The Insurance Market – The Shipowners’ Dilemma

The last two to three years have been a difficult period for underwriters as well as shipowners. On the one hand, claims activity has been on the rise; on the other hand, the capacity in reinsurance markets has been shrinking. As a result, it is inevitable that insurance rates will continue to rise until some level of equilibrium is achieved and underwriters generate profits that are “normal” for this type of business. The shipowner, in the meantime, is confronted with the challenging task of obtaining quality cover at optimum rates. The state of the insurance market from a shipowner’s/shipmanager’s perspective is examined, and some of the options of which a shipowner should be cognizant are outlined below.

The insurance markets, particularly in the United Kingdom, have been plagued with over capacity in the past several years, resulting in intense competition and price cutting among underwriters. While this has been welcomed by the shipowning community at large, it is natural to expect that underwriters are not as happy about this.

Against this backdrop, there have been a number of very large catastrophic losses which are slowly passing through to the underwriters. The Piper Alpha loss in 1988 and, more recently, losses from the Exxon Valdez, Hurricane Hugo, the San Francisco earthquake and the Phillips Petroleum Refinery explosion are examples which have had tremendous impact on the profitability of underwriters. The 1990 Oil Pollution Act in the United States – and its attendant liability implications – is another significant piece of legislation that has caused a lot of concern and nervousness among underwriters. Additionally, underwriters have reported higher levels of claims activity on the marine side, all of which combined together has caused turmoil in the underwriting community and resulted in some excess of loss underwriters and some primary underwriters withdrawing from the market.

This is only an excerpt of The Insurance Market – The Shipowners’ Dilemma

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