In this chapter of our Annual Insurance Review 2021, we look at the main developments in 2020 and expected issues in 2021 for marine and shipping.
Key developments from 2020
Winston Churchill said, "never let a good crisis go to waste". Some of the global insurers will be looking to the difficulties of 2020 as the catalyst for marine insurance growth in 2021 and beyond. With or without the restrictions of the pandemic, 2020 was the year when a number of significant risk carriers finally said "enough" and pulled out of the marine insurance sector. Repeated years of unprofitable rates, non-sustainable claim levels and increased volatility led several insurers - some voluntarily and other less so – to decide time was up for their marine book. Sad days indeed.
Those who chose to hang in there may well reap the benefits from 2021 and beyond. The global lockdown meant reduced global trade and reduced vessel activity - and so reduced premium. But with fewer risk carriers, pricing and coverage terms have already begun to harden and the economic dip of 2020 is unlikely to stem the continued growth in seaborne trade. Less activity in 2020 should also mean less claims. Touch wood 2020 will remain lower frequency in terms of catastrophic marine losses. 2021 and beyond could be a more profitable landscape for the marine insurance community. Something to look forward to.
It isn't without its challenges. It is still early days in the switch over to new sulphur cap rules under IMO 2020 and machinery breakdown remains one of the most significant contributors to marine losses. The shipping industry isn’t exactly lauded for its investment in vessel maintenance and crew. Fire remains a prevalent risk. It is worth remembering that, after the 2018 fire on the Maersk Honam (a "Super-GA" event), it was estimated that across the near 8,000 containers onboard, some 30% of cargo had no insurance. When Maersk offloaded the cargo in Jebel Ali and invited its owners to come and get it, those without insurance had to stump up a whopping 54% salvage and GA cash security. Bet they wish they'd ticked the insurance box.
We also have an awful lot of oil sitting in floating storage waiting for rising prices. Good news for tanker fleets as day rates go up. A challenge for insurers. Accumulation of risk and very often great difficulty in identifying where the product actually is (and whether it is still there!). 2020 saw yet another oil trader collapse with Hin Leong. Once more the music stopped and there were no chairs. Yes, Mr Insurer of course we know exactly where our oil is and it is definitely our oil and no-one else's. New Year Resolution #17 - time to re-assess your marine open cover storage terms.
What to look out for in 2021
2021 will probably be remembered as the year when English non-marine insurance law finally got to grips with proximate cause – a concept the marine market has been comfortable with for over a century. There have been a couple of notable decisions. The UK war risks decision in The Brillante Virtuoso had everyone in its thrall at the end of 2019. It was a salutary reminder of the residual role that the mortgagee bank plays as a co-assured in many marine property covers. The Swashplate v Liberty Mutual cargo decision in Australia reminded us that the Courts still tend to look unkindly on insurers who take technical points as a basis to reject cover. Don't expect any brownie points.
The end of 2020 didn't see the marine market in the rudest of good health. But it remains match fit. Like most middle-aged men, the marine sector finally accepted in 2020 that we can all benefit from losing a bit of that extra weight. Hopefully marine insurers will begin 2021 with lower blood pressure, a new wardrobe, and a spring in its step.