On the occasion of the annual conference of IUMI (International Union of Marine Insurance) in 2024, Pavel Kadlecik, Head of Transport Insurance at Colonnade Czech Republic, interviewed Uwe-Peter Schieder, former Vice-Chairman of the Loss Prevention Committee and one of the important personalities of this worldwide organization.
Globally, the loss ratio for transport insurance is in the black for the second consecutive year. Can we already talk about a trend? If so, do you have an explanation for it?
I have some doubts about this. Yes, premiums have risen in recent years even in Europe, how much of this is due to inflation I cannot say, but the post-pandemic recovery of the markets has had a big impact. China, in particular, has managed to increase transport insurance premiums significantly, and all other markets, with the exception of Japan, have managed to maintain or even increase their premiums. After the level of freight insurance premiums written had moved away from the value of goods transported in the years before the covid, the two variables began to evolve more or less in parallel in the post-pandemic period. Here we can already speak of a nascent, certainly necessary and natural trend.
If we examine the claims experience across different regions, the trend of improved performance in recent years is evident. At present, economic growth is slowing in many countries and Germany is even facing a recession. This can have a significant impact on the amount of goods transported and their value, and therefore on the level of premiums. If premiums fall in parallel with the declining risk, loss ratios can remain in a positive range, but history shows that markets often react inadequately in periods of recession, or even just in economic downturns.
Could this positive effect also be due to a more cautious approach to underwriting by insurers? Or is it a natural evolution of the market, i.e. an increase in premiums relative to claims ("hard market"), greater customer awareness of the risks associated with the transport of goods and thus a greater focus on loss prevention? Or has the market simply been lucky to avoid catastrophic events for two consecutive years?
It is a combination of all of the above. After the years 2017 and 2018 in Europe did not exactly deliver dazzling results for goods insurance without a major catastrophe hitting the global market, markets have slowly tightened up. It's hard to say whether this was due to increased risk awareness or caution. What is certain is that catastrophic events will occur sooner or later and shipping insurers are aware of this. In addition, the safety situation is increasingly deteriorating. Damage has already occurred in the Black and Red Seas and the risk remains high. In parallel, tensions are rising between China and Taiwan and between China and the Philippines, not forgetting the Persian Gulf. At the same time, flooding is becoming more frequent, ships are losing their cargoes, container ships are also occasionally on fire and the world's merchant fleet is slowly ageing.
These are all factors that "naturally" increase risk awareness among insurers. For me, the natural consequence is that this risk awareness also has an impact on companies' loss prevention measures. Policy risks are being analyzed in detail, awareness of risk accumulation and risk management is gaining importance, and storage risks, which have been insured for decades almost for free, are increasingly coming into focus. Not least because a high percentage of IUMI's statistics for major claims can be attributed to these risks. So yes, it can certainly be said that insurers are focusing more and more on areas where risks are increasing.
What else can be gleaned from the IUMI statistics? What is of interest to us as insurers, as well as to customers and potential customers who may not even be insured? What can be considered "food for thought"?
Freight insurance is directly related to economic development, as the post-covid data clearly shows. Insurers have been able to reverse years of a very negative trend, whereby freight and ship insurance premiums have been moving further and further away from insured values, and to restore a more balanced relationship in which freight values and premiums are once again developing in tandem.
And I am happy to point in this case to the IUMI statistics, which show well the importance of controlling accumulation and how high the risks can be for warehousing. These statistics contribute to a greater awareness of the potential risks and hopefully will not be ignored.
As transport insurers, we are often considered "less important" compared to our property or liability insurance colleagues. Yet, transportation insurance is considered the oldest type of insurance ever. What would you say to those who consider our insurance a nuisance obligation, e.g. for CIF/CIP delivery conditions?
Supply chains are the "lifeblood" of the global economy and we cover its risks through all-risk insurance. Without this protection, the supply chain and with it the global economy would grind to a halt. Transportation insurance is therefore as essential to the economy as oil is to a well-functioning engine. If you do not believe this, you can check with your insurer, because all-risk insurance covers even a simple loss.
As transport insurers, we offer protection against all risks, with a few exceptions. Terrorism, piracy and war can also be insured. Whether the cause of loss is a flood, a burning ship or "simple" embezzlement, we offer the comprehensive coverage that banks require and clients appreciate. We are a specialized but important industry whose importance would only be realized if it ceased to exist.