In an interview with IHS Fairplay, John C. Wilkinson, yesterday gave a stark warning of the consequences of the ongoing price war in the marine markets. Wilkinson has been Munich Re’s Chief Executive for their Global Marine Partnership since 2014 and is therefore responsible for Munich Re’s global marine and offshore energy business.
IHS Fairplay’s article reads:
Marine insurers have been warned they are ‘playing a dangerous game’ as they continue to hunt market share at prices which continue to fall.
Speaking exclusively to IHS Fairplay in Macau, John Wilkinson, head of Global Marine Partnership at Munich Re, the world’s biggest reinsurer, said current pricing failed to factor in the threat of major losses despite the hard lessons learned from the explosions at the port of Tianjin.
Ask what he saw as the biggest issues for the marine insurance market in Asia, Wilkinson said, “Currently, we are witnessing enormous pressure on premium rates in all marine classes and markets across Asia-Pacific. While marine hull has already shown negative performance over many years with no sign of improvement, the performance of marine cargo books is also deteriorating and can no longer compensate for the underperformance of marine hull.
“This development has been driven by abundant capacity and the continued endeavours of underwriters to maintain their marine premium volume in a shrinking market.”
He warned the result was a lack of discipline from underwriters who were more focused on market share than risk selection.
“The increased focus of underwriters on premium volumes has also led to a lack of underwriting discipline and proper risk assessment,” he explained. “Unfortunately, current rating levels do not sufficiently consider margins for large and natural catastrophe losses, and merely focus on attritional losses.
“We are also observing a widening of coverages, and the inclusion of non-marine elements without any adjustment of premium.
“To be successful in this difficult environment, we are actively working on developing new niche segments and using our primary know-how in order to help increase the insurance penetration rate.”
Of the lessons to be learnt from the Tianjin explosions, Wilkinson said the event simply highlighted the need to factor in the growing threat of accumulation risks.
“Modelling loss events is the key to understanding worst-case scenarios and marine accumulation risks,” he said. “The Tianjin explosion in 2015 demonstrated how, with the concentration of high-value goods at various points in global supply chains, a single event can have far-reaching consequences across the globe. Tianjin is the third-largest port worldwide, the 11th-largest container port in the world, one of the largest ports in China, and the gateway to the northern regions of China. In the port of Tianjin, many warehouses, thousands of containers, and up to 68,000 new cars were affected by the 2015 explosion, which is more than the 16,000 damaged during Superstorm Sandy in the US in 2012.
“In the last few years marine insurers and reinsurers have become all too familiar with the results of natural catastrophes – flooding and storms such as Superstorm Sandy in 2012, the tsunami in Japan, and the Thailand floods in 2011. “
He added such losses had forced the industry to re-examine its approach to the size of risks.
“These large catastrophe losses are symptomatic of the persistent growth of accumulation risks, particularly in highly industrialised regions. We as reinsurers have observed again and again in recent years how such events can have a regional, or even global impact. For large port facilities, we need to analyse not only natural hazards such as flooding, earthquake, or hail, but also re-examine the ever-increasing other exposures at stake.
“Tianjin was one of the largest marine-related losses ever, and clearly a wake-up call for all insurers and reinsurers alike that in future we need to consider such a scenario in other places around the world as well. Just imagine a comparable sequence of events at the port of Los Angeles – and we are not only talking about natural catastrophe losses. Also, if one takes terrorist attacks into account, marine insurers need to give serious consideration to such scenarios for all large ports worldwide.
“For insurers and reinsurers, it is always important to have the best possible risk information on the value of goods and accumulation exposure at ports. Therefore, we need to take advantage of all possible new sources of data to improve our risk assessment. Only on this basis can we calculate worst-case scenarios to identify, manage and – if required – limit our clients’ risk exposure, while at the same time incorporating the very large loss scenarios into the premium calculation as appropriate.”
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