could also be with us for a bit longer. For the sake of the industry, I’m hoping for a quiet CAT season. I don’t think the specter of lockdown has gone away either.
Underwriting and pricing based on history and loss experience may no longer be the way to go in this market. I think it’s about evaluating exposures in real time with up-to-date ratings and information. A client may not have suffered a loss in the past 10 years. Does that mean it’s a big risk in this new world? I would say maybe not. &