Marine: the world's first insurance product

Marine: the world's first insurance product | Insurance Business Australia

Marine: the world's first insurance product

For insurance origin stories, Lloyd’s coffeeshop in 1688 may come to mind more readily but Ben Healey (pictured), Sydney based underwriter for AXA XL, says the industry is much older.

“It goes back further than that - to Chinese silk traders. This was in about 600AD and they came up with the concept of what became insurance,” said Healey, marine hull and liabilities specialist.

That was a time when ship voyages could last many months, even years, and losing vessels was a regular occurrence.

“They would put parts of their cargo on different vessels so that at least some of it would make it to the final destination rather than putting it all in their own boat and losing the whole lot,” he said.

More than 1,000 years later the first contract of insurance was signed for a marine hull policy in the Lloyd’s coffee shop. Today, 100s of years on, marine insurance stands out in the insurance industry for its reliance on brokers.

“I think marine insurance is one of the last classes of insurance left where you have to use a broker. So we end up working very closely with the brokers,” he said.

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Healey said marine insurance can cover a lot of areas apart from physical boats and what goes on water.

“On any given day we could be looking at a family-owned party boat on Sydney harbour, a wine manufacturer and distributor, then a boat or ship builder, or even one of the world’s largest companies,” he said.

Healey said there are also boat builders, ship builders and “pretty much anybody” moving goods around the world.

“We write all forms of marine insurance with a particular focus on marine cargo and stock throughput programs, marine hull and war risks, boat and ship builders and marine liabilities,” said Healey.

Then there are the add-on features that go with all the different policies.

“For example, war and strikes risks, or increased values and additional allowances. We start going into some fairly intricate types of cover then,” he said.

Healey said people are often quite surprised by how far the cover goes and what can be insured. For example, AXA XL marine insurance covers ship machinery and machinery losses as standard.

“Most people are familiar with car insurance, engines are not something normally insured [with car insurance]. Marine Hull insurance would cover it as part of a normal risk,” he said.

Healey said the definition of machinery covers anything that would be considered machinery on a ship.

“So that would include the main engines, shafts, propellers, rudders, auxiliary engines and generators,” he said.

Also included, said Healey, is what’s called an increased value allowance which gives an additional benefit over and above the main value of the vessel.

“It could be for the additional costs to replace a vessel, or it may account for lost contracts,”he said.

These days, Healey’s job doesn’t involve jumping around boats as much as it used to when he was a broker.

“There’s a lot of reading and a lot of research and trying to find out as much as you can about the individual risks, whether it’s the vessel or the cargo, or where it’s going to or where it’s coming from and all the little permutations that that may have,” he said.

“We have lot of internal conversations amongst each of us as Underwriters as well with our risk engineers. We've probably got some of the best I've ever come across in my career,” said Healey.

He said one of the risk engineers is a current master unlimited that allows him to operate any vessel in the world.

“There’s a lot to it and it's not as simple as, for example, just putting numbers into the calculator and see what it says,” said Healey.

Healey gives the strong impression that marine insurance isn’t going to be taken over by algorithms anytime soon.

“There are different pricing tools and models and different underwriters have different names for them but a lot of it comes down to the knowledge and experience of the underwriter,” he added.

The many intricacies that need to be considered in marine insurance coverage include the different physical characteristics of each vessel and their age, the journey that they’re going on, their varying cargo and maintenance history.

In terms of industry challenges, marine is under the same hard market pressures as other insurance areas, said Healey.

“So a lot of it is helping the brokers navigate those [hard market] issues with their clients and giving them the responses and the information that they need to have those tough conversations,” he said.

During two years of COVID-19 more and more companies have placed a greater focus on the health and wellbeing of their employees. The same is true for employees at sea.

“I think crew safety is probably one of the big ones that the industry in general has been looking at,” he said. “It’s becoming more and more prevalent as a genuine risk factor for underwriters to consider.”

Healey said it comes back to the basics of human nature.

“When you’re overworked and underpaid - as the old expression goes - you get a bit lazy or you get a bit tired, you try to find shortcuts and you try to find the easy way,” he said.

COVID has exacerbated that, he said, with crew being left onboard for longer periods of time.

“So they’re getting overworked, burnt out and they’re looking to find shortcuts which will inevitably lead to mistakes,” said Healey.

From an insurance perspective, he said, that can start to cause issues with the vessel like navigation or maintenance.

“They can cause bigger and bigger problems the longer these issues are allowed to continue,” he said.

Now, as the pandemic recedes and the world is opening up, Healey said marine insurers are watching how the risk environment plays out.

“So it could be things like managing the different elements of the supply chain. For example, the increased stresses on vessels, the onshore loading elements, so stevedores and the port controls,” he said.

Healey said COVID-19 has taught the industry about supply chain management issues and the need for effective planning.

“We’re not going to be able to make spur of the moment decisions as an economy anymore, for example, and decide on a Monday that you want it on a Wednesday,” he said.

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Technology is helping to improve the supply management chain, he said.

“Shipping, for example, has been one of the big developers of the online platforms and the technology platforms where you can track where different things are and align them with your own requirements and your own shipping needs,” he said.

The system allows businesses to automate their shipping schedules, he said, so they can input timeframes and automatically book the containers or their space onboard vessels.

Healey expects supply chain issues to sort themselves out but when that happens exactly is still very hard to say.

“We’ve already started to see a bit of an improvement in Europe with some of the supply chain issues,” he said.

In Australia, because of our reliance on ocean going transport, we could be in for a much longer wait.

“We rely on ocean going cargos for 98.7% of all our trade. So Australia is going to feel the pinch for a long time in comparison to other locations,” said Healey.