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Mitigating Shipping Risk Benefits Everybody

(Photo by Mahmoud Khaled/Getty Images)

By Captain Andrew Kinsey, Senior Marine Risk Consultant at Allianz Global & Corporate Specialty

When an Amazon package arrives at our door, we scarcely give any thought to what it took to get here. It’s likely that your school supplies or article of clothing has traveled a great distance across the ocean by vessel.

International shipping accounts for 90 percent of world trade, and the old saying “there’s many a slip ‘twixt the cup and the lip” is appropriate. Much can go wrong between the point of origin and destination — and lately Marine insurers are keeping a close eye on developments in our climate, the economy, and public health that could influence the odds of a successful delivery.

The annual Safety and Shipping Review produced by Allianz details trends and developments in shipping losses and safety and is a valuable resource for Marine insurers. Here are some of the major highlights.

Losses at sea

First, let’s look at losses of vessels at sea, where the trend is stable. There were 49 total losses of 100 gross tons or more in 2020, compared to 48 a year earlier. Credit better safety measures, regulation, improved ship design and technology, and advances in risk management. Behind the numbers, however, are a host of volatile factors, such as extreme weather, machinery breakdown, fires, and even piracy. Ship operators can improve fire detection and firefighting on large vessels and ensure that machinery has been inspected and is in good working order. Also, weather impacts can be mitigated by improving forecasting and vessel routing.

Another big concern of insurers is shipping containers lost at sea. Last year, more than 1,000 fell overboard in the first few months due to rough weather and heavier loads. A surge in demand for consumer goods is another factor; in response, containers are being stacked aboard at unprecedented heights, leading to concerns that they aren’t being properly secured. In all, more than 3,000 containers were lost at sea in 2020, compared with a longer-term average of 1,382 per year.

Pandemic impact

Next is the global pandemic, which has had little effect on Marine insurance claims to date. It’s quite possible that claims could increase as more vessels are put back in service and we see the effects of delayed maintenance. Another big concern is crews confined to their ships in ports due to public health mandates, which delays crew changes and medical treatment. Crew fatigue leads to human error – a major cause of many losses.

These are factors that warrant immediate action by all stakeholders in the supply chain, including cargo owners. One solution is to designate merchant seaman as vital workers so they can receive vaccines and move about freely.

Bigger ships, bigger problems

Size does matter in global shipping. Remember the ship stuck in the Suez Canal for over three months? The Ever Given incident was a vivid illustration how hard it is to free large vessels. When it takes more equipment and more manpower, someone must pay. Not to mention the societal and economic cost of supply-chain disruption. There’s a real possibility we will see bare shelves and lots of “items unavailable” this holiday shopping season.

So if bigger vessels cause bigger problems, why are there so many of them? It’s all about economies of scale and fuel efficiency, and shipping companies really can’t be blamed for trying to comply with increased environmental regulations and attempting to reduce their operating costs. However, large vessels pose problems for the supply chain, often overwhelming ports when so many containers are dropped off at once.

Vessel size also has a direct correlation to the potential size of loss, and this is an issue that keeps Marine insurers up at night. Too often, cargo is misdeclared or improperly declared, which can result in fires. For example, if self-igniting charcoal, chemicals or batteries are not properly stowed, the risk of ignition escalates dramatically. And if the item is improperly declared in the first place the crew doesn’t know what it’s dealing with in an emergency.

Compounding the problem is inadequate fire detection and firefighting capabilities on large vessels; for this reason, the International Union of Marine Insurers (IUMI) is rallying stakeholders to establish more stringent standards.

At first glance, it appears the risks associated with global shipping are a moving target. But more careful scrutiny reveals patterns and trends that, when carefully analyzed, can lead to improved loss mitigation, thus reducing the “slips” that can occur in transit.

Captain Andrew Kinsey is Senior Marine Risk Consultant at Allianz Global & Corporate Specialty and chairs the technical services committee of the American Institute of Marine Underwriters, which is a Triple-I Associate Member.

2021 P/C Underwriting Profitability May Be Hampered By CAT Losses, Social Inflation,
Triple-I/Milliman Predict

By Loretta Worters, Vice President, Media Relations, Triple-I

Property/casualty insurers are projected to have less-than-stellar underwriting profits in 2021, according to a forecast released today by the Insurance Information Institute (Triple-I) and risk-management firm Milliman.

