Fixed Premium P&I Insurance Set for Growth in Asia
Markel International, Singapore
Ahead of the Protection & Indemnity (P&I) renewal season in February this year, some International Group (IG) clubs have already announced a general increase of up to 10% as of mid-November, the highest increase in five years.
However, in addition to the traditional premium increase this year, these clubs have also emphasised additional adjustments which will be based on individual shipowner performance.
This means members with poor claims records can expect even higher premium increases – Is this a new standard shipowners should look forward to?
IG clubs that have already declared a premium increase have defended their decision with market uncertainties brought about by the pandemic.
Furthermore, the 2020 policy year can be considered the worst year in the past decade for IG clubs, with numerous high-profile maritime incidents contributing to unprecedented pool claims to the likes of Wakashio, Golden Ray, Hoegh Xiamen and Covid-19 claims for Princess Cruises.
Due to the mutual nature of clubs, all shipowners of IG clubs (claims-free or not) are required to contribute and replenish the pool to preserve their club membership, resulting in Pool and Abatement Costs among members of the same club to be the highest.
In addition, shipowners may be subject to unbudgeted supplementary calls as well as release calls for leaving the club.
However, the high and rising cost of IG club membership can be a strong barrier for smaller and even potential shipowners, and given the mandatory nature of P&I insurance, are IG clubs the only available option for shipowners to acquire reliable P&I insurance?Alternative P&I solutions in the form of Fixed Premium P&I (FPPI) insurance have long existed outside the IG clubs.
FPPI insurers can provide P&I insurance without the high overhead cost of being a member of a club. Instead, premiums are based solely on acquisition cost and individual loss records.
As Asia sees signs of recovery in the post pandemic world, China is poised to be the only country to see positive economic growth for 2020.
The region’s maritime sector has also remained fairly resilient despite the coronavirus headwinds.
With more IG clubs set to announce higher general increases at the renewal, FPPI insurers are likely to see better opportunities in the Asian market in the coming year.
This can be seen from the growth of Asia in fleet value and as an international maritime hub. Currently, Japan is the largest ship owning nation by fleet value, with China and Singapore ranked third and fourth respectively according to a 2020 VesselsValue report.
In addition, Singapore is the top international shipping centre according based on the 2020 Xinhua-Baltic International Shipping Centre Development Index – Shanghai and Hong Kong are placed third and fourth respectively.
With the Belt and Road Initiative (BRI) underway, we can expect to see more signs of maritime growth through the construction of new deep-water ports as well as the expansion of existing ones in Asia, alongside the restart of Asia’s shipbuilding industry which promises to reinforce the region as a bastion for maritime trade.
As the world begins to open up again, Markel International, one of the top five global insurers for port and terminal operators’ liability, has extended its FPPI coverage to include harbour tugs and associated vessels under their operator’s liability policy as a solution to small and medium-sized port and terminal operators as well as shipowners with small and medium fleets of similar profile.
For tug operators and owners, this provides the small tonnage market with more options, especially since it is due to expand with the growing tonnage of larger vessels as well as a shift towards newer tugs that utilise environmentally friendlier fuels.
This is indicated by the strong global tug orderbook of 284 units as at mid-April 2020 prior to the implementation of Covid-19 lockdowns around the world, according to BRL Shipping. We can expect more FPPI interest from this sector as the market recovers.
Although the FPPI market continues to be challenging due to headwinds and tough competition from IG clubs, the Asia market continues to be a focal point of growth for FPPI providers with untapped potential for prudent insurers.
Sam Pik Ying
Marine Underwriter
ENDS
About Markel International:
Markel International is a division of Markel Corporation, a US-based holding company trading on the New York Stock Exchange (NYSE: MKL). Markel International writes insurance and reinsurance business through six divisions and through offices across the UK, Europe, Canada, Latin America and Asia Pacific. Markel International’s insuring entities include Syndicate 3000, Markel International Insurance Company Limited, Markel Insurance SE., and Markel Resseguradora do Brasil S.A.
Its UK national markets business also provides legal and professional fees insurance cover as well as legal and tax consultancy services.