A perfect match

events faced by companies’ supply chains in the past few years – Covid-19, Brexit, war in Ukraine to name a few - the exposures and risks associated with moving and storing goods globally have evolved.

It is important to understand the challenges that businesses face when it comes to managing their risks associated with the shipment of goods. In today’s global marketplace, delays in the delivery of goods can have a significant impact on a business’ operations, sales and revenue.

Historically, the marine cargo market has provided insureds with the peace of mind that, wherever their goods are in the world, in the event of a covered claim they are insured against physical loss or damage.

More recently, the increased popularity of “cradle to grave” stock throughput coverage, as a product of the same market, has furthered clients’ ability to ensure that no gaps in coverage occur when protecting their goods in transit or in storage.

With the significant global challenges and geopolitical

This also has a knock-on effect on any other businesses the insured trades with including their first, second and third tier supply network.

This is where parametric insurance products come in, offering a unique and innovative solution for businesses seeking to manage their risks associated with the shipment of goods.

Parametric Explained

Parametric insurance products can be customised to meet the specific needs of each business, providing flexibility and customisation that traditional insurance products may not offer.

These insurance products work by using a pre-defined set of parameters to trigger coverage, allowing for a faster and more efficient claims process.

For mid-market companies that do not have the size and scale of their Fortune 500 contemporaries, cash flow is hugely important and the speed in which claims are triggered and settled makes a significant difference to how an organisation is able to operate.

Parametric insurance products can cover a wide range of risks associated with the shipment of goods, including weather-related events and the level of congestion at a particular port. This allows businesses to manage their risks more effectively and protect their operations from unexpected events.

Physical loss or damage insurance is essential for businesses shipping goods. But, to truly help protect clients against loss, we need to begin building quick, easy parametric delay insurance products. These products can be designed to meet the specific needs of each business, providing a more tailored solution that can help businesses manage their risks more effectively.

We have seen an increasing number of insureds purchasing parametric delay products. We work closely with companies such as Anansi, a recent Lloyd’s Lab cohort offering a parametric delay product.

Black Swan Challenges

One of the challenges with parametric delay products is around aggregation and ‘sideways’ exposures to insurers in the event of a black swan event such as Covid-19, extraordinary weather events or a Suez Canal blockage. Thus understanding the right route to market for such products is fundamental. Should such products be embedded in internal systems or freight forwarders’ platforms when arranging individual transportation of shipments?

The challenge to such a model is deselection and therefore only covering the most challenged routes or products. If these are to be annualised policies, aggregation of events really does become a concern for a client. Smart AI rating and amendable AI driven deductibles are imperative to accommodate such events.

A further challenge is around basis of valuation and marine insurances being policies of indemnity where insureds are required to quantify a loss value in the event of a claim.

If an insured is looking to sell Christmas jumpers and the goods do not arrive on time to be sold for the Christmas period, the jumpers do still have a value, though a greatly diminished one to the assured that is selling them.

In this instance, as with many others, building a framework for subrogation and understanding and covering an insured’s costs or loss of sale are crucial.

Traditional Lines

Insurance products across the marine sector have been hugely beneficial to insureds for a number of years. Examples of current products available to clients include;

> Trade disruption (TDI) policies that cover delays. For larger exposures these have a very valuable place in a robust insurance programme. However, speed of payment, named exclusions and cost of coverage prohibit many smaller insureds from purchasing.

> Cargo delay in start up (DSU) products cover consequential loss to a project’s delayed completion when critical goods do not arrive on time. This is a specific niche within cargo insurance and for more industrial project-based insureds.

> Cargo/stock throughputs (STP) do cover elements of delay and costs associated with supply chain losses. Further, on rare occasions and for specific interests, they can also be extended to cover delay. But, the challenge once more is the time to recover a loss, breadth of coverage and cost make these products unobtainable for most insureds.

All above are useful tools in an assured’s risk management operations, though ultimately, each has their own deficiencies and specialties that could make them inaccessible to a potential assured.

Perfect Combination

In today’s world in which digitisation and the availability of data has never been more prevalent there must be ways to build products that cover insureds for physical loss or damage to goods alongside parametric pay outs for delays within the supply chain.

For the marine cargo market to continue to evolve, remain relevant and at the forefront of protecting an insured’s supply chain exposures, this marriage of new and old products will be vitally important.

To enable insurers to become comfortable enough to build out this additional offering, brokers and insurtechs will have to demonstrate how historical data can be assimilated to understand exposures and aggregations to black swan events and how proactively systems can understand the data for future events.

If this marriage can happen then the marine cargo market will be providing a truly unique offering for clients with evolving, dynamic and responsive coverage for the challenges insureds face today and in the future.