Says underwriting result improved on back of low claim
Warns claim frequency may rise again as economy recovers
Nigeria’s maritime insurance still imported
In spite of impact of Covid-19 pandemic last year, a new report from the International Union of Marine Insurance (IUMI) shows that there was a positive outcome for marine insurers in most insurance lines and geographic regions as global marine premiums rose 6.1 percent to $30 billion, reflecting an improved underwriting results across all regions on the back of low claims.
According to the report, cargo continued to represent the largest share with 57.2 percent, followed by hull on 23.8 percent, offshore energy on 12.1 percent and marine liability on 6.8 percent. About 48 percent of the $30 billion global marine premium last year came from Europe, 29.3 percent from Asia-Pacific, 9.3 percent from Latin America, 7.7 percent from North America and 6 percent from other parts of the world.
Astrid Seltmann, vice-chair of IUMI’s ‘facts and figures’ committee noted that there was an increase in absolute premiums for 2020 in both the hull and cargo markets derived as a combination of volume (in terms of trade, values, global fleet size) and rates per insured unit, adding that the European market, which bottomed out in 2019, is now strengthening again while the Asian market continues to enjoy a year-on-year increase that began in 2016 as a market reaction to the depleted premium base experienced in preceding years.
Commending a positive trend, Seltmann noted that as recovery started from a very low base it is not yet clear if the current improvement will be sustained in future years to give more predictability for shipowners, cargo owners and insurers, as she noted that the recent claims environment has been relatively benign, which needs to be seen in connection with reduced activity in some shipping segments in 2020 – cruise, container trades – as a reaction to Covid measures.
She said: “With the economy recovering and shipping and offshore activity increasing, it can be expected that both claims frequency and severity will also rise again.”
While the IUMI report noted that the premium income mirrors the global oil price, as it believes that the bottom of the premium decrease cycle has been reached, it, however, noted that oil price remains volatile and was impacted negatively in 2020 due to the pandemic, adding that 2021 has seen an oil price rally but the effects of events such as Hurricane Ida are yet to be known.
The report stated: “Claims in the offshore energy sector remain historically low, with 2020 likely to produce the lowest upstream claims this century”
However, it added that the global premiums were up 5.9 percent in 2020 to $17.2 billion as the fortunes of the cargo market tend to follow trends in world trade and predictions from the International Monetary Fund are optimistic. It stated, noting that global trade appears to have returned more strongly than expected after the outbreak of Covid, which lends a positive outlook for business opportunities within the cargo market going forward.
The report stated: “Although the claims impact was relatively low in 2019/2020, which helped return the sector to a technical break-even, there is still a potential for a higher claims environment to return in 2021 and beyond. In particular, accumulation of risk continues to cause concern. The trend of storing large amounts of cargo at single sites or on single vessels exposes high values to nat cat or man-made events that could easily result in costly claims.
“Of particular concern is that the frequency of onboard fires does not decline contrary to the overall claims frequency. This is particularly true for large container vessels. Statistically, these vessels are more prone to fire due to the large quantities and variation of cargo being carried, as well as the challenges inherent in fighting a fire on such a large vessel at sea. Containership fires affect seafarers, the environment, as well as cargo, hull and liability insurance, and must be urgently addressed,” the report further stated.
Philip Graham, chair of IUMI’s facts and figures committee also noted that IUMI’s analysis for 2020 shows some signs of encouragement for market development in all main marine insurance lines and in all global regions. “But we should remain cautious as there are a number of factors at play.
“On the positive side, we are seeing new markets enter the marine insurance space, particularly offshore wind where project sanctioning has overtaken offshore oil and gas for the first time… more generally, OECD business confidence has returned, or is rapidly returning, to pre-Covid levels, world trade forecasts are extremely positive and this will drive demand for shipping and, consequently, marine insurance. Overall, shipping appears to be bouncing back strongly from the outbreak of Covid,” he said.
Ultimately, he warned that increased shipping activity, reactivation in the offshore energy market and an increasingly ageing merchant fleet have the potential to reverse the current downward trend in marine claims.
For Nigeria, maritime insurance still imported
Over the years, the burden of spikes in premium of maritime insurance has been felt by Nigerians as the country’s ratio of insurance contribution to GDP at 0.5 percent, represents an overly infinitesimal portion leaving the giant of Africa at a weak point to cover maritime, oil and gas, aviation and other aspects that require huge capital and solid finance. Unfortunately, this means that businesses in these lines operating in the country have to source protection from insurers outside of the country who are capable of providing the needed shield and must be ready to pay the price irrespective of the increasing premium cost – especially with the increasing piracy rate in the Gulf of Guinea.
In a bid to lower the huge premium rate diverted to other countries, the recent deep blue sea project, a security measure, saw the Nigeria Maritime Administration and Safety Agency (NIMASA) deploy equipment worth $195 million, consisting of aircraft, boats and vehicles for use to strengthen security in line with its primary objective of securing Nigerian waters along the Gulf of Guinea, as well as the country’s oil infrastructure with a coordinated combination of land, sea, and air forces for the fight against insecurity in the region.
While the effect of the billion dollar project is yet to reflect as insurers, such as Beazley Insurance, in partnership with Maritime Asset Security and Training (MAST) Limited, still offers the ‘Gulf of Gunea Piracy Plus’ that covers the illegal seizure of a vessel and the kidnapping of crew, stakeholders are anxiously awaiting a dip in premium price to allow maximization of profit.
However, experts have stated that the expected changes in premium would take some time to be reflected. Adekunle Segun, a maritime industry expert said, “Insurers need to see the effectiveness of this project on the vessel via reduction in successful piracy attacks. When they see this we would not have to push for the reduction; they will, on their own, reduce it significantly.”
Meanwhile, Bashir Jamoh, director general of Nigeria Maritime Administration and Safety Agency (NIMASA), recently hinted that a sustained reduction in reported cases of piracy and other maritime crimes in Nigerian waters would end the regime of War Risk Insurance on Nigeria-bound cargoes.
He noted that the international shipping community had acknowledged the progress made by Nigeria in the quest for security in the Gulf of Guinea, as confirmed by recent reports by the International Maritime Bureau (IMB), and added that the sharp decrease in maritime incidents logged in IMB’s second quarter report was a valuable feedback on the NIMASA’s campaign for Nigeria’s delisting from countries under the war risk insurance burden, and an indication that the shipping community looked forward to sustenance of the progress made.
He said, “Feedback on our campaign for Nigeria to be removed from countries paying war risk insurance premium on inbound cargoes has confirmed that the international shipping community is watching developments in Nigeria and the Gulf of Guinea with keen interest. Their desire is to see a sustainability of the positive developments in recent times leading to a drastic decline in piracy attacks in Nigerian waters and the Gulf of Guinea.’’