Cargo insurance in a hardening market

Customers are experiencing higher insurance premiums or difficulties securing cover as the market tightens across the world. Eivind Killengreen, a lawyer at Wilhelmsen Insurance Services, explains the factors underlying the change – and how to ensure products are properly protected on their journey.

Customers are experiencing higher insurance premiums or difficulties securing cover as the market tightens across the world.

Insuring the various phases of a product’s journey from manufacturing plant to final customer provides peace of mind that, should the unexpected occur and goods be damaged or destroyed, any losses can be swiftly recouped.

But if you’ve struggled to get insurance recently or have found yourself being quoted premiums for cover that seem higher than normal, you’re not alone.

That’s because of what we call a ‘hardening’ of the insurance market that’s affecting everyone – including shippers in the ocean transportation industry. This market hardening is marked by a reduced appetite for risk.

Reduced appetite for risk and higher premiums

With less appetite for risk among insurers, the complexities of shipping newer, complex, outsized products such as wind turbine components or the latest type of generator mean there are elements of the supply chain where the risk involved has yet to be fully quantified and absorbed by the insurance market. Whether the last mile in the supply chain for a technically sophisticated piece of equipment is a bumpy road in India or a German autobahn has real implications. The more likely damage to an expensive piece of machinery is, the more difficult it is to secure cheap insurance premiums.

We expect the recent hardening of the insurance market to continue, which means higher premiums for customers and perhaps difficulties securing cover, too. In fact, we have seen increases in premiums of more than 20% on several lines of business recently. Some underwriters are only taking on half of the value of the product, so the customer has to secure a second layer of insurance on top for their goods.

These factors are making this a challenging time for the insurance industry and for customers. When the market eventually settles down, we will see a gradual decrease in premiums, but that may not happen for some time to come.

Ensure end-to-end coverage

When it comes to maritime transport, cargo owners are already protected by a set of regulations, the Hague Visby Rules, that oblige shipowners to compensate cargo owners in the event of damage. But these rules also limit liability. They restrict carriers’ liability to two Special Drawing Rights (SDRs) per kilogram of damaged goods – the equivalent of approximately €5 a kilo. In practice, this means for a 1,500kg car worth €20,000, the limitation is such that if the car is written off during the journey, the customer may only recover €3,500 to €4,000. If the cause of the write-off is a fire, error in navigation, or heavy weather damage, the carrier is not liable at all.

That’s where extra insurance cover comes in – without it, you run the risk of missing out, perhaps to the tune of about 75% of the value of the product if the product you are shipping is damaged. At Wilhelmsen Insurance Services, we always recommend taking out all-risk insurance rather than total loss insurance, as the latter will only compensate you if a vehicle is completely written off. We also recommend insuring the entire end-to-end journey of the product including inland journeys from plant to load port and from discharge port to final destination.

You can rest assured, however, that your products are covered for the phase of the journey they undertake with WW Ocean. Any ocean carrier has to take out two types of insurance: hull and machinery insurance for our vessels and protection and indemnity insurance, which insures the legal liability of the carrier.

In the event of damage to cargo, the Hague Visby Rules ensure shipowners fulfil their responsibilities for customers. If a product is damaged during ocean transit, the majority of claims can be expedited quickly and efficiently by WW Ocean’s dedicated claims team in El Salvador.

Fast facts: Insurance is a cyclical market

The insurance market works in cycles. When the market is soft, premiums are stable or decrease, there’s plenty of cover available and underwriting conditions are relaxed. It’s a buyer’s market, and customers can shop around for the best deal.

But as prices soften, so does overall insurance market profitability. Eventually, insurers are forced to tighten up, stop going after new business, or even shut down. At Lloyd’s of London, the leading British insurance market, hardening manifests itself in insurance syndicates scaling back activities in various markets – or withdrawing from them altogether.

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