The Perfect Storm in Shipping: An Insurance and Reinsurance Perspective

The shadow of a “perfect storm” is looming over shipping companies, instilling fear in insurers and reinsurers alike. A perfect storm refers to the convergence of multiple factors creating severe disruptions. Recent examples include blockages in the Panama Canal due to drought, Houthi rebel activities in the Red Sea, the Suez Canal blockage by the Ever Given, and the Baltimore Bridge collapse. These events highlight the vulnerability of global shipping routes to both natural and man-made disruptions.

The primary factors contributing to a perfect storm are global supply chain distributions, port congestions, geopolitical tensions, piracy, and environmental regulations. These work in tandem to delay ships, increase shipping costs, disrupt trade routes and, resultingly, cause significant economic implications. 

As can be easily imagined, there are widespread insurance implications derived from perfect storms. Marine cargo insurance is heavily impacted as issues in shipment often demand coverage to be extended to include returned or forwarded shipments, expediting expenses, and transshipments. Additionally, delay coverage is usually excluded, unless specifically included via extension clauses, ramping up costs. We are also seeing hull insurance policies starting to address demurrage and contract penalties, and liability policies are covering additional risks from third parties posed by current disruptions. 

There has been a recent rise in insurance claims due to shipping disruptions, encompassing delay-related and damage claims. High-profile cases like the Baltimore Bridge collapse and Ever Given Suez Canal blockage underline the severity of the impact. In response, insurers, particularly within Lloyd's and London markets, have demonstrated resilience by effectively handling these claims, though the increased frequency of events may influence premiums and policy terms. 

Reinsurance is crucial for marine insurers. It allows them to write higher line sizes, support enhanced coverages, and ensure they can pay claims. Facultative reinsurance enables insurers to cede volatile risks and protect treaty programmes. The cargo reinsurance market for shipping is experiencing rate softening, mainly due to capacity coming in from Lloyd's syndicates, company markets and MGAs, however, even with this increase in capacity, there are still constraints, and the market is also experiencing other challenges such as increased claim frequency and severity and pricing adjustments. 

Reinsurers have responded effectively to major incidents. A prime example would be Chubb's response to the Baltimore Bridge incident, where they expedited a USD 350,000,000 claim payment. This response, and the plethora of others like it, highlight the importance of effective strategies and the critical role of reinsurance in maintaining stability. Whilst this payment assisted the property damage, the impact of this incident on cargo owners, in terms of delays and increased costs of rerouting, may take time to fully aggregate. 

During my 20+ years in the London cargo market, I've seen how blockages in key shipping lanes can create bleak scenarios, especially when combined with climate change, which increases the cost of shipping and goods. The long-term implications suggest that insurers and reinsurers must adapt to a rapidly changing risk environment. To mitigate risks, brokers and re/insurers should engage in proactive and informed risk assessment and management, enhancing coverage options and adopting innovative solutions. Technological advancements such as AI and collaborative approaches are essential for staying ahead, areas which Acrisure has invested in heavily.  

The perfect storm in shipping presents significant challenges, including increased costs, delays, and disruptions. Insurance and reinsurance play vital roles in mitigating these risks, ensuring stability for the shipping industry. The future will likely see continued volatility in shipping routes due to environmental and geopolitical factors. Strategic risk management and robust insurance and reinsurance frameworks will be critical for industry resilience. 

About Acrisure Re

Acrisure Re is a premier reinsurance broking and advisory firm with a reputation for innovative reinsurance placements for complex and technical books of business. Operating in Bermuda, Florida, Chicago, Italy, London, Minnesota, New York, North Carolina, Toronto and Zurich, Acrisure Re works with major insurance companies and insurance distribution partners to understand and achieve corporate risk management goals through the purchase of reinsurance and insurance portfolio solutions. By fostering a team mentality, both internally and with clients, the company develops a thorough understanding of clients’ situations and markets, and identifies creative, unique opportunities for innovative and ingenious solutions that add value and get positive results.

Acrisure Re has a global team of experienced and talented employees dedicated to providing advisory, portfolio, and reinsurance solutions. Learn more at www.AcrisureRe.com.