Marine Insurance: general outlook
Premiums for marine insurance, which until 2018 had fallen for years due to rising competition and lower claims, are increasing due to growing geopolitical tensions and a surge in catastrophe losses in the past two years. The damage caused by hurricanes Harvey, Irma and Maria caused the market to harden and the warehouse explosion in Beirut in August 2020 has led to some wildly differing early estimates as to the total insured loss; although the consensus seems to be that it will not be anything like the Tianjin explosions in 2015.
The effects of COVID-19 on the claims landscape
Reduced Shipping and Warehouse Activity
COVID-19 has reduced shipping traffic and warehouse capacity in the marine and cargo sector. The first sign of reduction came in Mid-February 2020: a radical drop in demand for Chinese crude tankers from an average of 3.4 billion tonne miles per day in 2019 to almost zero. The number of ships calls at EU ports declined by 14.7% in the first 37 weeks of 2020 compared to the same period in 2019. Chemical Tankers, Bulk carriers, Oil tankers, and Ro-Ro passenger vessels had a decrease of up to 5%.
1. During March - August 2020, the ship traffic from Europe to China and the US declined when compared to the same periods in 2019. Comparing weeks 1-37 in 2019 and 2020 show:
(a) a decrease of 50.5% from Europe to China
(b) a decrease of 30.8% from China to Europe
(c) a decrease of 29.2% from Europe to US
(d) a decrease of 38.3% from US to Europe
2. General disruption of traffic: major container lines such as Maersk have reduced their calls to ports in China which is causing delays and the rerouting of cargoes to other ports.
3. Ports have faced an unprecedented number of vessels at anchor and vessels queue up waiting for a spot to unload cargo. Since the beginning of 2020 through to the beginning of 2021, there is an increase in the number of ships “at anchor” in comparison with 2019.
What does this mean for the year ahead in Marine Insurance?
1. Lockdown measures and restriction of movement in various countries have reduced domestic and international trade, interrupting and slowing down global maritime traffic, leading to a reduction in cargo claims.
2. Decreasing consumer demand due to the economic downturn has reduced shipping traffic as well as increased the strain on storage capacity.
3. With warehouses at full capacity, claims against collateral managers will rise as will actions against owners of warehouses for negligence.
4. The decline in ship traffic with reduced calls to ports will lead to a decline in casualty claims.
5. The labour shortage and reduced workforce, especially at key points of the supply chain, and closure of facilities have reduced capacity utilisation at ports. The reduction in capacity to distribute and handle the goods means cargo will be held for a longer duration and increases in storage locations while stocks await their next destination.
6. The inability to sell to consumers (due to lockdown measures and reduced demand) has also led to some retailers and manufacturers not picking up cargo and containers because their warehouses are full or closed. This means an increase in claims for container demurrage and business interruption. The uncollected cargo at ports creates congestion and warehouse accumulation, thus reducing capacity for incoming cargo and containers and further disrupting the supply chain causing an increase in breach of contract and negligence disputes and a rise in insolvency litigation.
You can read more about the impact of COVID-19 in our recent survey of traders and operators in the shipping sector.