Stiff competition within the marine sector has left many insurance companies in the Middle East complaining about what they see as unfair play, with some industry sources even warning the issue could destroy the market.
According to local press reports, insurers claim that while trade volumes and ship capacity continue to increase, premium rates in the market have remained flat due to the ongoing competition – and there is no sign that rates will go up soon. “Due to increases in volumes the number of claims has naturally increased,” said Mohammad Hussein, Manager for Marine Insurance at Al Buhaira National Insurance Company in Dubai.
Speaking to Emirates Business, he added: “Even where we want to raise our premium to match market trends we cannot do so because our competitors are not cooperating. The competition is unbelievable as each company wants to increase their portfolio, but unfortunately this is softening the regional marine insurance market.”
Insurance claims in the region have increased by about 20% since the beginning of the year on the back of the boom in seaborne trade and a rise in the number of ships.
Captain Ashuman Singh, Regional Adviser for Protection and Indemnity and Senior Claims Manager for the Gulf Agency Company, said: “The number of claims is poised to keep on rising in the coming years due to a greater risk aggregation per vessel. This should have been a good opportunity for companies in the marine insurance market but hull and cargo premiums have not risen at the same rate as the trade.
“There has been widespread rate cutting in cargo due to overcapacity and underwriters growing their top line. We now see outright reductions as underwriters under price business and chase revenue,” he told Emirates Business.
According to market sources, the average cost of a hull claim has risen by 86% over the last five years and, with claims costs likely to continue growing in the future, analysts say the industry must manage costs without compromising safety.
Experts believe that the high claims costs recorded in 2006 and 2007 were caused by random fluctuations in claim severity or frequency but rather resulted from a number of factors.
Harry Rogers, Senior Claims Manager at Goltens Insurance in Kuwait, said: “Strong market conditions and the rising costs of raw materials have resulted in price hikes for virtually all claims cost factors, ranging from higher rates for towage and salvage craft, cargo values, pollution combat equipment, replacement parts, and lack of capacity in repair yards. Costs have also been impacted by a negative currency effect due to the relatively low US dollar, while repairs are often priced in other currencies. Increased environmental sensitivity has created more complex and costly salvage and wreck removal situations.”