Friday, 8 June 2012
Maritime insurance anguish abides as shipping struggles
The maritime insurance industry is struggling to cope with the dual challenges of globalisation and several years of poor technical results, experts said in a meeting in Paris. The situation is worrying enough to make market insiders wonder whether insurance groups will re-evaluate their activities in the sector.
The ‘Norman Bridge’, a Louis-Dreyfus Armement-built ferry
They fear that some insurance companies could choose to reduce their involvement in the maritime insurance sector to focus on other areas, especially as new capital requirements to be imposed by the Solvency II directive are likely to turn it into an even tougher area in which to make a profit.
Participants at the fourth edition of Rendez-Vous de l’Assurance Transports, an annual meeting of French transportation insurance experts, were gloomily realistic about the prospects of a sector that has found it difficult to turn around a long-running soft market.
The situation has worsened because the shipping industry itself has been going through hard times since the start of the current economic and financial crisis back in 2008. Global trade is down.
But some of the woes faced by the maritime industry today are a consequence of policies implemented during the boom times of the early 2000s, according to participants at the meeting in Paris.
Philippe-Louis Dreyfus, Chairman of shipbuilding firm Louis-Dreyfus Armement, LDA, said that the industry is in ‘crisis of management’ mode.
Mr Dreyfus criticised the eagerness with which some shipbuilding companies incurred debt as they accepted excessive volumes of orders in the hope that growth in world trade would continue unabated. This has not been the case and the result is high levels of debt and idle stocks, he said.
The need for shipping firms to maximise the opportunities created by globalisation has also created further new risks for the sector, said Fabrice Levesque, a transportation consultant.
The widespread use of shipping hubs, in which feeder vessels collect containers from different ports and take them to a few ports where companies redirect them to their final destinations, has resulted in higher risk of delays that can often compromise the management of supply chains for companies that rely on just-in-time production strategies on a zero stock basis, he said.
Mr Levesque also noted that this delivery strategy has increased the exposure of supply chains to climatic events and, in general, has expanded transit times.
He pointed out that in the early 2000s direct shipping services from Mombasa, Kenya, to southern Europe used to take between 15 and 18 days. Nowadays, as goods are moved to hubs before going to their final destination, the trip can take 25 to 30 days.
The increasing globalisation of the maritime industry has also raised the risk of money laundering and insurance fraud, participants said.
Frédéric Nguyen Kim, Manager of ALFA, an anti-fraud body linked to the French insurance association, said that insurance frauds remain particularly difficult to spot. Insurance companies must be alive to this threat, he added.
Mr Kim said that at least two cases of attempted fraud have already been detected in the processing of claims related to the Costa Concordia incident. The cruise ship was grounded off the Italian coast in January after hitting a rock, allegedly due to human error.
According to Mr Kim, insurers have already identified attempts to dump on them one fake death and one fake accident that were alleged to have taken place during the efforts to evacuate the sinking boat.