Lloyd’s Beale warns on marine market share loss

Lloyd’s CEO Inga Beale warns in a speech at the International Shipping Week on Sept. 14 of the risk that traditional players may lose market share to new competitors in marine business.

The size of the average cargo insurance claim is growing. In the last twenty years, large cargo claims as a proportion of total claims have doubled. This is partly because large ports and bigger ships routinely handle larger volumes of cargo. Partly it’s because of risk aggregation – when cargo concentrates in big ports for example, which are then hit by a disaster such as Superstorm Sandy or Tianjin explosions, and insurers are hit by bigger claims than they expect. There are likely to be further cargo insurance losses stemming from Harvey and Irma, but actual losses from these events are still unknown.

All this means that in recent years cargo insurance as a class of business has seen decreasing profitability, with a combined ratio of more than 100 percent.

“If the insurance market doesn’t rise to the challenge then traditional players will lose market share to new competitors – like technology firms and asset managers – who are already investing and trying to capture market share from traditional underwriters,” Beale says in the speech.

“It is important we get this right, not just for our own benefit, but more importantly for the benefit of our policyholders who rely on our insurers to pay out when disaster strikes.

“We are exploring the possibilities new technology offers our sector, including artificial intelligence, data collection and analytics. By bringing together statistical forecasting methods, big data techniques, telemetry solutions and high resolution satellite imaging, a more realistic view of cargo exposures could be achieved, leading to better risk selection, which could help underwriters improve their overall profitability.”

A new market insight report into cargo insurance aims to help cargo underwriters develop a greater understanding of cargo risks/and in particular how they aggregate. It suggests that underwriters should consider bringing together statistical forecasting methods, big data techniques, telemetry solutions and high resolution satellite imaging.

Altogether these solutions won’t immediately solve the profitability issue – but they could help enhance risk selection and how insurers structure their reinsurance programmes, helping them manage their balance sheet exposures better, according to the report.

“Lloyd’s is working in partnership with a number of marine insurers to test the business impact of implementing a new smart data analytics platform for managing an insured vessel fleet,” Beale said.

“Underwriters and their insureds will be able to use this live information source to ensure that vessels circumvent risky waters when they can, such as conflict zones, or areas prone to piracy or extreme weather. The system’s data can also be used to inform underwriting decisions, improve risk profiling and assist with claims.”