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MARINE | Climate risk In association with Falvey Cargo Underwriting
From Deep Freeze to Hurricanes Mike McKenna, CUO of Falvey Insurance Group, looks at how the risks associated with climate change are ever increasing Risks associated with climate change appear to be on the rise as weather events become more frequent, increasingly severe, and less predictable. During the opening session at the Marine Insurance Americas event, panelists Michael Venturella, Practice Leader – Marine Group, Envista Forensics, Sean Dalton, Executive Vice President, Head of Marine Underwriting, Munich Re, and Peter Sousounis, Vice President/Director of Climate Change, Verisk EES, alongside moderator Mike McKenna, Chief Underwriting Officer, Falvey Insurance Group, examined the weather impact on the marine insurance market, and how climate change might affect the landscape going forward. Additionally, how technology and modeling may play a greater future role. Pat O’Neill of Aon was unable to attend the panel, but contributed his written comments to the discussion.
PREDICTABILITY VS. UNPREDICTABILITY
Climate change and weather-related events have recently become more frequent, severe, and dangerously unpredictable. The impact of this unpredictability has been experienced by all sides of the insurance market. Michael Venturella pointed out 8 of the 10 most active years for cyclone intensity have been in the last 25 years in the North Atlantic, plus record high river levels with higher currents which lead to additional exposures and loss incidents. The marine industry is also seeing the growing capacity of TEUs per containership which contribute to aggregation risk. Increased intensity and frequency of storms, increased river levels and increased size of vessels all can contribute to outsized risk. Michael also spoke to the singular and coupled container loss events. The Marine Insurer | June 2022
Sean Dalton spoke to the inarguable reality of cat losses, and what the marine industry can learn from the property market. Sean also acknowledged the significance of the losses on the market results, and the effect of the unpredictability of these events on pricing and coverage options. Peter Sousounis, from a modeling perspective, explained that an integral part of his model updates now includes evaluating to what extent climate change has played a role on perils they model and then accounting appropriately for that change in building the models. After the model is built, released, and being used by clients, immediately following an extreme event often times provide a near real-time estimate of losses and importantly demonstrate that the event was captured appropriately in terms of exceedance probability. Pat O’Neill contributed two things the marine insurance market should consider: things we do not know and things we do know, with a focus on what we know. From a broker’s perspective Pat says the risk associated with climate change is obviously a concern for first-party businesses who experience interruptions and marine insurers need to better educate the end policyholder. Pat recommends a solution made up of three parts – risk transfer solutions, risk management solutions, and sharing industry best practices.
INFLATED CLAIMS
Mike quizzed the panel on the following; the increase in severity and frequency in climate change and weather-related events has direct correlation to weather-related claims. What further exacerbate these loss outcomes is inflation. As a result of the supply chain disruptions throughout the pandemic, the cost to repair or rebuild structures following a loss have vastly increased, and labor shortages and issues have also increased costs. Concurrently, the prices of common building materials have doubled in some cases
