London still matters

Julian Clark, Global Senior Partner at Ince, and Tony McDonach, (below) of leading maritime insurance law firm Ince, explains why the London market remains the pre-eminent hub for the global maritime insurance market. To maintain that position the market needs to continue to invest in the people and expertise that have served it so well through the years

There is a perception that London is facing increasing pressure from overseas maritime insurance markets including Singapore, Hong Kong and Dubai, as well as the more established markets of Scandinavia, Europe, and the US. However, the reality is that each of these alternatives are not completely separate markets. The London market maintains a strong presence in these international markets and operates as a true worldwide market with different outposts. While its competitors may argue they have a track record in some areas of coverage, London remains the real base of excellence for all lines of business, especially complex risks. The London market has already weathered a number of the hard decisions on regulation and the proper pricing of their products. Significant amount of capital is still flowing into London. Assurance confidence is high, returns on investment are good, and secure. Investors know that underwriting in London is going to be well-managed and provided on reasonable terms.

GREAT MINDS

The lead underwriters on any risk need to be true leaders in their field, just like their broking, claims and loss adjusting counterparts. Customer’s claims experience remains extremely important and a key driver when assureds and their brokers are going through a selection process. The need to ensure that claims are fairly considered and speed of settlement are equally key factors in the decision making process. This is an area where the service provided by the London market has vastly improved. From top to bottom, everywhere in the process, London provides a number of the best insurance minds in the world. These professionals are the brains trust of the insurance world and the London market’s human capital. Very high levels of professionalism in all aspects of the market decrease the likelihood of disputes. But, if things do go wrong and the usual commercial processes fail, London has the additional advantage of a pre-eminent legal industry which has been closely aligned to the marine and insurance worlds for hundreds of years. It is of course also a trusted and efficient legal system which is why it remains the predominant venue for determination of disputes whether through the court system or arbitration where the LMAA (London Market Arbitrators Association) is an organisation synonymous with quality and excellence. The UK’s maritime tradition has also meant that all of the insurance-related industries have benefited from the flow of experts of all kinds moving from the shipping to the insurance industry. For example if you’re trying to insure a heavy lift vessel or specialist operation, assureds are given comfort from knowing that the people underwriting the subject matter and managing the claims process can actually comprehend and articulate the risks that the assured is facing. Having said all of the above it has to be acknowledged that the competing markets are not without their own strengths. The onestop shop approach adopted by some of the non-London providers can be highly attractive to potential buyers. For example, insurance is packaged and sold well in Scandinavia bringing convenience and in some cases reducing cost. But, the fact

that the expertise is often maintained in-house arguably removes objectivity, independence, and transparency. Overall, with all the competing markets one might argue that there are gaps in the offering while the London market provides a product which is comprehensive.

MARKET RESILIENCE

Despite the disruption to in-person interaction, the London market has adapted well to the COVID-19 pandemic. This should not be a surprise. London has historically adapted well to crises. Following the decisions which led to a number of countries making it a mandatory requirement that locals insured with national companies London adapted its previous preeminence in direct insurance in order to expand into becoming an internationally recognised centre for reinsurance.

Further examples of how the London market has been able to meet the challenge of change and innovation can be seen by the way in which it reacted to the rise of containerisation, and the then-new oil and gas market in the 1960s and 1970s by developing new insurance products.

London has always been mindful of innovation. It has adapted and evolved, identifying the new directions the industries that it insures are taking and responding quickly to develop appropriate products. This is particularly relevant today where the development of technology and the challenges it brings, together with the focus on ESG (environment, social, governance) will create huge challenges and require innovative insurance solutions. The rising need for cyber protection is an obvious current example. Where once cover had to be purchased separately to other risks, such as business interruption or property damage, more sophisticated, comprehensive packages are now available to ensure that shipping companies meet their own unique needs as well as regulatory requirements. These far-ranging policies can include the costs of crisis and reputation management, forensics and extortion. The Allianz Risk Barometer 2022 lists cyber, business interruption and natural disasters as the top three business risks globally in 2022 and the London Market continues to meet demand by offering market leading cover for new and emerging risks – the market placement process playing to its strengths in this area as new trends emerge. The market has been pro-active here by its rapid adoption of technology and expansion of talent into the market from other expertise bases such as data scientists and engineers.

The last decade of soft markets for hull and machinery has created a particular challenge for the sector. Too much capital led to a loss of underwriting discipline and ultimately an increase in expense ratios which significantly reduced underwriters’ profitability.

However, Lloyd’s 2018 Decile 10 initiative has been effective at improving the overall performance of Lloyd’s syndicates, a sensible response to market conditions that is now hardening the market, and created a stable foundation for a sustainable future. We have moved away from just writing for capacity, and London has the necessary expertise to write these larger risks. The consequences for the market of the grounding of the Ever Given in the Suez Canal last year will no doubt test this capability.

The ship, grounded for six days, blocked the passage of nearly 400 ships and prevented an estimated US$10bn in trade. As Fitch Ratings reported, the incident will reduce global reinsurers’ earnings, at a time when they have already taken hits from natural disasters and the pandemic. How do London’s underwriters deal with the challenges? In the same way that they always have, by recognising that they have been here before, have the experience and that this is all part of the cyclic nature of the marine insurance industry. London has survived and innovated before and will continue to do so.

FRAGILE FUTURE

Why then do some commentators say that London’s future is not assured? Well there are several reasons for making this statement. The market is just coming out of the hard medicine of Decile 10 and the regulators’ intervention. It also has had to move beyond a dwindling pool of domestic sea-going expertise and maintain that expertise by reaching out to the wider world. In our experience, the one past mistake that it should not repeat is to lose sight of one of its core strengths: the high quality of its people. It should avoid the periodic culls of senior people which takes knowledge out of the market and which can take five to ten years to catch back up after that. Ince is a firm whose heritage was built on the foundation of marine insurance. From the work of founding partner Francis Ince, to the greatly missed Donald O’May and his development of innovative insurance solutions and the creation of new insurance law when handing the Spanish Civil War prize cases, Ince always been a firm at the forefront of market challenges, working with the market to guide their passage through troubled water. Today, Ince continues with that strong tradition, future-proofing new technology and digital solutions while at the same time assisting both underwriters and brokers to address the issues identified above. As we said of the market as a whole, “We’ve been here before and understand the industry’s various cycles”. Similarly for us too our human capital is our biggest strength. We continue to attract the very best of legal talent as identified by the recent appointment of Jennette Newman as Global Head of Insurance. We remain committed to supporting the market in whatever way we can. Remember, London’s unique selling point is consistent quality. Let’s keep it that way.

“London has always been mindful of innovation. It has adapted and evolved, identifying the new directions the industries that it insures are taking and responding quickly to develop appropriate products.’’