Category Archives: Marine

A Toast to Marine Insurance!

By John Novaria, Managing Director, Amplify

When you think of winemaking, you picture grapes on the vine and a hearty glass of red on your table. But you probably don’t think of all the steps involved in the production of wine and the fact that those grapes – and later, the finished product – travel long distances to reach our palates.

That’s where marine insurance comes in: to protect businesses along the supply chain from the unexpected.

The American Institute of Marine Underwriters (AIMU) drew a robust crowd to its recent webinar, “From Vine to Wine and the Fire In Between,” where participants learned of the risks associated with wine production and the coverages that are designed to mitigate losses. The two-hour session is part of AIMU’s extensive and popular educational series, and drew a crowd of underwriters, claims experts and brokers from the ranks of marine insurers and beyond.

“One of the biggest roles we perform is education, and it’s not limited to our members,” says John Miklus, President of AIMU. “Marine touches so many aspects of business that there’s a real thirst for knowledge in the broader insurance community and we try to quench that thirst.”

Pamela Schultz, Jonathan Thames and Erik Kowalewsky of Hinshaw & Culbertson opened by discussing the effects of the 2017 wildfires on the Napa and Sonoma wine growers and wineries, where 10 percent of the harvest was still on the vine when the fires started.

There are nearly 20 steps involved in wine production, including include growing, harvesting, fermenting, storage, barreling, aging, blending, bottling, labeling and distributing. Each presents opportunities for things to go wrong.

Thames explained that Stock Throughput is a form of marine coverage that insures goods in all their physical states along the supply chain with the exception of damage caused by the processes of turning the raw materials into the finished products. He said policies are generally very broadly worded and cover all risks.

Schultz pointed out how marine insurance comes into play during shipment. Stock Throughput policies are designed to cover supply chains and anything that moves inventory against loss due to:

  • Extreme weather and natural disasters can cause supply chain interruptions and even loss of product.
  • Transportation: Obviously, wine has to get from the vineyard to the table and that table may be anywhere in the world.
  • Trade problems/disruption: This affects imports and exports, especially delays due to current COVID-19 crisis.
  • Lack of Control: Products are sometimes shipped long distances, and it’s difficult to know everything about every link of the supply or travel chain.
  • Invaders: Yes, pests have been known to get into wine and cause damage and so can fumigation.
  • CTL: Constructive Total Loss becomes an issue if the wine is stolen. Most policies exclude consumption of wine, but Schultz said that hasn’t stopped some insureds from trying to claim it on that basis.

The 2017 California wildfires brought into focus the issue of smoke taint. The smoke that lingers for weeks after the fires are extinguished can taint the grapes, rendering a wine unpalatable, or worse, undrinkable.

Thames noted that smoke taint claims don’t arise until after fermentation, after the wine has been tasted, and the grower must prove damage with scientific evidence and serve notice of potential loss within 60 days. However, he said there are cost effective processes winemakers can put in place beforehand to mitigate the effect.

The presenters discussed the difference between crop insurance and whole farm revenue protection, both of which offer only limited protection to the grower. Crop insurance is not a 100 percent indemnity product; it only covers the grapes pre-harvest, so there will always be a gap. Limits are based on past yields so it’s difficult to expand limits in the first few years.

As a result of the 2017 fires in Oregon, one winemaker now requires its growers to carry crop insurance and pays half the premium.

Whole farm revenue protection insures against lost revenue, but doesn’t protect particular crops as it is not a property policy. To make a claim on this policy the insured must establish that farm revenue is down as a result of the winery rejecting the grapes.

Participants were invited to vote on their favorite wine, and the overwhelming choice was Red, at 70 percent. White garnered 17 percent of the vote and Rose 12 percent.

Upcoming AIMU courses include Yacht Insurance Fundamentals, which offers 6 CE credits, and Introduction to Static Risk Insurance: Warehouse Basics, offering 3 credits.

