Marine insurance is mostly thought of as insuring ships and other watercraft. Smaller brokers, who understand that it goes much further and, amongst others, includes cargo by road, rail and sea, are usually under the impression that it is out of their league. COVER asked a few specialists in Marine Insurance to provide us with their insights, which clearly indicates that even smaller brokers have access to the many opportunities offered, if they partner with underwriters who possess expert knowledge in this field.
PROTECTING MOVING CARGOES FROM SUPPLIERS TO CONSIGNEES IS HIS EXPERTISE … AMONG OTHER TRANSPORT-RELATED INSURANCE
Frank Ponnen recently represented South Africa at the annual International Union of Marine Insurers (IUMI) conference in Bruges, Belgium, where the world’s leading underwriters and reinsurers convened. The effect of the global recession on transport of cargo by sea, road, air and rail and the impact of the recent signing of the Rotterdam Rules were among the topics on the agenda.
Ponnen is the head of the marine division at Etana Insurance and is next year’s Chairman of the Association of Marine Underwriters of South Africa (AMUSA). He is also the Chairman of the Education Sub-Committee of AMUSA. Here he shares his views and insights of the current situation in South Africa and the world.
Which country or countries lead the world in the Marine Insurance industry?
In terms of income generated, the total marine insurance spend for 2008 in all classes is US$22,23billion. This is how it is comprised:
North America: 11,07% (including Bermuda, Canada and USA)
Rest of world: 6,66% (including South Africa)
What is the cause of Europe being the leader by such a wide margin?
It’s because all the huge underwriters and re-insurers are based in that area and write the majority of the world’s business.
What types of insurance fall under ‘marine’ insurance?
One-off cargo and transits by any method; marine cargo; goods in transit (arranged through the haulier and covering the owner of the cargo); carrier’s legal liability; marine stock throughput; hull insurance (mainly pleasure craft – inland and coastal); other hull (such as commercial and fishing hull); marine liabilities for ship repairers, charterers, stevedores, freight forwarders and marina operators.
If ‘marine insurance’ is also used for insuring cargo transported by road, rail and air why isn’t ‘marine insurance’ called ‘transport insurance’?
Interesting question! Another option perhaps could be ‘mobility insurance’? It all started in 1347 when the first authenticated insurance contract of any kind in the world was created. It was a ‘marine insurance contract’ on a ship called the Santa Clara. That was over 600 years ago. Even though insurance for the transportation of all kinds of cargo by road, rail and air has followed, the marine name has stuck after six centuries.
At the recent international marine insurance conference in Belgium, what were the top matters of concern discussed regarding the state of the marine insurance industry and cargo transportation throughout the world in general?
There are a few aspects:
- the drop in values of cargo volumes due to global recession and the knock-on effect;
- old tonnage (old ships in use) and the added risk they present because of their age;
- piracy, which has become more frequent and presents a greater risk to people like importers and exporters as well as the insurance industry;
- pilferage and syndicate operators in general.
Do local conditions in South Africa mirror the worldwide situation?
Yes they do, specifically:
- The concern for marine insurers is a drop in premium income which is a reflection of the drop in turnover figures.
- The fluctuation in local currency against global currencies has an affect on our GDP as a nation.
- Piracy is also a concern particularly for cargoes emanating from Europe and the Middle East where the Suez Canal and the Red Sea are used to go around the Horn of Africa with goods destined for African ports.
- The underutilisation of South African ports is linked to the global recession which also has a knock-on effect for our local labour situation, among other issues.
Did you personally gain motivational insights at the conference you have brought back?
There were many, including:
- To examine and focus on the way Etana underwrites our risks regarding all types of cargo;
- Implement more proactive risk management processes so that clients and underwriters both benefit. Our clients need premium benefits and less risk of loss as well as the inconvenience of productivity disruption;
- The drop in steel prices means: 1) fewer new vessels will be purchased because of the drop in freight need;2) older vessels will be used. This means buyers of insurance need to be cautious in choosing their vessels/liners to transport their cargo as part of their risk management process and advisors and intermediaries need to advise them accordingly.
- Additionally, the method of packing and stowage cannot be compromised with cheaper packing materials or quality of containers and pallets. Goods need to be protected against damage owing to extra handling or additional rigors of a marine voyage.
What other ways has the global recession affected the transport industry locally and globally?
