One step forward, one step back? Exploring the changing tides of marine re/insurance

With Conference Season now underway, this point in the year always feels like an opportune moment to review what's shifting in the world of marine re/insurance. As the world economy continues to claw back from a range of shocks, how is the landscape re-forming? Are they the old same patterns as before or is a new picture emerging?

One thing remains clear since last year. The global landscape is still in flux. Steps forward are often met with a step back.

We see three driving themes for our sector. Of course, truly separating these is complex – they intersect, drive, and are driven by, each other. All have short- and long-term impacts, and urgencies, but we can't lose sight of managing the risks associated with any of them.

Some of the world's most important trade routes are being disrupted or subject to sovereign manoeuvring, raising costs through the logistical chain.

Despite this, global trade confidence improved slightly in 2024, as the world economy continued to recover from the recession caused by the COVID-19 pandemic (supported by stronger policy). The United Nations Trade and Development (UNCTAD) also estimates that the volume of world merchandise trade will increase by 3.3% in 2024, after contracting by 9.2% in 2020 and growing by 2.4% in 2021.

Even with these positive signs, trade confidence remains fragile. Consumer confidence remains low, and trade is vulnerable to changing macroeconomic and geopolitical conditions. These can have significant impacts on marine insurers. In 2019, the US-China trade war led to a 15% drop in marine insurance premiums in North America.

These economic themes are explored in more detail in new research from the Swiss Re Institute.

The United Nations reported more violent conflicts globally in 2023 than any time since World War II, displacing 110 million people. There are numerous flashpoints around the world. Headline conflicts like Ukraine or Gaza, the Red Sea or the future of Taiwan have had well publicised impacts, alongside ongoing civil wars in Syria, Yemen, Sudan, Libya, and tensions around Iran's nuclear program. The Swiss Re Institute phrased it well, as "a poly-crisis of interconnected and complex new and emerging risks".

Across the value chain, uncertainty is the dominating topic. This is rooted in traditional economic factors and further impaired by raw material shortages, unexpected delays and the general shift to a more multipolar environment. The activities of the Houthi rebels in the Red Sea forced ships to avoid the Suez Canal and detour around Africa. This has increased shipping costs and altered trade routes, impacting international economies and ultimately leading to increased freight prices.

Protectionism also has a persistent impact. US exports to China are today still below their level prior to the onset of the 2019 tensions. Tariffs and sanctions are employed as strategic tools, leading to cost inflation and supply chain disruptions. Compliance with changing trade regulations is an ever evolving and costly challenge. All parties in the supply chain need to understand trade laws comprehensively, no doubt requiring agile adaptation of procedures and technology to ensure compliance.

Insurers must monitor these changes closely, managing risks in conflict areas, with policy features like war and strike cancelations and event limits becoming increasingly critical.

Decarbonising our world is a requirement if we are to maintain a semblance of what we have currently and, despite all the challenges around us, we cannot lose sight of this as a primary goal. Simultaneously, and in contrast, the world needs more energy. Global consumption is anticipated to rise by approximately 50% by 2050, compared to 2019 levels.

The energy industry has employed a range of strategies to try and achieve these goals. Enhancing operational efficiency, investing in low-carbon technologies, expanding into renewable energy sources, and implementing carbon capture, utilization, and storage (CCUS). However, progress remains inconsistent, with some major producers lagging in their commitments and actions.

Enabling the energy transition presents both challenges and opportunities for the insurance industry. This segment represents a new risk pool that will develop into a significant element of our portfolios, and will contain new products, technology and exposure locations.

Our own Centre of Competence for Renewables has emerged as a leading partner and thought leader in this evolving landscape with meaningful capacity, co-ordinated via the centre, and risk knowledge that can be deployed by insurers to navigate this emerging risk landscape.