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ANALYSIS | INSURANCE & COMPLIANCE


Over the past ten years there has been rapid change in some business aspects of project cargo, such as capital formation and the importance of compliance with anti-corruption standards. In contrast, the insurance market has stayed relatively quiet. Capacity to underwrite even the largest projects has remained ample, premiums have stayed low, terms and conditions generous. A soft market is the term. Insurers do not cite any significant casualties that have changed the way they do business; on the contrary, underwriters and brokers comment on how the sector has taken big non-project cargo losses and carried on.


BY GREGORY MORRIS M


artin Lanting, founder of diversified brokerage 24Vision, based in Rotterdam, told HLPFI: “Te insurance market today for all of marine is


generally soft, and it has been for a long time.” Te problem, in short, is what almost could be described as an embarrassment of riches. “It is related to the fact that interest rates have been so low


for so long. Because money is cheap a lot of new capital has entered the insurance business [in search of better returns]. So there is plenty of capacity for underwriting.” Tat in turn keeps the market competitive and premiums


low. In project cargo there is a structural higher rate because of the expertise needed for underwriting complex, high-value single moves. Underwriters are also attracted because the sector is driven by severity rather than frequency. Tat means they can re-insure in between fewer bigger losses. “It surprises me that the insurance sector is not looking for


better returns,” Lanting added, “but still capital is not disappearing from the market. Tat may be starting to change, however. We just finished a very bad hurricane season and underwriters are starting to try to harden the market.” It remains to be seen how successful those


efforts are. “Tere have been major losses, some turning points, and some big claims in the past ten years in project cargo, but not the kind such as an oil spill or containership fire that makes it into the newspapers. Project cargo is an industry where there are good precautionary measures, and route and site surveys to be sure the cargo is being loaded and stowed in the proper way.” Peter Austen, head of North American marine insurance


for Willis Towers Watson (WTW), said that ten years is a fairly narrow timeframe for a cyclical global industry reliant on capital-intensive projects. “Looking back to 2007 and 2008, it was a robust time, especially for offshore energy,” said Austen. “Energy was in the forefront of the business. Heavy lift and project cargo is all about scale, and the technology of the era was leaning to more and larger offshore oil and gas platforms.” Ten several things happened in just a few years. “Te widespread commercialisation of shale development in North


America completely changed the global supply side in oil and gas,” said Austen. “Several offshore regions, such as the North Sea and the South China Sea, tapered off. After the 2011 Fukushima incident, some nuclear power development plans were pulled back. But by that time some of the largest heavy lift vessels had already come into service.”


Robust market From an insurance perspective, the market remained robust, Austen added. “Tere was plenty of capacity to write risk, but that almost always seems to be the case. Te only significant limiting factor was technical expertise around the industry. Tere are only a limited number of underwriters with the in-house expertise to lead a programme.” Of course, the banking crisis had an immediate impact on


worldwide trade. Austen recalled that it hit almost immediately in drybulk, especially ore and coal. “As that slowed, so did everything in mining, and then in power. It was primarily credit first, but that soon carried into capital. In oil and gas the pace at which capital expenditure was pulled back in 2014 was dramatic.” Te biggest change in project cargo in the past ten years according to Kevin J. Wolfe, global head of project cargo and chief underwriting officer for marine at Allianz Global Corporate & Specialty (pictured left), has been the advent of modular construction. “Tat is in terms of underwriting, but also project planning and management. Ten years ago there were simpler movements. Tey might have been big or heavy, but


they were well understood. We knew about generators or turbines.” Today however, modular units are built in many different


sizes at several different sites. “Tis incredible variation in size, weight and shape has changed our underwriting view,” stated Wolfe. “Tere is more risk in transit. Some of this technology has never been moved before.” Modularisation is hardly new to offshore rigs, but is increasingly being applied to onshore industrial projects as well. Underwriters have long advocated being involved from the


earliest stages of project planning, and in project cargo often insist on writing the full risk end to end, including delay in


HLPFI10 | 31


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