Approximately 500 ships are at anchor off the coast of Singapore alone – and hundreds elsewhere as well. They are waiting for freight. The drop in the movement of cargo means ship owners have delayed new vessel construction while vessels that are not in commission are not being sold off to breakers owing to the low price of steel. So they are sitting there waiting for the increase in the price of steel, many of them rusting away.
In the case of road and rail transport, owing to the lower volumes arriving at South African ports, the knock-on effect for road and rail operators is a drop in their income. It has a big effect on the sustainability of their operations and their ability to maintain their fleet in roadworthy condition. This means only the most efficient operators will survive.
At the recent conference, were any major global changes discussed?
The signing of the Rotterdam Rules on 23 September 2009 was a major change because it will alter the shipping practices in significant ways. These rules require all participants and service providers on the route of a cargo, all the way from the supplier to the consignee, to take responsibility for their part in ensuring the goods are safe and sound. This means that now the party which causes damage along the transportation route will be liable for that damage. The Rotterdam Rules now also makes provision for the clearance of cargo by electronic documents. This will speed up the process and bring it in line with modern technology.
Are there any unusual challenges you will be facing, as the future chairman of AMUSA in 2010?
For the first time, South Africa has been awarded the responsibility of hosting the annual international conference. This is the (IUMI) Cape Town Conference in 2018. The AMUSA focus is going to be in making sure we are well prepared to host this event and ensure it meets international standards. It will be the first for the African continent and I consider it a personal challenge to ensure that it is a stunning success. The earlier plans are put in place the better.
What are the responsibilities of AMUSA?
AMUSA considers various matters concerning the marine insurance industry and communicates important developments and information to its members. On occasions AMUSA executive members or AMUSA sub committees meet with relevant authorities to clarify matters affecting the marine insurance industry. We also mediate risk management controls with these authorities.
In the area of one-off cargo insurance, are the risks higher in some types of cargo than others? And why?
The risk of pilfering, theft and syndicate operators is highest for cargo such as diamonds, platinum, gold, copper, cobalt, cellular phones and electronic goods.
The risk of damage and consequential loss owing to delayed start-up are greatest for cargoes of large plant and machinery; transformers and generators for the likes of Eskom; new factory equipment; expansion programme equipment for factories and mines and other highly technical equipment.
Because of the higher risk, these types of cargoes require special risk management attention and expertise.
SPECIALISED MARINE INSURANCE MAKES PLAIN SAILING
Krish Govender, Head of Technical Underwriting, Marine for Zurich Insurance
As new markets have opened up for South African businesses, it has become imperative for both importers and exporters to ensure that their cargo has adequate insurance cover. Because of the extensive experience we have and our global network of companies, Zurich Marine Insurance is able to offer a comprehensive service in this area. Our advice includes how to package and protect goods in transit, risk control measures that should be put in place as well as the correct procedures to take when clearing goods through customs.
In general, freight, logistics and movement of goods can involve fairly complex procedures. Our experienced team of professionals offers individually tailored insurance solutions so that goods arrive intact.
One of the specialist sections of Zurich’s Marine Insurance offers pleasure craft insurance on vessels used for private recreational purposes. Cover includes racing risks for sailing vessels participating in both local and international races. This particular type of cover applies to yachts, motor boats and fishing boats.
We also offer hull insurance which covers hull, machinery and equipment for vessels used in our local waters for commercial purposes such as fishing or passengers. Apart from covering total or partial loss, the policy extends to legal liability and any costs incurred in the event of a loss.
Customers include multi-nationals with branches in South Africa and policies cover goods in transit by sea, road or rail to all corners of the globe. Commodities include the full range of products from food to motor vehicles, industrial equipment and dry goods.
Zurich Marine Insurance employs a dedicated team of six marine insurance underwriters and a further six marine insurance claims agents. This level of specialisation gives our customers the peace of mind to know that everything is covered from point A to B. Our in-depth knowledge and comprehensive approach to all types of marine cover is offered from Zurich offices in Johannesburg, Cape Town, Durban and Port Elizabeth.
A VARIETY OF SOLUTIONS
Steven Forcey, Director, Astra Maritime Underwriting Managers
Astra Maritime Underwriting Managers has been in business since 1997 representing The Hollard Insurance Company.
Astra has become a leading company in the marine market and has an excellent reputation based on the high level of skills, knowledge and the commitment to service by all 19 members of the team.