Sean Kevelighan, Triple-I

The forecast – presented in a members-only webinar, “Triple-I /Milliman Underwriting Projections: A Forward View,” moderated by Triple-I CEO Sean Kevelighan – projects a 2021 combined ratio of 99.6. Combined ratio is the percentage of each premium dollar an insurer spends on claims and expenses.

The industry ended 2020 profitably, with a combined ratio of 98.7.  Combined ratios for 2022 and 2023 are projected to be 98.9 and 99.3, respectively. 

Losses from atypical weather events in the first quarter – particularly, the Texas freeze – got the year off to a rough start, explained Dave Moore of Moore Actuarial Consulting.

Natural catastrophe losses at a decade high

Dave Moore, Moore Actuarial

“Insured losses from natural disasters worldwide hit a 10-year high of $42 billion in the first half of 2021, with the biggest loss related to extreme cold in the United States in February,” Moore said, citing Aon statistics. “Overall, catastrophe loss estimates are in the $15 billion to $20 billion range for the Texas freeze event, and the rest of the year doesn’t look promising for CAT losses overall. Extreme weather this spring brought multi-billion-dollar thunderstorm and hail losses, and the extreme drought in the West has helped fuel another severe wildfire season.”

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – an independent risk-management, benefits, and technology firm – said the current hard insurance market will persist, particularly in lines that have been hit hard by social inflation. A hard market is defined as a period of increasing premiums and decreasing insurance capacity.

Jason B. Kurtz, Milliman

Premium growth for the industry is projected to hit 7 percent in 2021. Growth is expected to slow in 2022 and 2023 but will remain above 5 percent both years.

“Lines like commercial auto, commercial multiperil, and general liability will still struggle to get their combined ratios under 100,” he said. “With ransomware attacks on the rise and tightening capacity, cyber bears watching, and homeowners insurers will have another tough year in 2021, but we predict improvement for 2022 and 2023.”

Michel Léonard, PhD, CBE, vice president, senior economist, and head of Triple-I’s Economics and Analytics Department, took a preliminary look at property/casualty industry results for 2021 and trends for the rest of the year. He noted that insurance outperformed the overall economy in 2019 and 2020 but was not likely to do as well in 2021.

Michel Léonard, Triple-I

“Right now, economists seem to be shifting growth from 2022 to 2021. That’s not good for insurance because of our industry’s business cycles. Shifting this growth means we are not expected to outperform the wider economy in 2021– but we are in 2022.  What’s best for our industry is growth increasing, not decreasing, from 2021 to 2022.”

Roy Wright, IBHS

Regarding wildfire season, Roy Wright, president and CEO of the Insurance Institute for Business & Home Safety (IBHS), noted that as the climate changes and the population expands into the wildland urban interface, wildfires are intersecting suburban life. Wildfire losses continue to mount year after year and make clear the need for communities to adapt, he said.

Runaway litigation

Commercial auto insurance has been hit harder by litigation trends than any other line of business, according to David Corum, vice president at the Insurance Research Council (IRC).

David Corum, IRC

“We estimate broadly that social inflation increased commercial auto liability claims by more than $8 billion between 2010 and 2019,” Corum said. “We are also seeing evidence that social inflation is becoming a factor in personal auto claims.” He noted that a soon-to-be-released paper by the Triple-I, Moore Actuarial Consulting, and the Casualty Actuarial Society will address this topic more broadly.

Pat Sullivan, senior editor and conference co-chair at Risk Information Inc., explained that commercial auto insurers spent the last few years trying to price themselves into profitability with little success.

Pat Sullivan, Risk Information

Sullivan noted that COVID-19 wasn’t great for growth:  “Commercial auto direct written premiums rose about one percent in 2020, compared to 12 percent in 2019, 13 percent in 2018, and 9 percent in 2017. Commercial auto’s underlying claims issues haven’t gone away.”

COVID-19 and business interruption

The past 15 months have been extraordinary from a legal perspective on COVID-19 business interruption claims, according to Michael Menapace, partner, Wiggin and Dana LLP and Triple-I Non-Resident Scholar.

Michael Menapace, Wiggin and Dana

“To date, 80 percent of the judicial decisions have dismissed policyholders’ claims without regard to whether the presence of SARS-CoV-2 or the government shutdown orders were the cause of their losses, Menapace said. That dismissal rate goes up to 95 percent when the policies also include a virus exclusion.”

