Marine Insurance Market Trends
The marine insurance market has historically operated in cycles of hard and soft markets according to supply and demand economics. The last proper hard market was in the months following 9/11; since then – despite the occasional boost – the insurance market has remained in a soft cycle with constant downward pressure on rates.
A number of factors effect this cycle – world events, capacity, new entrants, claims experience, shipping market and of course underwriting results.
In the last year or so a number of factors have come together to produce an overdue change in the market, with marine hull the first sector to experience a step change in rating and contraction in capacity. Essentially losses, both at attritional and catastrophe level were outstripping premium across the sector with the Class performing so badly that Lloyd’s of London had to step in and take hard stances on whether syndicates could continue to operate under the Lloyd’s umbrella. Arguably this correction is long over due and is still some way from reversing the downward trend in rating, however the effect even after only 12 months is significant with brokers struggling to complete slips given the reduction in capacity and the rejections of many risks.
The P&I Liability market
The liability market is following suit. It is rumoured that the vast majority of the 13 Group P&I Clubs will be putting forward general increases at the 2020 renewal, whether this is as a flat rate rise across the membership, or a variable increase on an individual account basis. This should come as no surprise, with most Clubs operating loss ratios of over 100%, with the London P&I Club’s being as poor as 145%.
From the Charterers P&I Club point of view, we welcome the realisation that rates have now been at unsustainable level for too long – to retain accounts against pressure from inferior providers, we have had to give reductions when at the very least they should be getting inflationary rises, that is before claims record or servicing hours were taken into account.
Aside from the market cycle there are other trends we are seeing are on the claims side; charterers are increasingly being brought into disputes where there is little or no substance to the claim thanks to owners insurers rights of subrogation being brought into play, regardless of merit. Moreover the quantum involved in claims gets ever larger as the cost of legal fees and proceedings increase. All this points towards a much needed correction in risk selection and rating.