The cornerstone of the South African marine market is the insurance of cargo, that is, imports and exports. Goods are insured to or from virtually any country in the world. Marine insurance, as such, plays a vital role in the trade of this country. There are additional specialised covers that can be added on to cargo risks such as advance loss of profits (ALOP), which is usually purchased by companies who may be importing (say) a new production line for which orders are already in place. Should the production line be delayed by a marine peril the ALOP cover will protect the insured against the loss of revenue or additional expenses incurred.
Following behind cargo insurance is goods in transit which is the movement of goods within South Africa by road or rail. The next area would be hull insurance, which comprises commercial risks, such as fishing vessels, to pleasure craft. Marine liabilities such as freight liabilities, ship repairers, stevedores, charterers and marina operators are a small but an important sector in the marine market.
Astra recognises that marine insurance is not understood by many brokers, especially those who concentrate on C&I risks. We try to de-mystify marine insurance which uses a lot of jargon.
We have forged close partnerships with many brokers and are happy to meet the clients so that a clear and full understanding of the insured’s needs is developed.
Any broker who has a client who either imports, exports or distributes goods around the country and does not provide that client with marine cover is not only missing an opportunity and potentially placing themselves at risk, but could lose that client to a competing broker.
The largest marine claim in recent years to the market was when the MSC ‘Napoli’ ran aground in the English Channel in January 2007 bound for South Africa. The true value of marine insurance became very apparent. Unfortunately, there were some importers who did not take out marine insurance cover and had to bear the costs of removing the containers from the stricken vessel (salvage costs) themselves. Some containers and contents were a total loss, very expensive indeed without marine cover in place.
Education is, without doubt, the number one priority in the marine market which is lacking skills. We are proud of the development we have made with our own staff and it is very satisfying when we see someone who started with us on switchboard moving up through the ranks and showing a clear interest in this specialised class of business. We also support a learnership scheme, in conjunction with The Hollard, which is paying dividends to the learners and to Astra.
WHAT TO CONSIDER WHEN INSURING YOUR WATERCRAFT
Sonja Sanders, Head: Strategic Marketing at Santam
For water sport enthusiasts, your yacht or boat is probably one of your most treasured and valuable assets – it is part of your lifestyle; however, it is expensive to own and vulnerable to accidents, storms and theft. So before you even think of taking the vessel for its maiden voyage, you want to ensure that you will be fully covered in case of any unforeseen mishaps.
It is as important as ever for boat lovers to make sure they have the right insurance for their assets. Owners need to ensure that their watercraft insurance provides individual protection for their passengers and assets. Owners of power boats, fishing boats or small sail craft should look for specialised cover that includes medical expenses, emergency expenses and trauma counselling for passengers.
Some ideas on what to consider and include when insuring your watercraft:
1. Cover for loss and damage
In most cases, this would be considered the basic cover for any watercraft and your insurer will compensate you for any loss or damage to the vessel in case of an accident.
2. Inspections and wreck removal
Check your policy carefully before signing and make sure you have a wreck removal option in case of sinking. It might require extra cover, but you’ll be glad you signed up if an accident happens and you have to comply with a looming government deadline to remove the vessel from the scene of the accident. Some policies also offer to pay for any salvaging costs if repair of the vessel is not an option.
3. Additional equipment insurance
You should make sure that the entire contents are insured, including inboard motors, rudders, propellers, hoardings, moorings, sails, spars, masts, rigging, fixtures and fittings. It’s also a good idea to make sure your additional equipment such as water skies or electronic equipment is also insured under optional extras.
4. Medical expenses
Investigate whether your insurance company offers medical expense cover for your passengers (whether they are family or not) as well as trauma treatment in the case of a hijacking or attempted hijacking of the vessel. In some policies you’ll also find the option of being covered for emergency accommodation if you’re stranded somewhere remote or have no access to the boat.
5. Third party liability cover
Similar to motorcars, owners of boats do like to give friends and family the opportunities to drive / use the boats. In this instance, the majority of insurance cover, if not all of these, will only compensate you if the person manning the vessel had express permission from the boat owner and was qualified to operate it.
6. Use of boat
There are a few instances where you will not receive compensation. Some of these include: racing, speeding, regatta competitions or if the boat is being used outside of the restricted area specified in the policy. If you want to stay within your policy contract, only use your boat for social, domestic and pleasure purposes.
In general, boat insurance should cover you in the case of theft, vandalism, fire, sinking, storms, capsising, stranding, collision and explosions. So do make sure you choose the right policy for your watercraft needs.
