Insurance Adviser July 2022 issue

Changing course

Logistics globally continues to be subject to major turmoil, significantly impacting cargo – and making changes to delivery routes and supply chains without the correct consultation can pile on the pressure.

BY MARTIN WANLESS

It’ll come as no surprise to anyone reading this – regardless of whether you’re directly involved in the sector or not – that marine insurance has been enduring some, let’s just say, stormy times.

COVID-19 induced supply chain issues have made global headlines – and still continue to cause significant delays and problems – while the war in Ukraine and the tensions between China and Australia have certainly highlighted that this area of insurance requires careful handling.

“Tensions from both events are exacerbating the significant supply issues already faced by shippers of cargo by sea over the last couple of years,” says James Butchart, Head of Marine at Zurich.

“Increased freight costs, long transit delays and port congestion have substantially increased the cost of business and commercial risk for the global movement of marine cargo.” While Australia’s trade with Ukraine is limited, the current situation has seen insurers move quickly to introduce broad restrictions.

“​We’re seeing a lot more focus on restrictions and restrictive language for cargo policies in that part of the world,” says Daniel Morrison, Acting Head of Marine at NTI. “In the past, when a conflict arose, insurers and reinsurers would withdraw war risks cover or strike risks cover only. But now with what’s going on in Ukraine, we’re seeing much broader exclusionary language being applied to policies restricting all cover for cargo, from or to that part of the world. Lack of insurance cover could mean customers need to find alternate import/export markets, or trade routes or ship goods without insurance protection.”

This just illustrates the importance of reviewing a client’s supply chain operation to ensure that coverage is still valid, should something in the supply chain have changed.

For example, if goods are being offloaded at a port and moved by road to avoid delays, or if they are being transported by a different method, it’s vitally important to ensure that the insurance policy is still valid. Policies will often include a number of exclusions, including transport through certain countries, which underlines the importance of reviewing your clients’ logistical operations today, in line with their cover.

KEEPING TRACK WITH TECHNOLOGY

Technology is increasingly playing a part in keeping track of not only the whereabouts of cargo, but also its environment and condition. And this information can be of significant benefit in the event of a claim.

Daniel Morrison, Acting Head of Marine at NTI, says, “Shipping and logistics is really coming into the 21st century, and there’s a lot of digitisation in the industry and investment in technology.

“We’re talking more and more with customers about container monitoring and tracking technology – some of them are geolocators, others monitor all sorts of things, including temperature and impact.

“Having this information, and understanding the supply chain and the conditions the goods are experiencing through the voyage, is hugely beneficial from an insurance perspective, and can be of great assistance in the event of a claim. It can also help us provide a more accurate insurance policy too, as we have a greater understanding of the supply chain and the reality of the journey.”

TIPS FOR A SMOOTH CLAIMS PROCESS

James Butchart, Head of Marine at Zurich, says that given the supply chain capacity issues being experienced, a claims trend being presented is that of goods getting lost – this includes the loss of entire pallets, and not just small packaged boxes.

He advises the following: “Our simple and practical suggestion is that clients take photos of the packaged parcels or pallets prior to shipment to assist airlines and carriers in locating their goods. This is a key piece of information that transport operators use to try and locate lost items, and tracking numbers unfortunately become less relevant in those scenarios.”

DELAYS, DELAYS, DELAYS

Of course, one of the major problems over recent years has been the delay of goods as ports struggle with a backlog of containers, and subsequently the industry has a shortage of containers to contend with, too.

“We have seen a knock-on effect around the world throughout the pandemic. In fact, in June 2021, it was estimated that there was a record total of 300 freighters waiting to enter overcrowded ports,” says Steve Amey, Head of Distribution at AM&T, a company of Allianz.

“This in turn means that container ships are spending more time waiting for port berths, and it has been reported that these wait times have doubled since 2019.”

Amey says another important area to consider when talking about delayed shipping and its knock-on effect is refrigerated cargo, and temperature and time-sensitive cargo.

“With shipping times being critical in some instances for certain products, and with these documented changes in berth wait times increasing, there now needs to be more consideration around the possibility of a reduced shelf-life for certain goods and/or spoilage exposures due to the extended periods for journeys.

“Further thought should be given around alternative modes of transport in these cases, with shipping by air to assist in reducing travel times being considered as an appropriate alternative in certain situations.”

Which, once again, brings the conversation back around to ensuring that clients have the right cover for their journeys today – rather than six or 12 months ago.

And this will also include valuations – easy to overlook, perhaps, but with the rising costs of just about everything today, it’s one area you simply can’t afford to not focus on.

“One of the larger impacts to marine cargo insurance is likely to be via the dramatically increased freight costs,” says Butchart. “As these are often included in the basis of valuation for lost or damaged goods, the resulting claims inflation is likely to lead to higher loss costs for insurers and increased premium requirements to support these inflated costs.”

It’s certainly a turbulent time out there on the ocean waves – or on roads, and in the skies – but by having proactive conversations with clients about changes to their supply chain and the value of their goods, those challenges can certainly be smoothed out – but probably not eradicated altogether.

A LOCAL FOCUS

Local cover for financial loss that isn’t caused by an insured peril could be an interesting avenue for insurers to explore, believes Steve Amey, Head of Distribution at AM&T. And, while it would be a major challenge, it could be one worth tackling.

“It would be difficult to price, really test utmost good faith and cause some headaches in the claims department, but I think it is wanted locally for road transport operators who get a lot of pressure from the big supermarkets – particularly when they haven’t actually done anything wrong,” he says.

“Warehousing and the care, custody and control of third party goods are also adjuncts to this, particularly in a La Niña environment. In a similar territory are losses that can’t be substantiated, or aren’t covered by standard clauses or even a move to international Plain English wordings for overseas cargo.”