The financial fallout from the ­coronavirus pandemic is exerting pressure on marine insurers to increase rates.

As general insurers struggle to cope with mounting pandemic-­related business interruption and medical, travel and other claims, they are looking to a hardening marine market to claw back profits.

A dramatic fall in seaborne trade is also forcing marine insurers to seek higher rates to make up for a drop in overall revenue.

In a report on the impact of Covid-19 on the general insurance industry, broker Willis Towers Watson (WTW) estimated costs of between $40bn and $80bn, depending on the severity and length of the pandemic.

While claims directly related to Covid-19 are likely to be limited in the marine industry, shipping will still be hit, according to WTW.

A reduction in shipping trade will reduce premium volumes, particularly in the cargo business, which accounts for half of the marine insurance industry’s revenue.

AP Moller-Maersk has predicted a 25% drop in containerised shipping in the second quarter of this year.

Ships going into lay-up, which has been widespread in the cruise industry, will also affect premium volumes in the hull and machinery market.

In its moderate scenario for the development of the pandemic, WTW estimated that the marine markets in the US could see premiums drop by 35% this year, amounting to $620m, and in the UK they could fall by 29%, or $440m.

The upside is that with a reduction in trade activity, there should also be a fall in claims. WTW estimated that in the same scenario, marine claims in the US will fall by 31%, equal to around $530m, and in the UK they would be down by 47%, or $350m.

Nascent turnaround

Thya Kathiravel, chief underwriting officer at North P&I, said the launch of its hull and machinery company is 'in line with expectations'. Photo: North P&I

However, in a recent in-house opinion piece, Hiscox Marine cargo underwriter Richard Golder said he believes that recent capacity cutbacks in the sector mean falling revenue will not, this time round, equate to a cut in insurance rates.

He wrote that the situation is likely to “stiffen the resolve” of underwriters to improve the marine market. “Whereas in the past, a slump in customers’ turnover would have prompted a reduction in premiums owing to overcapacity and excessive competition between insurers, the global pandemic is now likely to give added impetus to the market’s nascent turnaround,” Golder said.

Anecdotal evidence from brokers is that since the outbreak of the pandemic, marine underwriters’ determination to improve rates has been as strong as ever. They have been keen to catch the upward momentum in marine rates and push them higher.

A strong hull and machinery renewal season this summer has seen a continuation of the rate rises that began last year.

Brokers are reluctant to put an exact figure on the strength of the rate rise, but one broker said: “Put it like this, the marine market isn’t a cheap market any more.”

The hardening rates appear to have stopped the exodus of capacity from the market.

Over the past two years, the market has been characterised by cover providers withdrawing or reducing exposure to the marine markets.

However, that trend appeared to have been reversed when North P&I Club broke into the market in July, launching its new hull and machinery insurance provider, North Hull.

North P&I chief underwriting officer Thya Kathiravel described the launch as “in line with expectations”.

He said about half the business it has written so far on the hull side is from shipowners that do not have a protection and indemnity entry with North P&I.

The hull and machinery market is getting better, Kathiravel said, but it still needs further improvement. He stressed that North P&I does not want to negatively affect rates for marine insurers. “Market conditions are slowly improving for insurers in this space. However, this follows a prolonged period of rate erosion,” he said.

“We believe that the market must be allowed to continue on its corrective course. We’re not looking to undercut or artificially depress a class which has not enjoyed adequate rating for some time.

“Above all, we continue to deploy capacity with great caution, in line with the mandate from our board.”