Battening down the hatches

Battening down the hatches

Battening down the hatches

Cyclone Debbie is the latest event to highlight the ongoing challenges facing commercial vessel owners in North Queensland

According to a statement in early July by Kelly O’Dwyer, the Minister for Revenue and Financial Services, the inquiry will monitor and report on prices, costs and profits in the insurance market for home, contents and strata insurance in northern Australia, focusing particularly on the impact of natural catastrophes on the region’s insurance market.

The statement detailed that the Federal Government “remains committed to working with all stakeholders to develop solutions that will lead to sustainable reductions in premium levels, promote a competitive insurance market and make a recognisable difference for consumers in northern Australia”.

“Importantly, the ACCC inquiry that the Turnbull Government has funded will be able to directly consider the impact on insurance premiums of tropical cyclone Debbie,” Minister O’Dwyer said.

The category four storm struck Queensland in late March and, according to The Australian, created a $2bn hole in the $300bn economy’s revenue, with an estimated $150m hit to the state’s tourism sector. According to the Insurance Council of Australia (ICA), insurers had received more than 58,000 claims (as of 28 June), stretching from North Queensland to northern New South Wales, with a value of $988m. Club Marine Insurance described cyclone Debbie as the largest catastrophic weather event it had ever seen.

When funding of the ACCC inquiry was announced, ICA CEO Rob Whelan said that while the insurance industry would “fully cooperate with the ACCC”, the investment was a “missed opportunity” for further mitigation spending. Whelan had previously said that the aftermath of Cyclone Debbie made clearer the urgent need for investment in mitigation for disaster-prone communities.

“The Federal Government has already spent tens of millions of dollars on numerous reports into insurance in northern Australia, which have concluded insurers are operating in a competitive market and are appropriately pricing risk,” Whelan said.

There’s also been criticism from Katy Gallagher, Shadow Minister for Small Business and Financial Services, and Jason Clarke, Shadow Minister for Resources and Northern Australia, who, in a joint media release, pointed to the fact that the Government has yet to respond to the report of its own Northern Australian Insurance Premiums Taskforce, which it received in November 2015.

The marine impact
As well as home, contents and strata insurance customers, owners of marine vessels have also been affected. Stephen Rudman, practice leader – marine at Arthur J. Gallagher, comments on the impact felt by pleasure craft owners in natural catastrophe-prone North Queensland in recent years.

“We have seen significant impact on the retail side of things with many pleasure craft owners struggling to get insurance in the NAT CAT-prone regions of Australia – particularly North Queensland – in recent years, especially those on swing moorings where it is almost impossible to get an insurer to cover these vessels,” Rudman tells Insurance Business.

And then there are those operating commercial vessels in catastrophe-prone areas. JLT’s Jason Mathews discusses the impact that natural catastrophes have had on the commercial hull insurance market in particular regions of Australia.

“Anything north of the 26th parallel … there is little appetite, unless there are really sufficient risk management and mitigation practices embedded by the shipowners,” Mathews tells Insurance Business.

According to Mathews, the landscape of the commercial hull insurance market is starkly different to how it was five years ago.

“The market has shrunk quite considerably here in Australia … You’ll find that most of the indigenous insurers in Australia … their appetite for commercial hull business has shrunk as well,” Mathews says.

“Five years ago, certain insurance companies would have been looking to lead a commercial hull placement with, say, a $20m limit for a top-value vessel.”

Today, Mathews says, the limit is more likely to be between $5m and $10m.

“Globally, there’s enough capacity for commercial hull with the London market [and] Asian markets, especially in Singapore. There are a number of Lloyd’s syndicates that are opening in Singapore, and they very much have the appetite to write commercial hull in Australia,” he says. “So what you could foresee is probably that the actual business that’s placed here might actually move off shore.”

Finding the right protection
So, in this current challenging climate, what do brokers need to know as they embark upon assisting their clients to secure appropriate commercial hull insurance protection?

Mathews believes that, after an event on the scale of Cyclone Debbie, the issue of risk mitigation requires serious consideration, with a simple question needing to be asked about whether there is a sufficient number of cyclone moorings for vessels.

“Also, [it’s important] to make sure that those moorings are [regularly] inspected and to ensure that they’re still fit for the purposes of a cyclone,” he adds.

“I think … we should be working with the government.” Mathews talks about activities on the risk mitigation front that brokers can assist their clients in undertaking.

“I think brokers should work hand-in- hand with the client … to look at their cyclone contingency plans [and] work with them on solutions,” he says. “We [JLT] try to provide those services beyond insurance.”

He says JLT works to assist commercial hull insurance clients overcome threats they face as a result of natural disasters through risk management advice and by assisting clients to be able to make informed decisions about their protection needs.

“Marine insurance is a highly specialised space that requires experienced brokers with the appropriate technical skills and who ideally understand the Lloyd’s of London market as the exposures to ship owners and operators is significant,” Rudman says.

“Marine-related risks are inherently complex and multilayered, requiring brokers to review and assess their clients’ exposures on a case-by-case basis. They can then tailor specific insurance cover for their clients by adopting standard clauses and including specialist unique amendments and clauses that only come from deep experience in the industry.”

To put this in context, Rudman says, ‘off the shelf ’ policies are generally inadequate to address marine commercial hull exposures, and this is why specialist marine brokers have such a crucial role to play.

“Marine insurance brokers provide intellectual capacity, which plays an integral role in the client value chain, which cannot be easily replicated by a digital platform or an ‘off the shelf ’ policy wording, especially in the mid-market and corporate segments where the scope of the risk is likely to be more complex and specific to a client’s business,” he says.

“At this end of the market, a high-quality and differentiated experience is what resonates most with clients – ultimately, clients are looking for a trusted relationship, over and beyond a purely transactional response.”