“There have been some outlier business interruption decisions in favor of policyholders and some less favorable jurisdictions for insurers that we are watching,” he said.  “Insurers must also remain vigilant by pushing back against proposals by state legislatures or executive agencies that would change the terms of insurance contracts to provide coverage where none was intended and for which no premium was paid.”

Looking forward, Menapace said the trend of dismissals in the trial courts should continue.

“There has been only one appellate court decision concerning business interruption coverage,” he said. “But, over the next 12-18 months, the focus will start shifting to state and federal appellate courts, which will have the final say on many of these issues.”

Atlantic hurricane season

Dr Phil Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University and Triple-I Non-Resident Scholar, gave his updated projections for the 2021 hurricane season.

Dr. Phil Klotzbach, Colorado State University

Klotzbach noted that 2021 is expected to have an above-normal Atlantic hurricane season, with 18 named storms, eight of which will become hurricanes. Of those eight, four will likely become major hurricanes (category 3, 4, or 5 with winds of a 111 mph or greater).  That compares with the long-term average of about 14 named storms, seven hurricanes and three major hurricanes.

Declarations of Pride: Ricardo Lara, California Insurance Commissioner

By Scott Holeman, Media Relations Director, Triple-I

California Insurance Commissioner Ricardo Lara made state history by becoming the first openly gay official elected to statewide office. During our Declarations of Pride series, he shared his unique journey with Triple-I, by discussing his entry into politics, views on how the insurance industry is supporting the LGBTQ+ community and what Pride Month means to him.

Lara says important steps are being made by the insurance industry to advance LGBTQ+ rights.

Lara says #Pridemonth is an important time to honor LGBTQ+ civil rights pioneers, but also for understanding obligations that remain in the fight for equality.

Triple-I Ready To Mark June 19 As A Federal Holiday

By Sean Kevelighan, CEO, Insurance Information Institute

Congress passed legislation this week to establish June 19 as Juneteenth National Independence Day, and the Insurance Information Institute (Triple-I) applauds the bipartisan action which made it happen.  President Joseph Biden is expected to sign the measure into law.

The date is a significant one in U.S. history because June 19, 1865, symbolically marked the end of slavery in the U.S.

The Triple-I represents an industry built on a foundation of trust and fairness, and there can be no tolerance for racial discrimination in any form.

Insurers take pride in keeping their promises and being there for their customers in moments of need. 

Today and every day, insurers want to foster unity and support the communities they serve while also contributing to real, positive change.  

The decision to make Junteenth a federal holiday is in keeping with that tradition.

Declarations of Pride: David Glawe, NICB President and CEO

By Scott Holeman, Media Relations Director, Triple-I

David Glawe, President and CEO of the National Insurance Crime Bureau, has been fighting crime for nearly 30 years. His extensive background in national security, law enforcement and management provided distinguished credentials to lead NICB’s efforts in combatting insurance fraud and theft. Before taking on this position, Glawe served as Under Secretary of Intelligence for Analysis at the Department of Homeland Security, and was the highest ranking, openly gay official in the U.S. Government.

During our Declarations of Pride series, Glawe shares his personal life journey, which includes progress in LGBTQ+ issues and examples of why there’s ongoing need for meaningful dialogue about equality with friends, family and allies.

Glawe encourages asking questions for meaningful dialogue with LGBTQ+ friends and family.

Glawe says speaking OUT is important for LGBTQ+ people who may be struggling for acceptance.

Declarations of Pride: Michael McRaith, Blackstone Insurance Solutions

By Scott Holeman, Media Relations Director, Triple-I

Michael McRaith is proud of the way insurance companies and Corporate America have helped advance LGBTQ+ rights. In this installment of Declarations of Pride, the Managing Director of Blackstone Insurance Solutions discusses the evolution of LGBTQ+ rights and the importance of diversity in the workplace.

McRaith’s distinguished insurance career includes being the first director of the Federal Insurance Office in the U.S. Treasury, Director of the Illinois Insurance Department, and an officer with the National Association of Insurance Commissioners. Prior to public service, he was a partner in the Chicago office of McGuireWoods LLP. In addition to his role at Blackstone, he also currently serves on the Board of Directors for Gryphon Mutual Insurance Company.

Among honors for public service, McRaith has received the Distinguished LGBTQ Alumnus Award from Indiana University, the Exceptional Service Award from the U.S. Department of the Treasury, and recognition as a Distinguished Fellow by the International Association of Insurance Supervisors.

