Digitised supply chains imminent
As the move to embrace technology to improve efficiencies in the global supply chain gathers pace, cargo insurers will look to see how they can also benefit. The impact of events such as the explosion at Tianjin has focused insurers’ minds on how to mitigate against large cargo accumulation losses. This is particularly relevant to containerised cargo, where currently insurers do not have certainty as to the contents or value of the cargo in a specific container or where that container is at any one time. One solution may be the use of blockchain technology. The Maersk/IBM cross-border supply chain utilising blockchain will lead other shippers to follow suit in benefitting from the transparency and efficiency of a fully digitised supply chain. This may also benefit insurers, who can use this technology to better track insured cargo.
Increased sophistication in Marine, Aviation and Transport cyber products
As the risks of cyber attack are increasingly recognised (the recent Petya cyber attack on Maersk’s entire global shipping operation being a prime example), there will be a greater demand for specialist cover and exclusions to allow companies flexibility in assessing and managing their risks. For instance in specie risks, where atmospherically controlled containers are critical, companies may consider the risk of hackers interfering with the settings and the relative costs of improving cyber security and purchasing narrower cover or obtaining specialist cover. More sophisticated threats will require the market to work in partnership with clients to ensure the products available meet their increasingly specific needs.
Rate pressure and tired fleets will compound fraud in shipping
The temptation for owners to exaggerate genuine claims into constructive total losses will increase, particularly given the persistent low rates for shipping, the increasing size of vessels and the potential additional costs of compliance with the Ballast Water Management Convention (developed by the International Maritime Organisation with the aim of protecting the marine environment from the transfer of harmful aquatic organisms in ballast water carried by ships). This is causing problems with older vessels with limited capacity, which have no potential for resale and very limited scrap value. The pressure on ship owners to stay afloat will lead to an increase in attempted manipulation of losses or negotiated settlements with insurers who are equally pressed by the low premiums.
Slowly re-energising the energy market
The sustained period of low oil prices has led to more efficient methods of working which will improve profitability but impact long-term energy production. The rate of return for oil and gas companies in the UK increased for the first time in six years, demonstrating the efficiency strategies paying off. Revenues for companies supporting oil and gas production in the UK fell by over 30% between 2014 and 2016, but should now stabilise. Companies are likely to remain cautious, however, and continue to prefer short-cycle projects. While market volatility continues, insurers will need to remain alive to issues of credit risk in the offshore sector, as well as accumulation risks arising from stacked rigs and drops in maintenance standards generated by cost saving drives.