Emerging marine risks bring opportunities for reinsurers
Christopher Gray, global head of marine treaty at Axis Capital, considers how the firm is adapting to the latest trends in the marine reinsurance market.
What have been the biggest developments in 2023 for marine reinsurance?
Although the marine reinsurance market continues to feel the effects of the Russia-Ukraine war, inflation stands out as the most impactful factor. Inflation has increased current pricing trends, which, when combined with the increased use of larger vessels and accumulations, has resulted in higher claims severity.
Attracting talent to the industry is also an issue. The marine market used to have a wider talent pool. Now, we must focus on building knowledge from the ground up and look to schools and universities for recruits. This is challenging as many schools do not understand what marine reinsurance is. This provides an opportunity to work with them to increase recognition.
ESG trends are having positive impacts – but also bringing some challenges with new transportation technologies being utilised. The (re)insurance industry is moving in the right direction in terms of ESG goals and transitioning to net zero, but that is also driving larger and more severe claims.
What are the biggest challenges within this space?
Climate change has become one of the biggest challenges for the sector, specifically in two main areas. The first is extreme weather events, particularly secondary perils such as flooding following severe convective storms. We are seeing more cargo, yacht, hull and offshore energy claims resulting from natural catastrophes or extreme hazard events.
The other challenge is the knock-on effect of the shipping industry’s effort to transition to net zero. As the industry works to decarbonise, many new technologies are emerging, such as new ship and propulsion designs and new cargos for transport. These new technologies have become emerging risks, presenting new types of claims that the market needs to understand to cover customers appropriately.
Take electric vehicles, for example. Research shows there is no increased likelihood of a fire, but there have been two major losses recently in the marine market involving car carriers with electric vehicles onboard. This is an area of concern for marine reinsurance underwriters due to the thermal runaway of the lithium-ion batteries when on fire. There is an altered risk when transporting electric cars as opposed to traditional cars. When a lithium-ion battery is on fire, it self-heats and can reignite, creating a new risk for underwriters. Essentially, you have to cool the battery to let it burn out in a controlled manner. Traditionally, fire detection with CO2/foam systems and water would be used, but anything with a lithium-ion battery needs to be treated differently in terms of transportation and fire suppression. The current fleet of car carriers was not designed with these batteries in mind.
What opportunities do you foresee for growth in marine reinsurance?
These emerging risks offer an opportunity for Axis Re to continue its legacy as a leading marine reinsurance provider. We are committed to better understanding new technologies from the shipping industry’s ESG and low-carbon initiatives, ensuring we provide the best quality coverage to mitigate risk.
We are also seeing the industry turn to technology to improve underwriting through exposure data and accumulation. Many believe that AI can complement how we underwrite. At Axis, we recognise that technology should not replace an experienced underwriter, especially when writing complex risks. These risks require another type of AI – Axis Intelligence – provided by our skilled, knowledgeable and experienced underwriting team. They use technology to make informative decisions by reviewing claims data and trends to ensure we provide the best service to our customers and partners.