CORONAVIRUS WRAP-UP: PROPERTY AND CASUALTY (4/22/2020)

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A Marketing and Communications Journey with Triple-I: The AIMU Story

“It’s been a pleasure to deal with Triple- I.  They understand the insurance business.  They are responsive to our needs and our questions and beyond raising the profile of AIMU, Triple-I gives us access to their tremendous body of statistics and research. They provide us with a much more cost-effective solution than other public relations firms could.”

John Miklus, president, American Institute of Marine Underwriters

When John Miklus joined the American Institute of Marine Underwriters (AIMU) as president six years ago, he discovered the association had been in partnership with the Insurance Information Institute (Triple-I) for more than 20 years. But he wasn’t quite sure just what Triple-I did for their organizations.  He understood that Triple-I provided marketing and communications services – such as writing speeches and talking points on marine insurance issues for past presidents Walter Kramer and James Craig. But what Miklus soon came to realize and appreciate, was Triple-I’s profound understanding of the insurance business that no other marketing and communications firm provided, and the powerful partnership they had forged. 

In years past, AIMU had been hesitant, if not reluctant, to engage the media, according to Miklus.  “Working with the Triple-I changed all that. With adequate coaching and introductions to targeted media outlets, Triple-I facilitated a process that was comfortable and thoughtfully prepared. As a result, we got placement in high level media like the Wall Street Journal, and insurance trade press like Reactions magazine and AM Best-TV: taking us places we’d never been before and never thought we’d go.”  The partnership has not only heightened awareness of AIMU in the insurance industry, but with the public, making them more fully aware of the challenges facing the shipping industry and insuring marine risks.”

Miklus says that partnership with the Triple-I provides unique advantages his organization can’t get anywhere else.  “It not only raises the visibility and credibility of AIMU, but also the importance and relevance of the marine insurance industry, in general,” he said.  “It’s never been more vital for a smaller niche product line to be connected to the rest of the insurance industry; our partnership with the Triple-I secures that connection,” he said.

“This industry is much more complex than most people understand, but it’s our job to help translate subject matter into accessible information that’s easy to comprehend,” said Sean Kevelighan, president & CEO of Triple-I.  “Working with our partners, we can quickly eliminate any learning curve and immediately provide marketing and communications services to meet their needs. We know this industry; we know how to communicate effectively; it’s what we do.”

The Triple-I Network

Triple-I serves approximately 70 percent of the U.S. property/casualty market (members) as well as industries that support the Triple-I mission such as trade associations, academia and think tanks (clients). We are the trusted source of unique, data-driven insights on insurance to inform and empower our clients. Another value Triple-I brings is access to distribution channels that tie clients to key industry stakeholders such as the carrier, broker and agency communities.

For 60 years, the Triple-I has been a trusted source of actionable, timely insight for consumers and professionals seeking insurance information.  We are the number one online source for insurance information. Our website, blog and social media channels offer a wealth of data-driven research, studies, whitepapers, videos, articles, infographics and other resources solely dedicated to explaining insurance and enhancing knowledge.

The Client/Triple-I Partnership provides the following marketing and communication services to help elevate your brand:

If you have interest in marketing or communications services for your non-profit or insurance trade association, please contact Michael Barry, Senior Vice President, Media Relations & Public Affairs at michaelb@iii.org.

Autonomous ships are coming

You’ve heard about self-driving cars, but what about autonomous ships?

Fortune Tech reports that the world’s first autonomous cargo ship, to be christened the Yara Birkeland is expected to start sailing in 2018, initially delivering fertilizer along a 37-mile route in southern Norway.

“The ship, according to the Wall Street Journal, will cost $25 million, about three times as much as a conventional ship of similar size, but will save up to 90% in annual operating costs by eliminating both fuel and crew.”

Analysis by Allianz Global Corporate & Specialty (AGCS) shows that human error accounts for approximately 75 percent of the value of almost 15,000 marine liability insurance claims studied over five years, equivalent to over $1.6 billion.

From the AGCS Safety & Shipping Review 2017:

“Autonomous vessels could improve maritime safety and revolutionize movement of cargo on a scale not seen since containerization.”

Check out Insurance Information Institute facts & statistics on marine accidents.

