A period of remediation for the marine insurance market

The last seven years has been a period of remediation for the marine insurance market. Efforts marketwide gradually restored books to profitability, which was a considerable task for most and a real struggle for many. Yet the marine market pulled together and, certainly in London, Lloyd's Decile 10 helped accelerate this process, instilling the discipline required to create portfolios that consistently perform well across the cycle.        

These efforts eventually yielded results not seen in the marine market for well over a decade. In March 2024 Lloyd’s results revealed just how good a position the market was in, with other markets also performing strongly. However, despite this, or some may argue because of it, recent renewal cycles suggest marine rates are once again starting to soften.  

While the triggers, context and circumstances are different for every soft market, there are usually some fundamental similarities. Yet, this time is different for several notable reasons, not least the precarious geopolitical situation and ongoing global economic fragmentation. Also, the increase in natural catastrophe exposures, such as earthquake, windstorm and flood – even tornados and wildfires – are happening in places, at times and on a scale insurers were not expecting. This is also a period of market bifurcation, where certain placements are facilitized, with marine obviously an already fairly facilitized market. Then there is the emergence of auto-follow facilities, with a whole array of new propositions dominating headlines in recent weeks. These, among many other factors, are putting pressure on every risk insurers see in the market.

Following several consecutive years of rate increases, client fatigue is a further factor, with discounts now being sought placing extra pressure on insurance renewals. The profitability of Lloyd’s and other markets has been cited by brokers when seeking client discounts. While some may argue we’ve got it too good, this overlooks the fact that any market is only ever one or two losses away from a dramatic change of fortune. Any insurer should be able to command a fair return for the risks it accepts to ensure it is economically sustainable and can continue to meet client needs. 

Also, while the marine market may be profitable right now, this is finely balanced. In some areas margins appear slim, such as marine hull, which as a standalone class of business has struggled for consistent returns. The last 12 months have also seen significant losses affect the market, with the Baltimore bridge allision a further stark reminder of the potential for outsized marine losses. 

Due to the ongoing geopolitical situation, ship operators continue to face a broad range issues across vast areas. In the Red Sea, the threat of vessels being attacked by Yemen’s Houthi rebels remains very real. Media coverage of these attacks has declined significantly over the past six months yet, paradoxically, Houthi activity in the Red Sea actually intensified during that time. With more than 100 Houthi attacks in the region since November 2023, many vessels now routinely take the route around the Cape of Good Hope; a lengthy detour of around 3,500 nautical miles. In addition, the Black Sea remains a militarized zone, given the ongoing Russia-Ukraine conflict, with naval blockades, missile strikes and drone attacks posing a serious threat. Both countries have deployed naval mines, some of which have become unanchored and drifted, creating a further hazard for vessels. In the Persian Gulf, ongoing tensions between Iran, the U.S., and Gulf States brings the heightened risk of naval confrontations, missile attacks and military escalations. Iran has previously seized or harassed commercial vessels, particularly in the chokepoint of the Strait of Hormuz.

Simultaneously, in the US Midwest, the footprint of tornado alley is consistently growing, with losses already incurred relating to tornados and storms affecting large US warehouses and distribution centres. 

All of these examples highlight the imminent possibility of a tectonic occurrence in the marine market. Preserving both a sufficient pool of premium and underwriting discipline is essential to its sustainability and ability to protect clients over the long term despite heightened volatility.   

In 2015 /16, a series of large losses occurred at a time of excess capacity and low rates, with a number of organisations aggressively looking to grow, creating the perfect storm. Those who remember that period have no desire to relive what was necessary to correct the marine market after it was allowed to drift so dramatically off course.    

This remediation work and the lessons learned from that time helped create the disciplined, profitable and robust marine market of today. This hard-won position not only deserves to be preserved but built upon, requiring collaboration at an industry level and some restructuring at an individual business level. For example, silos still exist within many insurance companies, hampering interaction and collaboration between departments. Given the risks and uncertainties facing clients, fostering greater organisation-wide collaboration, through closer stakeholder alignment and integration of business units, is one of the most important steps insurers can take to support clients in meeting these challenges. At Liberty, underwriters, risk engineers and claims specialists sit and work together on a weekly basis, ensuring much greater knowledge sharing and therefore better risk mitigation. It has helped produce more insightful terms and conditions, coverage and a better product for the client. Additionally in claims, the ingenuity generated by closely collaborating, multidisciplined teams has enabled clients to achieve satisfactory outcomes far faster. 

This is therefore a pivotal moment for the marine market, which begs an important question: will insurers, through initiatives such as these, continue to build, become more sophisticated and resilient, or will the opportunity to avoid a race to the bottom be squandered? My hope is the market will prove itself better than that and, remembering the lessons of the recent past, hold its nerve and press ahead in its pursuit of excellence. 

Originally published in The Marine Insurer.