Looking back


MARINE PROFITABILITY: SINKING OR SUNK?


In the wake of the Costa Concordia disaster off the coast of Tuscany, Intelligent Insurer asks whether marine profi tability has only just become a sinking ship, or whether it has always been swimming with the fi shes.


and financial, are likely to be high. Fatalities are in double figures and insured loss estimates range from $500 million to $1 billion.


W Yet should losses for the entire insurance industry in 2012 be similar


to those in 2011, the Costa Concordia disaster alone could account for between 0.5 and 1 percent of the total insured loss for the year. Marine has always been a tough industry and marine underwriters have had to be skilful in picking their covers.


In the past, this has meant that they were highly venerated within


their companies, or so argues independent marine insurance consultant Sam Ignarski.


“Going back 20 to 30 years, while the top job at a composite insurer would be managing director, internally the perceived status of the marine director would be higher, because of the status and glamour associated with the role,” he says.


hile the debate rages on over the circumstances that led to the Costa Concordia’s running aground off the coast of Tuscany, it has become clear that the costs, both human


But while the size and complexity of marine risks has grown, the


profitability of the sector has not. That has led to a dramatic drop in the number of insurers covering marine risks.


“Over the past few decades there were a lot of loss-making years,


and the preparedness of insurance companies to carry a loss-making marine sector has decreased,” Ignarski says.


Normally this drop in supply would, in turn, lead to a rise in rates


but that has not happened in this case. Overall premiums on marine covers have continued to grow year on year, but profits have not.


One important reason for this has been the consolidation of


buyers—their greater buying power has kept rates low, argues Ignarski. “Rates tend to be depressed by the buying powers of the very large commercial organisations,” he says.


However, given the inherent volatility of the marine market—as the


Costa Concordia incident has demonstrated, a marine loss is often a large one—it is difficult to imagine how it has ever been easy to make solid profits consistently in the marine market. “I would question whether it has ever been that profitable,” says Rowena Potter, consultant analyst at Litmus Analysis.


So why do insurers continue to provide coverage? The answer depends on which aspect of the marine market you are referring to.


In terms of liability cover, the majority of the market is covered by protection and indemnity (P&I) clubs, which are mutuals. “These are owned by shipping companies themselves, so it is in their best interests to maintain that coverage,” says Potter.


And, ironically, it is that volatility which still attracts insurers to it. “In terms of hull and cargo, the market is quite volatile. Despite proving to be not very profitable for some years, an opportunistic company may think it sees an opportunity one year. Then they keep writing marine business until it becomes unprofitable,” she says.


58 | INTELLIGENT INSURER | Spring 2012


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