Tianjin Anniversary: Better Modeling Benefits Insurers

As we approach the one year anniversary of the explosions at the Port of Tianjin, China, a new report finds that a port’s size and its catastrophe loss potential are not strongly correlated.

Based on the 1-in-500 year estimated catastrophe loss for earthquake, wind and storm surge perils, the surprising analysis by catastrophe modeler RMS, shows that it’s not just the biggest container hubs around the world that have a high risk of insurance loss.

For example, smaller ports such as the U.S. ports of Plaquemines, Louisiana, and Pascagoula, Mississippi, as well as Bremerhaven, Germany rank among the top 10 ports at highest risk of marine cargo loss.

Chris Folkman, director, product management at RMS, said:

“While China may be king for volume of container traffic, our study found that many smaller U.S. ports rank more highly for risk — largely due to hurricanes. Our analysis proves what we’ve long suspected — that outdated techniques and incomplete data have obscured many high-risk locations.”

RMS’ analysis shows the riskiest two ports are in Japan (Nagoya – $2.3 billion) and China (Guangzhou – $2 billion), and that six of the top 10 riskiest ports are in the U.S., with the remaining two in Europe (see chart below).

Screen Shot 2016-08-09 at 10.19.23 AM

The findings come after four years of marine catastrophes which have generated billions of dollars in marine insurance losses: 2015 Tianjin explosion (more than $3 billion); 2012 Superstorm Sandy (est. $3 billion marine loss, of which approximately $2 billion cargo loss); and the 2011 Tohoku earthquake and tsunami.

The Tianjin loss ranks among the largest man-made insured global loss events in history, with an estimated total insured property loss of up to $3.5 billion.

To conduct its analysis RMS marine risk experts used the new RMS marine cargo model, which takes into account cargo type, precise storage location, storage type, and dwell time to determine port exposure and accumulations.

RMS suggests that better data and modeling are key for more effective portfolio management and underwriting.

Check out Insurance Information Institute facts and statistics on man-made disasters here.

IoT and Piracy Increase Risks to Shipping

A hacker causes an oil platform located off the coast of Africa to tilt to one side, forcing it to temporarily shut down. A port’s cyber systems are infiltrated by hackers to locate specific containers loaded with illegal drugs and remove them undetected.

These are just a few of the cyber attacks on the shipping industry reported to date, according to Allianz Global Corporate & Specialty SE’s (AGCS) fourth annual Safety and Shipping Review 2016.

But such attacks are often under-reported as companies opt to deal with breaches internally for fear of worrying stakeholders, AGCS notes.

“When reports of attacks do surface, details are usually vague, making it extremely difficult to gauge the headway the industry has made in strengthening online security.”

The shipping industry’s reliance on interconnected technology also poses risks. Cyber risk exposure is growing beyond data loss.

Technological advances including the Internet of Things (IoT) and electronic navigation means the industry may have less than five years to prepare for the risk of a vessel loss, AGCS warns.

There has already been one known incidence of Somali pirates having infiltrated a shipping company’s systems to identify vessels passing through the Gulf of Aden with valuable cargoes and minimal on-board security, leading to the hijacking of a vessel.

In the words of Captain Andrew Kinsey, senior marine risk consultant AGCS:

“Pirates are already abusing holes in cyber security to target the theft of specific cargoes. The cyber impact cannot be overstated. The simple fact is you can’t hack a sextant.”

The industry needs more robust cyber technology in order to monitor the movement of stolen cargoes, according to Kinsey.

For the first time in five years piracy attacks at sea failed to decline in 2015. International Maritime Bureau statistics show there were 246 piracy attacks worldwide in 2015, up from 245 in 2014.

Attacks in South East Asia continue to increase, with the region accounting for 60 percent of global incidents and Vietnam a new hotspot, AGCS reports.

The Insurance Information Institute offers facts and statistics on marine accidents here.

Marine, Transport Risks of Refugee Crisis

As European governments approved a controversial plan to share 120,000 refugees between most of the European Union countries, there’s an important insurance story playing out amid the ongoing flow of thousands of refugees into Europe.

