Marine hull risk managers face prolonged hard market as dark clouds gather

Marine hull insurers are enjoying a healthy period with strong premium growth on the back of a tighter insurance market, renewed underlying activity and decent loss ratios, according to latest statistics from the International Union of Marine Insurance (IUMI). But IUMI also points to some worrying loss trends that could see risk and insurance managers in the sector suffering harder market conditions for some time yet, according to the union’s latest Stats Report. First there is inflation, which IUMI says underwriters have not yet fully allowed for. IUMI points out that during the post-Covid period, there was a scarcity of materials such as steel coupled with an increase in their demand following the re-activation of global shipping. This was exacerbated by rising inflationary pressure, which has driven up the costs of materials, shipyards and labour. “From an underwriting perspective, inflation has not only been applicable to vessel repairs and claims but also to general office overheads. In the main, the underwriting community has not applied inflationary increases to the premium base and this may lead to a reduction in overall profitability over the coming year or two,” said IUMI. Second, there is the rise of alternative fuels, which will need further work from the sector and underwriters to properly risk analyse. IUMI said that emission-reduction technologies are inevitably more sophisticated than the current methods of ship propulsion. This will increase the value of the global fleet and, consequently, the level of risk to be covered, it said. “The rapid implementation of these technologies aligned with decarbonisation and GHG emission reduction goals will give rise to new risks such as fuel blends used with current engines or new methods of propulsion. Insurers need to adapt in line with their clients and build up the competence necessary to assess the risks properly and prevent losses,” advised the union. Third, fires on containerships and car carriers remain a big concern for the hull underwriting community. IUMI said that fires on containerships and car carriers are becoming more common for a number of reasons. The growing size of container vessels increases the probability of containers containing cargo that may ignite. If this is coupled with misdeclaration of cargo or increased transportation of potentially dangerous goods, the problem is exacerbated. “One issue is that many of these vessels are now carrying Li-ion batteries or transporting electric vehicles. A major concern is the potential for ‘thermal runaway’, a chemical reaction that causes rapid heating, fire and sometimes an explosion,” said IUMI. It did point out that fires from EVs are reportedly no more common than those from conventional internal combustion engine vehicles, but demand different methods for preventing and fighting such fires. “Traditional fuels such as petrol and diesel also carry substantial potential dangers but the maritime industry has acquired sufficient experience to manage those risks effectively and must do the same for this new technology,” said IUMI. Fourth, there is the rise of the so-called “dark fleet”, partly fuelled by the sanctions imposed on Russia following its invasion of Ukraine. IUMI said that the International Maritime Organisation’s Legal Committee recently noted that a global fleet of between 300 and 600 tankers, mainly comprised of older ships, including some not inspected recently, operating with AIS transponders turned off, having substandard maintenance, unclear ownership and a severe lack of insurance, is currently operating as a “dark fleet” to circumvent sanctions, increasing the risk of oil spills and collisions. “Issues of accountability and traceability in accidents involving the dark fleet, and responsibility for wreck removal, pollution response, ship-to-ship transfers of oil, and compensation for victims all remain unclear,” IUMI noted.

Marine hull risk managers face prolonged hard market as dark clouds gather

Inflation, alternative fuels, container fires and dark fleet all pose rising risks: IUMI

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