What's on the horizon for marine re/insurance?

From supporting the energy transition to facilitating trade, the Marine and Energy industry sits at the forefront of the economic, political, and social landscape. However, unprecedented challenges including climate change, the ongoing war in Ukraine, economic pressures, and the tensions of a multi-polar world have brought new risks for insurers to manage.

With IUMI 2023 around the corner, we wanted to reflect on the current challenges, as well as the opportunities, which are setting the industry's course for the coming years. It is crucial the industry continues to take a proactive approach to discussing and addressing these issues today and preparing for unknown challenges ahead.

That's something we embrace at Swiss Re. This year we are celebrating 160 years since our first marine treaty was written (the first treaty at Swiss Re in fact), and we still hold the same passion for this unique and complex business today.

Over the summer the northern hemisphere has seen more evidence of the frequent and severe natural catastrophe events. From wildfires to windstorms and flooding.

Marine insurers have an active role to play on two fronts.

First, key sources of renewable energy operate in the marine environment. Offshore wind is set to account for 8% of new renewable capacity, with innovations like floating solar farms on the horizon the knowledge and expertise of marine underwriters will be essential.

Many of the challenges of the green transition lie in the unknowns. New technologies demand expertise and this is where we as reinsurers have a key role to play, providing the risk knowledge and scale of visibility that clients need to grow their portfolios. At Swiss Re, we’re already offering guidance and capacity co-ordination through our newly created Centre of Competence for Renewable Energy.

The second is minimising the environmental footprints of shipping. According to the International Maritime Organization (IMO), the industry accounts for nearly 3% of all global CO2 emissions.

The IMO advocates that by 2050 the shipping industry should aim to become NetZero compliant. However, if business continues as usual, emissions could soar by as much as 130% over the next three decades. 

Shipping is now undergoing major change to tackle this issue. Moves towards larger tonnage vessels, the development of shipping routes and advances in fuel technology could drive the widespread transformation that is needed.

Since 2022, we’ve had to navigate extreme global uncertainty related to the invasion of Ukraine.

The impact of the war was felt throughout the marine re/insurance market, from portfolio exposure to managing reduced availability of malicious perils capacity. 

While the conflict remains active, growing tensions in other locations have also come into focus, driving an increasing need for awareness of exposure patterns, risk accumulations and potential coverage controls. The complexity of trade sanctions continues to develop, for example, impacting key areas such as access to technology, while also increasing costs and risks for re/insurers.  

This changing landscape also brings challenges for insuring trade. Consider the “Arctic Opening”, for example, that is giving rise to new shipping and trade routes. The economic and strategic potential of the region is expanding in tandem, meaning the prospect of military conflict in the region has heightened, changing the risk landscape significantly for cargo passing through. The establishment of new trade routes in increasingly exposed natural catastrophe areas will also add risk.

As an industry, we can respond to this type of challenge through establishing clarity in clauses and risk appetites. It’s important to accept we are in a period of ongoing change and uncertainty, and we need to adapt to ensure oversight of changing portfolio exposures.

Turning attention beyond geopolitical tensions and conflicts, the current global economic situation is also adding pressures. Inflation has come into focus more now than at any time since the 2007/2008 financial crisis, while government debts have reached record highs.

Looking through the lens of marine, dealing with inflation in policy costing and pricing, expanding awareness around the costs of raw materials, energy and services, and managing the availability of specialists are challenges that are contributing to increased loss burdens.

Supply chains have also been impacted by inconsistency, driven by both the legacy of Covid and current political tensions. Indeed, these supply shortages may well be part of the new normal. However, there is no avoiding the fact that this reality would increase re/insurer exposure in shipping accumulation points, such as ports.

Finally, all these trends are set against a backdrop of accelerating technological innovation. Considering recent developments in IoT, Blockchain and (Generative) AI, we can expect to see an increasing pace of invention and development in not just the shipping, but also marine & energy re/insurance.

Autonomous shipping and automation in the logistics value chain are already coming to fruition – even though the legal frameworks are not yet fully robust – while the increasingly digitisation of processes and assets will allow for much better insight into risks as more data becomes available.

The ability to handle and analyse these increased levels of data, utilising it to create value for all parties involved in an insurance transaction, will be crucial. And we must also recognise that with significant technological change will come a new breed of risks and exposures, each of which will require consideration to mitigate the potential for unwarranted surprises.

Marine is an incredibly dynamic line of business that is subject to a combination of external influences capable of impacting risk selection, exposure and price.

The industry has a long history of rising to challenges, ensuring that shipping lines remain open and facilitating global growth and prosperity, though some of the most pivotal moments of progress may be yet to come.

We live in a fast-changing world. To tackle the current cohort of challenges head on, re/insurers must play their role, working to ensure marine & energy players can meet climate challenges, support the energy transition journey, and ensure the safety of our seas and oceans.

Swiss Re is here to help you navigate turbulent waters smoothly, striving to make the world more resilient by developing innovative solutions that help advance sustainable shipping solutions.

We look forward to meeting with you in Edinburgh to discuss how we can assist industry progress and address today’s risks to achieve a brighter tomorrow.