The marine insurance industry is facing a challenge of rising inflation and increasing claims costs, according to a report by the International Union of Marine Insurance (IUMI). The report, which was presented at the IUMI annual conference in Edinburgh, Scotland, on September 19, 2023, highlighted the impact of inflation on the marine insurance market and the need for underwriters to adapt to the changing environment.
Inflation affects marine insurance premiums and claims
The report stated that the global marine insurance market grew by 3.5% in 2022, reaching a total premium income of $29.9 billion. However, this growth was not enough to keep pace with the rising exposure from larger vessels, bigger ports and higher cargo values and accumulations. The report also noted that the marine insurance industry faced a higher frequency and severity of claims in 2022, especially in the cargo and hull segments.
One of the main drivers of inflation in the marine insurance industry is the increasing cost of repairs and replacements for ships and cargo. The report cited several factors that contributed to this trend, such as:
- The shortage of materials and labor due to the COVID-19 pandemic and supply chain disruptions
- The rising prices of commodities, such as steel, aluminum and copper
- The higher demand for green technologies and environmental compliance
- The growing complexity and sophistication of ships and cargo
- The increased vulnerability of ships and cargo to cyberattacks and piracy
The report estimated that the average cost per claim in the hull segment increased by 8.4% in 2022, while the average cost per claim in the cargo segment increased by 6.7%. The report also warned that inflation could erode the profitability and solvency of marine insurers if they do not adjust their premiums and reserves accordingly.
Marine insurers need to adapt to the changing environment
The report urged marine insurers to adopt a proactive approach to cope with the inflation challenge and to maintain their relevance and competitiveness in the market. The report suggested several strategies that marine insurers could implement, such as:
- Enhancing their data collection and analysis capabilities to better understand the risk profile and exposure of their clients
- Developing more innovative and customized products and services that meet the evolving needs and expectations of their clients
- Investing in digitalization and automation to improve their operational efficiency and customer experience
- Collaborating with other stakeholders, such as shipowners, brokers, regulators and governments, to promote best practices and standards in the industry
- Engaging in advocacy and education to raise awareness and influence policy on key issues affecting the industry, such as climate change, cyber security and sustainability
The report concluded that the marine insurance industry is facing a period of transition and transformation, which requires underwriters to be agile and adaptable. The report stated that “the ability to respond quickly and effectively to inflationary pressures will be a key factor in determining the success or failure of marine insurers in the coming years.”