Source: NASA Goddard Space Flight Center
Hurricane Dorian, a category 5 hurricane and the strongest storm to make landfall in the Bahamas since record-keeping began in 1851, recently battered these Caribbean islands, causing an estimated $ 7 billion in damage there before going on to cause further havoc on the United States mainland and elsewhere.
Superstorms such as Dorian are no longer exceptional, and the annual hurricane seasons, in both the Atlantic and Pacific Ocean regions, are growing more severe every year. Shipping and cargo losses, damage to shipping facilities and disruptions to shipping movements result, inevitably, in the rise of financial (including insurance) costs of such major weather-related events.
This is not good news for Marine insurers, however. The premiums for such insurance may have shot up, but so have the costs of paying out claims. Single insurers, unable or unwilling to cover such claims on their own, are compelled to take out reinsurance cover and spread their risk. This, of course, further increases the cost of insurance and dampens risk appetite.
Apart from the direct effects of incidents on Marine insurance costs, the global fuel industry is affected as well. Invariably, this pushes up the costs of transport and goods, negatively affecting economies worldwide and once again putting financial pressure on us all.
So what does this all mean for customers and insurers alike?
At the heart of the answer is a risk. Insurers, as we all appreciate, determine risk and put a price on it; that, after all, is what insurance is all about.
In the current global climate, risk – weather-related, political, criminal and human – appears to be increasing, at least for now. The Marine insurance industry, already soft from decades of product oversupply and underpricing, now finds itself in a pickle and it has no choice but to hike premiums substantially.
This cannot but have a chilling effect on global commerce as shippers think twice about moving goods, as well as affect what we pay for anything from food and fuel to electronics and motor vehicles (and everything else).
But the risks remain, especially weather-related risks, which we can confidently predict will only worsen due to climate change; others, such as piracy and political instability, will fluctuate with the times.
Those risks must be costed and covered by insurers; global commerce will wither otherwise. And insurance customers must cover the risks. We may be halfway around the world from where hurricanes and pirates strike, but we’re paying for them one way or another.
The only way that Marine insurance can become sustainable again is for premiums to increase commensurate to risk exposure. This is vital for mitigating the risk associated with international commerce, which must continue unabated (and grow) if we are all to benefit economically.
In this context, the pressure is on insurers and brokers to offer greater value to our customers. But we can achieve this, through providing better insurance products, creating greater cost efficiencies and more tech-savvy systems, and above all giving them the expert advice they need to make the most of their Marine insurance cover.
– Cynthia Nanthalall, Head of Hollard Marine