Hugh Murcell, Managing Director, Helm Underwriting Management Services (UMS)
Centriq Insurance subscribes to a partnership approach concerning marine insurance cover in South Africa by mandating underwriting management agencies to underwrite within certain parameters while retaining autonomy over their niche business.
Aligned with our client-centric model, we encourage our underwriting partners to embrace our philosophy of ethical, superior customer service underpinned by expertise in our chosen niches. Therefore, we see great value in partnering with skilled and experienced underwriters who possess administrative expertise and business acumen in their selected target niches.
Helm Underwriting Management Services (known as UMS) is such a partner and forms part of Centriq’s portfolio of underwriting managers/agencies in South Africa. As one of the leading South African marine underwriting managers, UMS provides clients with superior solutions and access to marine insurance capacity.
Centriq embraces a risk-sharing philosophy – hence, Centriq’s decision to partner with UMS which understands and practises sophisticated risk management principles with regards to marine insurance.
Commenting on the importance of marine insurance in general, Hugh Murcell, managing director of UMS, says that marine is probably the most overlooked class of insurance because the assumption is often made that someone else is insuring it: “Assuming any thought has gone into its wellbeing at all, it is common for importers and exporters to think that nothing can happen to their cargo because it is safely protected within a shipping container.”
He adds that there is a myriad of potential problems for cargo in transit – containerised or not and whether by air, road, rail or sea – which make insuring it essential:
– General average – where, for example, a breakdown of the carrying vessel necessitates the payment of a percentage of the cargo’s value to obtain its release even though it is undamaged;
– Washing or loss overboard;
– Collapse of stow;
– Water damage;
– Theft (even of whole shipping containers);
– Breakage/damage resulting from bad handling; and
– Heavy weather damage, among others.
“A recent report states that ‘rogue waves’, resulting in major damage to vessels and the washing overboard of thousands of containers each year, are at least ten times more common than previously thought. Global Warming is the main culprit of this,” says Murcell.
Murcell adds that many companies have gone out of business as a result of failing to buy marine insurance even though it is an extremely inexpensive and affordable purchase.
Why buy local cover?
According to Murcell, almost invariably the cost of insuring locally is cheaper. “When insuring locally you know what cover you’re getting and usually obtain far wider cover than that obtained overseas, especially if you arrange your own open policy,” says Murcell.
If there are any problems concerning claims or unusual events, policyholders are able to discuss them with both their broker and local insurer in person, which is impossible to do when you are insured overseas. That said, it is important to note that local claims settlements are far more quickly, often by months.
“Overseas insurers are notoriously inflexible when faced with claims occurring outside their borders and are more likely to repudiate than local insurers,” adds Murcell. You are furthermore ultimately helping South Africa’s Gross National Product figure when insuring locally as you are not unnecessarily exporting money to buy foreign insurance.
Going forward UMS intends to continue to apply the standards that have evidenced success in the past, “by applying the knowledge we have to provide the insured with a custom designed product that meets his needs while also providing an equitable premium to our principals,” notes Murcell.
UMS’ premium income is split roughly as follows:
Goods in transit 40%
Small craft 7%
Stock throughput 5%
Marine liabilities 3%
SCOPE OF MARINE INSURANCE MORE THAN INSURING CRAFT OR GOODS IN TRANSIT
Petrus Sekabate, Marine Consultant, Lion of Africa Insurance
Many brokers, especially independent establishments who do not have the specialised divisions and/or lack the expertise to deal with marine insurance, fall short in providing their clients with adequate advice and correct insurance cover, or do not provide any at all.
As a result of this lack of knowledge, brokers do not realize the opportunities available and are hesitant to approach their clients on some of the issues relating to marine insurance other than craft and goods in transit insurance.
It is imperative that when a broker looks at his/her client’s portfolio, he/she should first look at what kind of business the client specializes in. If there is a movement of goods from one country to another, it is important to obtain as many details as possible. It is perhaps best to engage a marine specialist to aid in the information-gathering process.
Another alternative to assist in obtaining vital information is to consult various information sites on the internet to find organizations that offer marine courses, or to read other available media, like magazines.
The vast and broader aspect of marine insurance can also provide insurance for the following:
– Charterers Liability
– Carriers Liability
– Container Liability
– Projects and Advance Loss of Profits
– Ship Repairers and Stevedores Liability and
– War on land