Marine Insurance - New for Old Cover?
A sea of change as marine assets plummet:By Insurance blogger Kris Oldland
The International Union of Marine Insurance (IUMI) has added its weight to a radical compromise proposal put forward by the influential Lloyd’s market underwriter Simon Stonehouse that
marine insurance underwriters should have the option of being able to purchase vessels at the current rock bottom values in replacement of lost vessels that have been insured at the previous peak market rates that were prevalent before the global economic crash.
This recommendation was delivered to a panel of IUMI members against a backdrop of plummeting asset values which has impacted hugely upon ship owners, many of whom are now facing loan defaults. Mr. Stonehouse – a senior underwriter for Brit Insurance, commented that “If a vessel is worth $60m yet an underwriter can go out and purchase an exact same type of vessel for just $30m, surely the underwriter should have that choice?”
With Moral Hazard proving to be another
boat insurance issue never far from debate in the current climate Stonehouse added he felt that although this unusual approach may draw criticism from some area of the industry “The intention, by pushing for value reductions, is to improve risk by eliminating moral hazard,” he argued. “But increased financial pressure can also increase moral hazard.”
Indeed Moral Hazard has emerged as one of the key topics of debate within the marine insurance and
ship insurance sector. With the shipping slump deepening at an alarming rate, the worrying situation of ship owner’s insured value being the worth more than the actual value of the ship they own has become more and more prevalent. In particular this has been evident since the market in secondhand vessels has now all but collapsed.
Chairman of the London Market’s Joint Hull Committee Peter McIntosh entered into the debate bringing managing director of Bankserve, Peter Mellett with him by publicly asking the finance expert to provide an overview in the role that he believes underwriters can play in saving ship owners from dreaded covenant defaults or even complete business failure.
In response Mr. Mellett told the IUMI it was his belief that the underwriting fraternity could become the catalyst which triggers an overhaul in lending policies and defaults if they were to continue to drive insured values to levels below those required by ship financiers. Mellett added “The issue is values. It is a debate beyond banks about how to address indemnity on hull and machinery policies. It is a great idea [purchasing replacement vessels], although I am not endorsing it.”
Adding further fuel to the debate Mr. McIntosh was noted to have tersely responded that if underwriters were “nervous about moral hazard” he strongly recommended that they “examine their relationship with their insured” and re-appraise their valuations.
Whether these strongly voiced opinions are borne out of necessity or frustration is yet to be seen. As is whether Mr Stonehouse’s honest yet somewhat unusual suggestions will actually take seed. If they do so it could mean a period of revolution within the sector. If they don’t then things will still be uncertain for some time as the economy slowly picks itself up from the series of sucker punches delivered across the last year.
Either way one thing is for certain – there are troubled waters ahead.....
Labels: boat insurance, Marine insurance, Risk Management, Ship Insurance
Risk Management - Transport Sector heading in the right direction?
Transport Sector heading in the right direction?By Insurance Blogger Kris Oldfield
Call it a credit crunch, an economic downturn or just a plain old recession the current financial situation is impacting in some form or another upon just about every single one of us and in many cases we having to adapt to survive. A recent survey by Marsh has highlighted the changes in attitude and strategy that are moving through the transportation and haulage insurance sector with nearly three quarters of Europe’s leading transportation firms set to review their approach to risk management in the near-term.
Freight Forwarders and Hauliers Insurance at risk?
With just over half the respondents admitting that the Transportation sector had been hit harder than others the general mood is one of caution. Tellingly the research also shows that more than 80% of those questioned felt that Risk Management was of a much higher priority amongst senior management at their organisations since the economic downturn.
However despite the overwhelming majority of respondents seeing the need for re-assessing their risk management strategies, the research suggests that there is not necessarily a reduction in risk appetite as one may assume. The amount of respondents who felt that their board had become more risk adverse was equally matched by those who saw no change in their risk appetite (40%). Interestingly there was also a sizeable faction (14%) who believe that their organisations have actually increased their risk appetite as they look to prosper, by boldly maximising the opportunities created by their competitors caution during the downturn.
Unsurprisingly the biggest concerns in the sector are customer debt and in the near-term, credit risk. Nearly two thirds of the respondents stated that customer debt was their most significant concern with many citing the increased risk of credit lines and delayed or non payment as some of the key challenges they face. Over a quarter of all respondents also admitted that credit risk was a concern for their organization and one in six admitted that their company was either ‘fairly’ or ‘significantly’ affected by the reduced levels of trade credit available at present.
Mark Pollard, head of industry practices for Europe, the Middle East and Africa at Marsh, commented that it was unsurprising that the European Transportation sector felt that it had been hit particularly hard by the recession as the industries primary function is the delivery of goods and passengers – demand for which historically has been shown to decline in periods of recession.
However in addition to this Pollard added that the fact that firms have been able to use the recession as a springboard to make essential reviews to their approach to risk management and improve upon their existing resilience was “extremely encouraging”.
With nearly a third of those surveyed confirming that they anticipate increasing their risk management spend, the signs seem to indicate that Pollard may well be correct – especially as this comes at a time when many other areas of business are being subjected to ruthless budget reviews and cost cutting measures. In fact less than 10% of Transportation companies have indicated that they believe that they will be reducing the expenditure of their risk management budgets, a statistic that seems a clear indicator of the direction in which the sector is now heading.
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InsuranceBlogger is not surprised that Risk Management in the Transport sector is thriving despite the recession. The recession itself has led to an increase in
haulier cargo insurance and
marine cargo insurance claims through piracy and modern day Dick Turpin highwaymen.
The old adage 'it fell off the back of a lorry' appears to never has been as true, as the rise in cargo and goods in transit theft continues despite major Police offensives. InsuranceBlogger believes that the 'black economy' is the main driving force behind this as consumer spending polarises to the 'boot sale' economy. Watch this space for a detailed look at risks to the haulage industry!
Labels: commercial insurance, Courier Insurance, credit crunch, Freight Forwarders insurance, Hauliers Insurance, Marine Cargo insurance, Risk Management, Shipping Insurance, Transportation Insurance
