Ascot calls for standardised approach to war covers in cargo market
The marine cargo market must come up with a “standardised and predictable” approach when writing war covers and issuing notices of cancellation (NOCs) in both ongoing and new conflicts, Ascot Group’s head of marine cargo Chris McGill has said.
In conversation with The Insurer TV, McGill said the lack of consistency across different syndicates in the marine cargo market often resulted in uncertainty around the scope of coverage provided by war policies.
“The cargo market really needs to work on a standardised response to wars and ongoing conflicts, and also new conflicts,” McGill said.
“As a market we may issue multiple NOCs, but we also may define geographical regions in a different manner across different syndicates,” he explained.
“So clients end up having different coverages and brokers find it really difficult to unravel where they end up when they’ve got five different NOCs with different definitions of the regions,” he added.
McGill suggested that marine cargo insurers could seek to emulate the response proposed by the Joint War Committee for marine hull war business.
“The hull market tends to respond in a fairly standardised and predictable manner. The cargo market is not as experienced as this,” he added.
His comments were made in the context of the challenges facing the cargo insurance market in its response to the Russia-Ukraine conflict, which has proved one of the most complex and largely unanticipated events of recent times for the wider marine market.
Prospect of major losses
The outbreak of the war in February raised the prospect of major losses for mariners.
Dozens of vessels valued at around $800mn have been stranded in the Black Sea since the conflict began. Most of these are covered under 12-month blocking and trapping clauses, meaning they may become total losses in mid-February 2023.
Sanctions rolled out by the EU have compounded the difficulties around insurance for vessels in the region.
An Ascot-led $50mn all-risks marine cargo and war facility, which covers grain and food products transported through Ukrainian ports, was launched last week shortly after the UN brokered the Black Sea treaty between Russia and Ukraine.
The Sierra Leone-flagged Razoni subsequently became the first vessel to leave the port of Odessa in months, carrying 26,000 tonnes of Ukrainian corn.
Earlier today Turkish authorities confirmed three more ships had departed Ukrainian ports and are headed to Turkey for inspection.
Rate stabilisation vs inflationary pressures
McGill said while marine cargo rates had been stabilising, the conflict between Ukraine and Russia has “broadly ceased rate relief” for buyers.
He pointed to pressure on pricing coming from reinsurers, with marine treaties coming into focus ahead of the 1 January renewals.
“I think a lot of underwriters are uncertain of what their reinsurance programs may be looking like for 2023,” McGill said.
However, McGill highlighted that new capacity continues to enter the market – driving rate stabilisation as carriers compete to secure new business.
As this publication has reported, cargo insurance pricing has been levelling off throughout 2022 from the significant increases seen in recent years as the market responds to the influx of more than $500mn of capacity from 10+ new entrants.
Overcapacity had fuelled the soft market conditions that were prevalent in the cargo insurance space from the mid-noughties through to 2018. But insurers responded to a swathe of high-profile losses by pulling back capacity and pushing up pricing, reversing the previous trend of repeated compound rate reductions.
Over a dozen London cargo insurers are thought to have pulled out of the cargo class – some voluntarily and others owing to Lloyd’s Decile 10 review.
McGill pointed to both the quality and quantity of capacity currently available.
“The quality of the capacity available is really important and brokers are focusing on that when they’re marketing clients’ business,” he said.