June 2023
Cargo Insurance Market Update
We’ve all heard the saying that insurance is a ‘people’ business; today, talent is driving change within the global Cargo insurance market at a ferocious pace amongst both underwriters and brokers.
We have seen such a significant number of personnel market moves over the past 12 months that the list is too long to include – but the last time this level of change was seen was over a decade ago, preceding one of the softest cycles the market had seen (up to 2017/18), followed by two and a half years of hard market conditions. This has ‘stabilised’ (the buzz word from recent RIMs conference in Atlanta), however there are a number of factors that we feel are showing an increase in available capacity and therefore a depression of overall rating. However, this comes with increased overall spend still for most clients – and maintains healthy competition amongst underwriters once again.
- Inflation – this is rising values in store and driving increased premium spends for many Assureds. Rating is often decreasing but overall premium spend is up;
- Commodity prices – whilst oil prices have reduced below peak values of the March 2022 and many other commodity prices have also reduced, the global demand for raw materials, foodstuffs, and other items continues unabated and as such this is also increasing the prices of finished goods - and therefore increasing premium spends.
These increased costs are damping the impact felt by many insurers for their costs of increased capital in the form of reinsurance, where the c.20%-40% increases in their own costs were not passed onto customers. These changes drove some market uncertainty at the beginning of the year but it was clear by 1st April renewals that this wouldn’t have any wholesale change in rating. It did have impact on some conditions such as the now market wide Five Powers Clause.
"The Cargo market is open for business once again"
What are the important aspects for assureds to remember in their placement?
We believe that first and foremost working with your current insurers and getting them to understand your business remains key – it is after all a ‘people’ business. We have seen the largest rate changes for assureds that know their lead underwriters well. Those that view insurers purely as capacity providers are often dealt with as such in the terms that they are given at renewal, and this is also the case for those assureds that ‘shop around’ year after year. Once again, the key is strong relationships as well and knowing where the market is changing the most.
Placements that are providing the market ‘stabilisation’
The other aspect that is driving the Cargo market is its potential use as an alternative capital provider to a hard (and potentially) hardening further property and ‘CAT’ market. Once again this is well documented pricing rise. The Cargo market is seeing increase in submissions (and writing many) for Stock Throughput, stock only buy-outs and are a credible alternative for assureds looking to offset larger increases in the property, or indeed just getting a placement to 100%.
This is still coming sometimes at increased costs for assureds. We are also still seeing many of the traditionally challenging risks in the Cargo market remain as such - for example automotive, commodity traders, pharmaceuticals. Many markets in this space are still maintaining discipline and writing interests that they are comfortable with, at line sizes that enable them to support without exposing themselves too highly. We hope that this continues and that personnel moves within the market don’t start bringing back excessive number of lineslips and placement facilities where ultimately assured’s don’t know their markets and insurance is simply commoditised.
Our last aspect to consider is insurer service - some markets are at present overwhelmed with submissions, heavy bureaucracy and robust management underwriting directives. Other markets are mainly trading face-to-face, have empowered underwriters that can make instant decisions and are timely in their responses – these are the insurers to prioritise as they’ll potentially be leaders in the market over the next few years. Once again, this is where we often see the traditional Cargo centres working optimally, as they are the ones that will be in a position to offer new terms to assureds.
As always, each country and region has its own nuances and impacted by different geo-political and natural events. This means that your broker needs to understand all of these. The Gallagher Specialty Cargo division continues to grow around the world and given our expertise and market relationships, we are ideally placed to manage any large and complex exposures that clients may need assistance with – with our people being the critical differentiator in our ability to get the job done and deliver.
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Arthur J. Gallagher (UK) Limited is authorised and regulated by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N 8AW. Registered in England and Wales. Company Number: 119013.