August 8, 2012 by Suzanne Sharma
Marine liability covers the entire gamut of damage to ships, cargo, terminals, and ports on a global scale. Because of this, marine insurance requires innovative products and knowledgeable professionals with a strong understanding of international marine laws.
“[The product] can effect clients very differently as shipments may be going all over the world,” says Daniel Breau, assistant vice president of marketing, HUB International Ontario Limited. “Marine coverage can be very complex and not having a good grasp of the wordings can create challenges for your clients, particularly if there is a claim.”
According to Rick Roberts, managing director at Beacon Underwriting, due to the complex nature of the product there are few brokers and insurers that do business in international marine.
“This is because you have to understand the business and wordings that are unique to marine,” he says. “For example, how container terminals work, and whose responsibility it is for the goods at various stages (on a vessel or in the terminal).”
He adds that this doesn’t mean that there is a lack of capacity–the market is competitive. It just means it is limited because there aren’t a lot of players that specialize in the business.
Matthew Yeshin, marine practice leader for Marsh Canada, adds, “Having the necessary global infrastructure and knowledge base to properly address global issues is essential to effectively placing marine insurance.”
There are basically three different types of coverage including hull, marine liability (protection and indemnity cover), and cargo. In many cases, marine coverage fills in the gaps that are created by standard property and casualty exclusions, says Yeshin. Coverage is written through a combination of standard (institutional) forms, mutual entries (for example, protection and indemnity club rules) and common, as well as customized, extensions.
As with other coverages, this product is also subject to exclusions. One example is war and terrorism coverage. Roberts predicts that due to ongoing global uncertainties, some shipping companies will start asking for this type of coverage and they will be willing to pay a premium for it.
“Policy conditions have been changing with a lot of shipping companies that have ships in the southern Mediterranean (near the Suez Canal) because of political instability,” he says. “This will affect what insurers are going to charge for vessels operating in those areas and what conditions are going to apply.”
Those in the business of placing marine accounts have been seeing soft rates and a decline in prices.
“Although there have been some periods of pricing adjustment and coverage restriction, the last 15 years have generally seen a downward pricing trend and increasing capacity,” says Yeshin.
For example, project cargo rates in 1995 would have cost about $0.50 per $100 in liability and fell to $0.15 per $100 in liability in 2005. Cargo rates currently cost about $0.05 per $100 in liability, according to Yeshin.
He says that although these rate reductions seem extreme, the majority of underwriters in the cargo space have shown a profit over the long term, leading to new entrants–both foreign and domestic–and with it, added competition and capacity.
“Given the less lucrative results in [the hull and liability] segments, interest [in those segments] has been more modest, although there remains reasonably good market capacity and competition, with rates holding steady despite the industry calling for increases year-over-year,” says Yeshin.
Claims payouts are generally handled through intermediaries that have insurance pools set up for coverage.
According to Breau, claims can include loss of cargo, and also how the loss occurred. “Losses range from items being dropped to a container being jettisoned off a ship, and everything in between,” he says.
Marine liabilities range from chartering to freight forwarding to vessel operation, says Yeshin. Vessel collision and accidents during cargo loading and unloading are also liability concerns, as is the risk of pollution during the carriage of cargos–both hazardous, such as crude oil, and less hazardous general cargos.
“The most common cargo claims are theft and handling damage, although there has also been a rise in general average incidents, which remains a frustration for most cargo owners,” says Yeshin. “Theft claims often trend with commodity price increases and challenges in the economy.”
Yeshin adds crew and passengers are always a significant concern, particularly in the cruise industry. In November 2010, for example, the Carnival Splendor cruise ship had a fire in its engine room that caused a power outage throughout the ship. About 4,500 passengers were on board at the time. Fortunately, no one was injured and it didn’t turn out to be the disaster it could have been, he says.
Another fairly new risk with marine liability is piracy. The Somalian pirates operating off Africa’s east coast have successfully hijacked a number of vessels since 2005, including at least three oil tankers. War and terrorism coverage is generally purchased to protect against this risk, says Roberts.
Yeshin agrees that piracy is a growing concern for marine risk managers.
“The frequency of takings has increased, and with greater success in boarding vessels, pirates’ ransom demands have grown from what used to be hundreds of thousands of dollars per vessel to several million,” says Yeshin. “With piracy usually triggering a general average contribution, these losses are hitting all marine lines.”
Marsh is experienced in the marine business and has a global client base including ship owners, cargo owners, traders, as well as contractors for offshore oil and gas and construction industries, port authorities, terminal operators, and shipyards.
Matthew Yeshin, marine practice leader for Marsh Canada says the core challenge with effectively placing marine coverage is understanding the nature of the insured’s operations, the risks involved, the contracts, agreements, limitations, jurisdictions, and conventions that may apply. This is because marine is an international product with global standards, but there are also many regional nuances, he says.
The key to Marsh’s success with marine insurance is the company’s ability to understand client operations, exposures, and risk appetites.
“[Also, our] ability to articulate these to the markets that are best suited to address our clients’ immediate and long term needs,” says Yeshin. “In addition, our experienced and specialized claims team help clients manage loss and achieve the results they expect.”
Copyright 2011 Rogers Publishing Ltd. This article first appeared in the April 2011 edition of Canadian Insurance Top Broker magazine.
This story was originally published by Canadian Insurance Top Broker.