The risk management challenges and costs for freight transporters, haulers and shipowners arising from the refugee crisis are outlined in a recent Business Insurance article.

It reports that with thousands of refugees attempting to board trains and trucks heading for the United Kingdom at the French port of Calais this has caused problems for companies transporting goods.

Some of the risks they face include potential loss of earnings due to delays at ports, risk of damage to goods, fines for illegally transporting refugees if they board trucks undetected as well as driver safety.

Shipowners must also have emergency procedures in place to help their crews deal with situations given their legal and moral obligation to help ships in distress, Business Insurance notes.

A Reuters report suggests that more and more commercial ships are being drawn in to rescue refugees from unsafe and overloaded vessels in the Mediterranean:

Since January 2014, more than 1,000 merchant ships have helped rescue more than 65,000 people, according to estimates from the International Chamber of Shipping. That’s more than one in 10 of the estimated 585,000 migrants and refugees who crossed the Mediterranean over the period.”

Some of the merchant ships’ risks are covered by insurance, Reuters says.

Mutual marine insurers, also known as P&I clubs, provide cover for a wide range of liabilities including crew injury, pollution and cargo loss and damage.

So, if a refugee attacks and injures a crew member or breaks into a container and damages cargo, insurance would cover the shipowner.

But because rescue operations can take ships off course into uncharted waters, Reuters reports that other risks including fines for late arrival or the cost of chartering another vessel at short notice may not be covered.

Uncertainties also surround liability in the case of death or injury of a refugee while being rescued by a ship’s crew.

In June the Maritime Safety Committee (part of the International Maritime Organization) agreed that there was an urgent need for the international community to make greater efforts to address the problem through safer and more regular migration pathways, and to take action against criminal smugglers.

Check out I.I.I. facts and statistics on marine accidents here.

West Coast Ports Dispute and Supply Chain Risk

A protracted labor dispute that continues to disrupt operations at U.S. West coast ports underscores the supply chain risk facing global businesses.

Disruptions have steadily worsened since October, culminating in a partial shutdown of all 29 West coast ports over the holiday weekend.

The Wall Street Journal  reports that operations to load and unload cargo vessels resumed Tuesday as Labor Secretary Tom Perez  met with both sides in the labor dispute  in an attempt  to  broker a settlement amid growing concerns over the  impact on the economy.

More than 40 percent of all cargo shipped into the U.S. comes through these ports, so the dispute has potential knock on effects for many businesses.

A number of companies have already taken steps to mitigate the supply chain threat, according to reports. For example, Japanese car manufacturer Honda Motor Co, among others, has been using air freighters to transport some  key parts from Asia to their U.S. factories — at significant extra expense.

On Sunday Honda also said it would have to slow production for a week at U.S.-based plants in Ohio, Indiana, and Ontario, Canada, as parts it ships from Asia have been held up by the dispute.

Toyota Motor Corp. has also reduced overtime at some U.S. manufacturing plants as a result of the dispute.

A brief published by Marsh last year noted that a West Coast port strike or shutdown could have broad consequences for global trade, business and economic conditions.

Organizations with effective risk management and insurance strategies in place will be best prepared to manage and respond to situations that hamper their flow of goods and finances, Marsh noted.

In 2002, a similar labor dispute ultimately led to the shutdown of ports along the West coast costing the U.S. economy around $1 billion each day, and creating a backlog that took six months to clear.

Many businesses purchase marine cargo insurance to protect against physical loss or damage to cargo during transit. This type of insurance generally will not respond in the event that a strike or other disruption at a port delays the arrival of insured cargo, unless there is actual physical damage to the cargo, according to Marsh.

However, some policyholders may have obtained endorsements to their insurance policies, or purchased additional coverage to protect themselves from the effects of port disruption.

Trade disruption insurance (TDI), supply chain insurance, and specialty business interruption insurance may also provide coverage for the financial consequences of a port disruption, Marsh wrote.

A study by FM Global of more than 600 financial executives found that supply chain risk, more than any other, was regarded as having the greatest potential to disrupt their top revenue driver. FM Global’s Resilience Index can help executives evaluate and manage supply chain risk.