Declarations of Pride: Ken Ross, John Hancock

By Scott Holeman, Media Relations Director, Triple-I

Triple-I’s Declarations of Pride series celebrates and features prominent LGBTQ+ insurance professionals. Meet Ken Ross, Vice President & Counsel at John Hancock Insurance, who says insurance companies are responding to the unique needs of the LGBTQ+ community.

Ken also says Diversity, Equity and Inclusion have never been more important in the workplace. Ken encourages the LGBTQ+ community to consider the insurance industry for rewarding career opportunities.

Ken has 30+ years of legislative and regulatory experience, specializing in state regulatory and legislative relations. Prior to joining John Hancock, he served as President and COO of the Michigan Credit Union League (MCUL), Assistant General Counsel for Citizens Republic Bancorp Holding Company (CRBHC), and Commissioner of the Michigan Office of Financial & Insurance Regulation.

He has degrees from the University of Michigan-Dearborn and Western Michigan University’s Thomas M. Cooley Law School.

Protecting your income with disability insurance

May is Disability Insurance Awareness Month, an occasion to raise awareness about this underutilized financial product, which is designed to safeguard your income in case you get sick or injured and are unable to work.

Disability insurance, also known as disability income insurance, complements health insurance and is meant to replace lost income and help protect you and your family from an otherwise financially catastrophic illness or injury.

Depending on where you have been employed, whether you’ve served in the military, and the reason you’re unable to work, there are a number of potential sources of disability income.

Employer-paid disability insurance is required in most states, and so is the most common. Most employers provide some short-term sick leave. Many larger employers provide short-term disability (STD) and long-term disability (LTD) coverage as well, typically with benefits of up to 60 percent of salary lasting from five years to age 65. In some cases, LTD insurance is extended for life. Disability benefits from employer-paid policies are subject to income tax.

When you buy a private disability income policy, you can expect to replace from 50 percent to 70 percent of income. When you pay the premiums yourself, disability benefits are not taxed.

Social Security disability benefits may be paid to workers whose disability is expected to last at least 12 months and is so severe that no gainful employment can be performed.

The Department of Veterans Affairs will provide some replacement income for veterans, depending on the nature and circumstances of the disability.

Auto insurance may cover some income loss under the personal injury protection (PIP) portion of the policy if the disability results from an auto accident. As always, this depends on the policy, the insurer, and the circumstances.

Disability insurance provides vital protection for most workers against events that are hard to contemplate. Securing this protection in the event of a serious illness or injury is just as important as insuring your home or car.

Click here to learn more about the types of disability coverage available.

Ana becomes first named storm of 2021 hurricane season

Subtropical Storm Ana formed early on May 22, northeast of Bermuda, becoming the first named storm of the 2021 Atlantic hurricane season. The National Hurricane Center upgraded Ana to a tropical storm on the morning of May 23 but it was quickly downgraded to a tropical depression by afternoon.

Ana weakened into a post-tropical cyclone and was expected to dissipate on May 24 as it tracked northeastward into colder Atlantic waters.

This marks the seventh consecutive year in which at least one named storm has formed prior to the start of Atlantic hurricane season, which officially begins June 1. Over the past six years, there have been eight preseason named storms, four of which made landfall in the U.S. In 2020, two tropical storms—Arthur and Bertha—formed in May.

Triple-I/Milliman: Property/Casualty Underwriting Profits to Continue in 2021

By Loretta Worters, Vice President, Media Relations, Triple-I

Property/casualty insurers are projected to continue to post slight underwriting profits in 2021, according to a forecast released today by the Insurance Information Institute (Triple-I) and Milliman.

The forecast projects a 2021 combined ratio of 99, virtually the same as last year. The forecast was revealed during an exclusive, members-only virtual webinar, “Triple-I /Milliman Underwriting Projections: A Look Ahead,” moderated by Triple-I CEO Sean Kevelighan. Early projections for 2022 and 2023 look similar. The combined ratio is the percentage of each premium dollar an insurer spends on claims and expenses.

Premiums are expected to surge 7.1 percent this year, according to the forecast, up from 2.5 percent in 2020, as the combination of an economic recovery and a hard market increase both exposures and rates. A hard market, also known as a seller’s market, occurs when insurance is expensive and in short supply. Premium growth is projected to slow in 2022 and 2023 but remain above 5 percent in both years.

2021 got off to a bumpy start for natural catastrophes. “The industry took a big hit with the Texas freeze in Q1, with overall cat loss estimates in the $15 billion range,” said James Lynch, FCAS, MAAA, senior vice president and chief actuary at the Triple-I. “Most of that was the Texas storm. Q1 losses that big are atypical.” He added that the drought in the West is a continued concern as wildfire season approaches.

