Sensational images of the Costa Concordia being righted and the whopping $1.6 billion insurance price tag aren’t sinking marine coverage – it is insurance investors feeling the pinch of excess capacity, heavy competition and low interest rates.
“Investors are looking for a home to put capital, and they deem insurance to be a reasonably safe sector to deposit capital,” says Ron Eldridge, senior vice president of Marine at Marsh Canada. “Some of the big claims have fallen on the Protection and Indemnity clubs. Being not-for-profit insurers, they are struggling to underwrite to balance, and are not making sufficient investment returns with interest rates being at historically low levels. Historically they were getting 6 to 8 per cent and on total premium of about $2 billion annually, the investment returns were very meaningful. But those days are behind us.”
The concept of P&I coverage is to protect the ship owner’s interests against claims from third parties and to indemnify the owner in case he/she is liable to compensate third party losses.
“You need investment returns of 6 to 8 per cent to subsidize historical underwriting deficits,” Eldridge told InsuranceBusiness.ca. “P&I is designed so that the investors can sit on that money, as the claims are paid out three or four or five years later. But that return simply isn’t there anymore.”
Marsh Canada’s Marine clients’ coverage can be broken down into three main sub sectors: hull, cargo and liability. (continued.)