For Sale: Titanic Insurance Claim

We’re visiting the United Kingdom this week, so it’s appropriate we bring you a British themed news item.

An unpublished and original insurance claim for the loss of the Titanic will come under the hammer this Saturday at Aldridge’s auction house in Devizes, Wiltshire. The document is expected to fetch more than  £12,000 ($20,185).

It’s  more than  100 years since the RMS Titanic, a luxury British passenger liner, sank in the North Atlantic ocean on April 15, 1912 after colliding with an iceberg during her maiden voyage from Southampton, UK to New York City.

She carried 2,224 passengers and crew, but had lifeboats for only 1,178 people. More than 1,500 people died in the disaster.

The 4-page insurance document up for sale was prepared for insurance purposes and written by second officer Charles Lightoller, the most senior officer to survive the Titanic disaster. It was certified and signed by the Titanic’s second, third, fourth and fifth officers on April 19, 1912.

In what appears to be an attempt to avoid the insurers accusing the ship’s crew of negligence, the certified claim includes an interesting and sometimes curious account of the disaster:

The ship sank in very deep water and proved a total loss, with cargo, luggage, personal effects and mails.†

As to the actions on the bridge, the document states:

†¦the first officer immediately starboarded the helm reversed the engines full and closed all watertight doors. The ship swung to port, but struck a “growler† or small low-lying iceberg†¦Ã¢â‚¬ 

In the words of the auctioneers, it’s fascinating that the officers would seem to attempt to minimize their encounter with the rather large and ominous iceberg by describing it as a “small low-lying iceberg.† This could possibly have been an attempt to downplay the size of the iceberg due to the question of liability and who was to blame for the sinking.

As the Western Daily Press reports, the strategy worked. Insurers paid out  £3 million ($5.1 million) within 30 days – crucially before a major inquiry revealed the catalogue of mishaps that led to the sinking.

The lot is one of 200 Titanic collectables included in the auction, which is to commemorate the 102nd anniversary of the loss of the ship.

Atlantic Mutual, then the largest marine and general insurance firm in North America, was one of the major insurers of Titanic, providing the Oceanic Steam Navigation Co, Ltd (Titanic’s parent company) with what is believed to be more coverage for the ship than any of the many other single carriers which were part of Titanic’s insurance consortium.

Numerous Lloyd’s syndicates put their names on the insurance slip to cover the Titanic which was considered a prestigious risk to insure. More on how the disaster remains strongly linked to the history of the Lloyd’s market here.

The insurance policy was sold in an October 2013 auction.

Check out I.I.I. facts and statistics on marine accidents.

AIMU Calls on Marine Insurers to Leverage Cat Modeling

The insurance marketplace as a whole could benefit greatly if marine insurers would incorporate more catastrophe modeling in their pricing and profiling of risk accumulations, according to American Institute of Marine Underwriters (AIMU) chairman Roger F. Ablett.

Speaking at the 115th AIMU annual meeting held in New York City late last week, Ablett noted that in the aftermath of Superstorm Sandy there had been a call for marine underwriters to make greater use of cat modeling in their risk analysis.

Despite the shortcomings in modeling hull and cargo risks which are transient, as opposed to property risks which are static, Ablett told the gathering:

It is well known that the marketplace as a whole could benefit greatly if marine insurers would incorporate more modeling schemes in their pricing and the profiling of accumulations.†

Some 15 percent of Superstorm Sandy’s total estimated insured loss of $19 billion was marine-related.

The marine loss of $3 billion exceeded the total amount of U.S. marine insurance premiums collected last year, Ablett said.

The two marine lines most affected by Sandy were cargo and yachts.

Cargo recorded a combined ratio of 131 percent in 2012, up from 88 percent in 2011.

The combined ratio for yachts was 135 percent in 2012, some 40 points higher than the prior year.

AIMU’s annual survey of its members also reported direct written premiums of $2.2 billion in 2012, with a combined ratio of 115 percent.

That represents a slight drop in premiums from 2011, while the combined ratio deteriorated from just over 90 percent.