Cargo market attracts fresh insurance capacity

The London cargo market remains buoyant as 2022 evolves, and it can confidently offer upwards of USD1bn of capacity following significant investment in the segment over the past 18 months.

The more recent entrants to the cargo market include Arch, HCC, HDI, IQUW, Navium, Ocean Underwriting, Rokstone, and Starr, whilst the majority of established Lloyd’s syndicates and insurance companies have increased their stamp capacity for 2022. Capacity providers such as Insurex and Ki continue to benefit from their unique offering in the field.

Nevertheless, there have been a few global cargo losses recently that have attracted considerable attention. Among them is the sinking of the Felicity Ace car carrier loaded with luxury cars estimated upwards of USD400m and a fire loss at a Walmart Distribution Centre in Plainfield, IN, USA estimated upwards of USD200m. In both cases it is understood that London market capacity has been involved.

Face-to-face trading is now back in EC3 and, in conjunction with the utilisation of the electronic placing platform PPL, London can now confidently once again claim to be the global lead market for insurance for complex risks. Cargo insurance buyers can expect stability and a general levelling of premium expenses, but uncertainty around the Russia/Ukraine conflict will impact some areas of cover with potential ripple effects on the general market in the coming months.

Insurers are tendering notice of cancellation clauses in respect of war/strikes, riots, civil commotion (SRCC) risks in Russia and Ukraine and in many cases, clients are being offered a reinstatement at an elevated rate. However, several insurers are set to exclude such war/SRCC coverage. In these cases, there are other markets who will consider such risk transfers on a standalone basis.

Companies shipping and storing commodities will need to continually review their exposures as oil/gas and agricultural prices rise. The significant market capacity available will ensure that buyers have options as competition promotes favourable pricing conditions. Insurance buyers should explore different market opportunities around stock throughput policies with increased limits or excess policies. Stock throughput policies can combine the worldwide transit and inventory exposures of clients in one policy.

Advantages of stock throughput policies

  • Combines global “All Risks” cover for all raw materials, work in progress and finished stock during transit, and manufacturing and storage, eliminating potential coverage gaps between separate policies.

  • Provides cargo market capacity for catastrophe risks such as earthquakes, windstorms and floods, offering consistently lower deductibles than those provided by the property insurance market.

  • Creates reduced administration costs for clients.

  • Valuations are based on sales prices and can reduce the business interruption exposure.

  • Substantial limits available for both primary and excess.

  • Opportunity to obtain a full credit from property underwriters for the reduced total insurable value (TIV) created by removing the inventory from that policy.

  • Premiums/rates are calculated on the average inventory values instead of maximum values.

  • Whether attacking or defending an account, stock throughput policies demonstrate innovation and reduce overall cost and risk retention.

Underwriters do continue to place considerable focus on specific policy wordings as well as catastrophe exposed risks requiring modelling. For such risks it is key to provide full risk exposure information at an early stage prior to renewal.

For further information, please contact:

Peter Hall, Partner - Head of Cargo & Logistics

T: +44 (0)20 7933 2139

E: peter.hall@lockton.com