With significant losses over the last couple of years, commercial marine had started moving toward a hard market. Nevertheless, several market research firms have projected growth of $8 billion by 2024.
With large losses, insufficient rates and inefficient processes, the commercial marine insurance market recently started feeling a downward pressure and began to move toward a hard market. After many years of a soft market, the pile-up of catastrophic losses from hurricanes, floods, tornadoes, political tensions in certain areas of the world and—on top of it all—the global pandemic, changes are afoot in the commercial marine market.
“There have been significant market losses over the last couple of years that just continue to drive home the fact that underwriters need to increase rates," says John Gambino, cargo manager, RB Jones Marine. “There was a West Virginia warehouse fire for Macy's inventory that was written in the ocean cargo market with a loss of $78 million. There was the automobile carrier, the Golden Ray, that flipped over off the coast of Georgia here in the U.S. That was about an $80 million cargo loss."
“The losses keep happening," Gambino says. “We've seen two terminal port explosions in China and one in Lebanon due to hazardous cargo. We are still in the process of having a lot of large losses getting thrown into the entire system."
Additionally, over the past year capacity has dropped with numerous companies withdrawing from the market. “With a great deal of the global marine capacity residing in London, the market has seen the impact of increased scrutiny on several marine lines, including ocean marine, ocean hull, construction and engineering risks," says Drew Feldman, senior vice president, global marine business leader, CNA. “With that said, for the majority of risks in the market, there remains ample capacity, albeit at elevated pricing."
“Typical increases on loss-free property exposures are in the high single digits. Marine liability, particularly low-level excess and bumbershoots, a marine insurance-specific excess policy, are attracting 15% or more in price," says Robert Gallagher, president of ocean marine, Intact Insurance Specialty Solutions.
Terms and conditions are tightening too, but is there a beacon of light in the commercial marine market?
“The commercial marine markets encompass a number of different products and each of them is being differently impacted by the pandemic and also differently impacted by market trends," says Mark Engel, managing director, marine, RB Jones. “On the hull side, we're seeing increased rates, more restrictive terms and conditions and tougher risk selection from underwriters."
Prior to the pandemic, commercial marine insurance was going through somewhat of a resetting with increasing rates and a healthy global economy. The market was looking like it was heading toward a period of significant growth.
Now, however, “the pandemic has resulted in decreased exposures in areas such as sales, the number of jobs performed and shipped values. Business closures are up," says Anne Marie Elder, global chief underwriting officer, marine, AXA XL. While “new business submissions for some marine products had decreased, we're seeing them rebound as agents begin to actively market their portfolios," Elder says.
The use of multiple distribution channels will significantly influence the marine insurance market growth in the next few years. “Distribution chains have totally been turned upside down and more manufacturing is coming stateside to shorten the supply chains and not having such dependence on one country in particular," Gambino says.
“That alone is changing cargo business," he adds. “In one respect, maybe we don't have as many imports, but on the other hand, we might have more clients exporting in the future. So the future looks rosy for U.S.-based cargo underwriters."
Factors such as rising population numbers and improved purchasing power mean the demand for consumer products, goods and raw materials is predicted to grow. However, with the global economic health in the wake of COVID-19, ongoing trade disputes and climate change, the maritime industry could be in for some rough waters.
Nevertheless, several market research firms' reports, including one produced by Technavio, have pegged projected growth between now and 2024 at more than $8 billion.
“With the uncertainty that exists in the coming years, I would expect to see comparably less growth in the space than in the prior number of years," Feldman says. “However, I don't think that there is a question that overall population growth and increased global supply chains will mean continued growth in the marine space for years to come."
Olivia Overman is IA content editor.
This article will be published in the December 2020 issue of Independent Agent magazine.