Today we take a trip down memory lane, that’s up to 17th-Century London. Much like they do today, its residents loved a good cup of coffee back then – and even a fair bit of coffee culture. However, step inside one of their coffee houses and you may get more than you can bargain for.
To us modern people, free Wi-Fi may seem like the most disruptive thing to happen in a beverage shop. But once upon a time, there used to be an entire insurance industry here. Established in 1688 and a popular meeting place for shipowners, merchants and sailors, Lloyd’s Coffee House on Tower Street presided over the birth of shipping insurance – catalysing the globalization of trade and laying the groundwork for many of the insurance lines as we know them. Huh. since.
Today very little part of the place to run thousand slips is left. But Lloyd’s, a contemporary of London Market, is only a short walk from its old site, where sea premiums worth billions of pounds are transacted each year.
This small relocation aside, there has arguably been little change within marine insurance, even as the shipping industry has largely evolved, from wooden sailboats to steel containerships. Sure, IT and regulation are new, but it’s basically the same coffee house.
However, marine insurance may soon find itself on the front lines of industry disruption once again, for both financial and environmental reasons.
For a start, the high-cost manual processes underpinning the industry look increasingly conspicuous given the prolonged margin pressure endured by marine underwriters. Meanwhile, the impetus for change will also come from outside, as consumers, corporations, governments and regulators take a growing interest in ocean management and the environmental and social footprint of the marine sector.
From hulls and cargo to offshore energy, marine insurance isn’t moving anywhere fast. But now it’s time for us to at least ask the question: What could its next iteration look like?
In this short series, we find a mature industry for automation technologies like Blockchain and IoT. We also explore how marine insurers can help the broader sector meet their CSR and sustainability goals – easing the transition from offshore oil and gas to offshore renewables, as well as using environmentally friendly vessel recycling. to support. Finally, we see the risks and opportunities that come with the next generation of global trade, as we move beyond cargo sensors to fully autonomous ships and ports.
Disrupting the world’s oldest insurance line
Even before COVID-19, there was a dire need to reset sea lines. Years of soft market conditions and declining trends – particularly in Hull – had left rates at sustained low levels. Reform was largely underway in 2018 with Lloyd’s underwriters sorting their sea books. And this profitability drive has also been helped by accelerated market hardening that has brought 2020 more broadly across commercial lines.
However, reliance on favorable market cycles is unlikely to bring long-term profits. So, given that the marine is commoditized in origin, where will the renewed profits come from?
An obvious place to start is with improving the bottom line. In fact, paper processes are so prevalent in marine operations that they present an opportunity to bring about a step-change in costs. However, this paperwork exists for a reason: to document complex multilateral agreements between shipowners, ship brokers, cargo owners, logistics firms, insurance brokers, risk carriers, port operators, law firms and more. Automation initiatives should simplify – but also preserve – this complexity.
It is this enigma that makes marine insurance an ideal home for distributed ledger technology (DLT), such as blockchain – as a way to streamline and ironclad multiparty systems in equal measure.
To date, the reality of blockchain in marine insurance has largely outstripped the hype. However, this is a very slow-moving field compared to other blockchain hunting grounds – from cryptocurrencies to cryptography – so writing off the knowledge of long-timers on the technology is a long way off.
In fact, we are starting to see a softer growth in commercial implementation. For example, London-based Insurwave, which estimates it can eliminate 40 percent of ecosystem costs through its maritime blockchain platform, raised £5 million in September 2020. Recently, the B3I Consortium and the Eurepco Alliance joined forces on unity – a Blockchain-Based Risk-Transfer Service They are testing for marine reinsurance.
A similarly long position can be taken on the Internet of Things (IoT), which has the potential to change the risk management of containers in transit, particularly those that need to be stored at very specific temperatures (such as the COVID-19 vaccine). it occurs. The use of in-palette sensors, such as those pioneered by Lloyd’s lab participant Parsil, has so far been limited – but the potential adoption base is huge.
The ability to “see” the inside of containers in real time will not only reduce spoilage of sensitive cargo, but will also reduce the risk of vessel fires, a trend of increased claims on large containerships. It would also be helped by better labeling conventions – where DLT could once again play a role – to avoid inadvertent concentration of flammable cargo in a portion of a ship.
IoT and blockchain not only provide cost-saving opportunities to marine insurers, but they also enable a variety of top-line plays and value-added services. The self-reordering palette – where the claim begins to automatically degrade by sensor readings – has been talked to death at the convention stage but remains an interesting concept. We can also envisage sell-as-you-sell policies, with the option to turn on piracy and storm coverage based on satellite geolocation.
So, despite its well-deserved reputation for sleepiness, there are plenty of avenues to make marine insurance profitable again – although it will require a little technique and a lot of persistence. And that’s not the only way innovators can make a difference.
Can insurers play a role in maritime sustainability?
On top of the manual processes we mentioned above, there is also a different kind of manual processes in the shipping industry. Manual processes that involve a whole lot more perishable material – not paper but – will certainly prove difficult to eliminate.
Disposal of ships is something we rarely encounter – out of sight is really out of mind. But every ship that was ever insured eventually came up for scrap.
Shipbreaking is as crude as it sounds. On the beaches of the Third World, most ships pulled by laborers, including children, end their days. This work not only leads to repeated accidents, it also exposes the environment to the engine oil, asbestos and heavy metals that are often hidden inside these decades-old hulls.
There is great scope for the maritime sector to reduce its hidden environmental and social costs by promoting more responsible forms of ship recycling. Stay on board for our next installment to see how insurers can play a role here.
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