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman, an independent risk management, benefits, and technology firm, said that underwriting results would gradually improve starting next year. And as more people are vaccinated and back to work, the economy should keep humming. “Last year’s recession was unusual in that there really wasn’t anything wrong with the economy until COVID hit. So now, with COVID (hopefully) on the run, the American Rescue Plan well underway, and the possibility of another stimulus at some point later this year, growth should be strong.”

 “We anticipate a jump in premium growth this year, thanks to the economic recovery and a hard market,” said Kurtz.

Dr Phil Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University and a Triple-I non-resident scholar, has already given his initial forecast for the 2021 Atlantic hurricane season. He noted at the time that 2021 is expected to have above-normal activity, with 17 named storms, eight of which will become hurricanes – and of those eight, four are predicted to become major hurricanes (Category 3, 4, or 5, with winds of at least 111 miles per hour). That compares with the long-term average of 14 named storms, seven hurricanes and three major hurricanes.

“There are a couple of reasons why we’re forecasting above-normal Atlantic hurricane activity,” said Dr. Klotzbach. “We do not anticipate El Niño conditions this summer and fall,” he said, explaining that El Niño occurs when there is warmer than normal waters in the central and eastern tropical Pacific.

“When those El Niño conditions occur, it tends to increase upper-level winds, so winds at 20,000-30,000 feet in the atmosphere tear apart hurricanes in the Caribbean and into the tropical Atlantic. We’ll have a lot more to say when we put out our 2021 hurricane projections on June 3,” Klotzbach stated.

Looking at the Directors & Officers (D&O) market, Dave Moore, FCAS, MAAA, of Moore Actuarial Consulting, LLC, said that security class actions continue to exert upward pressure on both the number and size of claims in the public company D&O market and are expected to continue. “Prior to 2017, there were less than 200 security class actions filed per year, on average. In the last four years, that annual average has doubled to around 400 security class actions. Last year frequency fell, which might have been due to the pandemic. Even so, 2020 activity is still well above average.”

Donna Glenn, FCAS, MAAA, chief actuary, National Council on Compensation Insurance (NCCI),provided a high-level overview of the latest workers compensation insurance industry results and critical data points that demonstrate the health and resiliency of the system.

“The pandemic has demonstrated that the U.S. workers compensation system is resilient and strong,” she said. “Despite experiencing a 10 percent drop in net written premium amidst the pandemic recession, NCCI reports a calendar year combined ratio of 87, indicating a sign of profitability for carriers. Workers compensation reserves remain robust, with the redundancy growing to $14 billion in 2020.”

Dr. Sam Madden, co-founder and chief scientist from Cambridge Mobile Telematics, a telematics and analytics provider for insurers, rideshares, and fleets, discussed exposure and risk trends in mobility from the onset of the COVID-19 pandemic. He noted that in early March 2020 there was a precipitous drop in driving – nearly 60 percent – as the pandemic hit and the country shut down.

“During the summer of 2020, people began driving more, but overall, miles [driven] still remained depressed. As restrictions loosened and more people became vaccinated, driving returned to near pre-pandemic levels,” he said.

However, while the number of miles driven dropped during the pandemic, speeding spiked 45 percent. “Reduced traffic meant that many drivers could speed, and they did!” Dr. Madden continued. “Speeding remained elevated throughout the pandemic, and remains somewhat elevated today, with levels about 10 percent higher on average than pre-pandemic.”

Dr. Michel Léonard, CBE, vice president and senior economist, Triple-I, noted that the most important issue right now in terms of economics and insurance is the wide range of Gross Domestic Product (GDP) and inflation forecasts.

“We’ve never seen GDP forecasts from the Fed and financial institutions ranging from 4 percent to as much as 10 percent. What we can be sure is that the economy has been recovering in Q1 and so far in Q2, but such discrepancies in major economic indicators should be cause for caution, especially as COVID-19 is still an issue here in the U.S. and abroad,” he said.  

Amid such wider economic uncertainty, Dr. Léonard said, what may be more helpful for insurance practitioners “is to focus on the insurance sector’s own growth, which outperformed the wider economy by nearly 6 percent in 2020 and is well positioned to do so again in 2021. Another insight is the growing consensus around the upward direction of interest rates which should help lift up net income from last year’s minus 3.8 percent.”