A new report indicates that the shipping industry will face higher premiums and reduced returns from its Protection & Indemnity (P&I) insurance Clubs in 2020 as claims increased by more than $350m in the last two years.
International P&I insurance broker P.L. Ferrari has found that member-owned P&I Clubs within the International Group are running unsustainable models that are offering too low insurance premiums to its members as claims.
The latest report ‘P&I Market Review 2019’ assessed the shipping industry’s 13 mutual P&I insurance Clubs over the last three financial years, which insure approximately 90 per cent of the world’s ocean-going tonnage. It found that premiums charged by the Clubs have reduced by 13.7 per cent, or more than $370m since 2016/17 to $2.7bn.
At the same time, claims have increased by 14.6 per cent or $350m over the same period to $2.4bn, and costs incurred by the insurance Clubs have risen by 10.3 per cent, or $344m to over £3.3bn.
The report notes that the Clubs have been able to offset costs and continue to offer favourable rates to members by holding record-high reserves, achieved through both improved investment return and several years of claims, in both number and value.
However, P.L. Ferrari notes that the current claims cycle has now reached a new stage and the rise in the cost of claims over the past three years seems to be unrelenting. Claims have increased in part due to the increased tonnage that the Clubs are covering. In 2018/19, the 13 clubs collectively insured 1.73bn of total tonnage (including owned and chartered), up 3.5 per cent from the 1.68bn insured in 2017/18, and up 20 per cent on five years previous.
The report notes that in 2019/20, Clubs have collectively covered 1.80bn of tonnage, an additional 3.6 per cent increase on 2018/19, which points to further potential claims increases in 2020.
The report also points to macro-economic drivers that are increasing the cost of shipping into 2020, including increased tariffs as a result of the US/China trade war, and impending improved emissions compliance by 2020.
As a result, both the average yields offered by the Clubs back to their members, and the total investment returns have fallen precipitously over the last two years. In 2018/19, the Clubs collectively yielded just over $100m, down from the $428m (or 0.82 per cent) yielded two years before.
Alistair Rivers, head of marine & transportation at Lockton Global, of which P.L. Ferrari is a wholly-owned subsidiary, said: “No P&I review over the last few years has failed to reference that premium and claims costs are not in balance and, therefore, all insurers are under increasing pressure to address this premium deficit.
“At some point over the past two years, most if not all Clubs have issued statements to the effect that the mutual market needed to increase premiums over the next one to five years to ensure financial stability. 2020 may be the year we see the resulting pressures materialising into concerted action.”