What odds would you have got a decade ago for a bet that in 2023 Marine insurance* would be the most innovative of all the specialty classes? Marine underwriters had a well-deserved reputation for being notoriously traditional. There is a good reason why the Marine Insurance Act 1906 still governs much of English marine law and remains highly influential in marine insurance worldwide. While pockets of traditionalism no doubt live on, the last few years have seen impressive levels of adoption of new technologies, data sets, models and products. Way more than has so far taken root in, for instance, aviation, commercial property or business insurance.
Before looking at what has changed let’s first look at the reasons why. It is not just because a new less traditional generation of underwriters has emerged, it is much more about the influence of forces from outside insurance. In the last 5 years geopolitical events, a global pandemic and supply chain disruptions have battered the operational functionality of the transportation and cargo sectors. Businesses have therefore had to adapt to new war zones and sanctions in Eastern Europe and mainland China. There were a series of individual supply chain disruptions such as the 2021 Suez Canal obstruction. Plus, the recovery from regional lockdowns was difficult for logistics providers who had to meet post-pandemic cargo demand whilst dealing with a backlog of shipments and displaced staff.
The challenges created by these events and the availability of some excellent pre-existing technological innovations spawned by the InsurTech scene have created a fertile climate for change. This has coincided with the availability of new methods and models such as algorithmic underwriting, embedded insurance and parametric product structuring which together have allowed the marine insurance industry to become not just weather the storms, but emerge stronger and smarter. The marine insurance industry has also responded to the growing demand to report ESG risk. Groups such as the International Maritime Organisation have begun to support marine insurers’ transition towards greater ESG compliance.
Let’s look in more detail at some of the businesses that are working with the incumbent marine industry to enable this change. These cover new cargo products, automation of marine claims, the ESG reporting requirements and new market models.
Parsyl – Monitoring and insuring perishable products
Parsyl grabbed the insurance innovation headlines in 2020 when it launched the Global Health Risk Facility (GHRF) with Lloyd’s of London. The GHRF was set up to distribute vaccines in the wake of the COVID-19 pandemic. Today, Parsyl provides coverage and risk mitigation services to support the global distribution of a broader range of temperature-sensitive perishables. Starting out as an MGA, and since graduating to own its syndicate-in-a-box, Parsyl uses granular supply chain data to price tailored products and then uses its Parsyl Trek sensors to monitor cargo shipments. Parsyl provides a suite of indemnity policies for all risks and also offers an elective parametric product with a temperature trigger. For this latter product, Parsyl’s sensors will indicate if the temperature of the cargo has exceeded a predetermined threshold and if so a claim will be triggered automatically.
That combination of technologies and services has been pulled together in a new venture announced on 5th April 2023. Parsyl announced the launch of its new Essential Consortium at Lloyd’s of London, led by the company’s own Syndicate 1796 and supported by other Syndicates including SCOR 2015 and RenaissanceRe Syndicate 1458. The consortium will bring $20 million of new capacity to the perishable cargo market, providing coverage for food and beverage, life science and pharmaceutical policyholders. The Essential Consortium will make use of Parsy’s smart trackers to drive underwriting and risk management services.
A good example of how the insurance of perishables works in this model was provided by one of 2022’s big news stories. One of Parsyl’s customers is Asian Pacific Seafood, a pasteurised crab meat provider. Parsyl provided it with a tailormade temperature monitored cargo insurance for shipments between China and the USA. The Ever Forward was carrying a cargo of Asian Pacific Seafood crab meat when on 13th March 2022 it ran aground in shallow waters in the Chesapeake Bay and was unable to continue its journey. The company’s shipment transit was extended from a typical 45-60 days to 103 days, meaning there was a likely loss of $340,000 when the shipment arrived at the cold storage facility.
When the ship finally docked, Parsyl’s IoT sensors had monitored the entire shipment and this data was automatically shared with Asian Pacific Seafood, Parsyl and the cold storage partner. All parties analysed the data and concluded that the crab meat had been kept at a suitable temperature throughout the entire delay and was therefore safe for sale – relief all round. For others who were unable to prove their goods were kept at suitable temperatures throughout, it was not such a happy ending.
omni:us – Automating the marine claims process
Founded in 2015, omni:us’ Digital Claims Adjuster (DCA) is an AI-powered solution for end-to-end claim automation, starting at first notification of loss (FNOL) through to claims indexation and settlement. The aim of the DCA is to reduce the likelihood of duplicate claims by allowing initial communications from brokers and clients to be handled directly via email. The company’s AI interprets the line of business, type of loss, cause of loss and parties involved to reduce the administrative burden on claims handlers. The product can also provide insurers with recommended actions.
omni:us announced its partnership with MS Amlin Marine NV in early 2023 after being selected to update the insurer’s corporate marine insurance claims process. omni:us is being used to entirely automate low complexity marine claims, paying out on claims worth €5,000 or less. For more complex claims, MS Amlin can now use the omni:us platform to assign a claims handler automatically. Complex claims will also be automatically checked, across several administrative criteria, during the initial triaging stage to reduce the early investigative work of the claims handler. The result has been a reduction in the time taken to triage complex claims, pay out simple claims and improved customer satisfaction.
It is a commonly held assumption that the benefits of claims automation are only available to insurers underwriting retail lines like household and motor and not in marine because it is inherently complex with low volumes of high-value risks and limited homogenuity. That is exacerbated by the lack of capability in the legacy systems which prevail which do not give marine insurers easy access to the data required or automation tools such as machine learning algorithms.
Businesses like omni:us are helping to overcome that because it provides the ability to lay its claims system on top of existing legacy systems so there is no loss of data or procedural functionality. Currently, omni:us estimates that it can reduce the time taken to process a claim by 55% in entirely automated cases and by 35% in semi-automated cases.
Concirrus – Real-time portfolio analysis for insurers and reinsurers
Hull insurance also required modernisation with the need to improve the accuracy of risk models. Seeking to solve this problem, Concirrus launched its new Marine Hull Market Model in January 2023. This risk model aggregates data from over three trillion points, processing over 100,000 historical policies and associated claims. Founded in 2012, Concirrus provides real-time data and analytics solutions for marine hull, commercial automotive, cargo and property insurance.
The Marine Hull Market Model sits within Concirrus’ broader Quest Marine product, a data and analytics solution for marine hull insurers. Quest Marine has two distinct modules, Quest Marine Hull and Quest Marine Protection and Indemnity (P&I). The Marine Hull Market Model is a feature of the former module, enhancing insurers’ ability to use the platform to assess behaviours related to claims and accurately quantify risks and accumulations. The Marine Market Hull Model provides accumulations data.
SCOR used Concirrus’ previous iteration of the Marine Market Hull Model in 2022 to improve its loss ratios and support its in-house underwriting capabilities. The partnership was extended in February 2023 with SCOR seeking to respond to ever evolving challenges in the marine market, improve its current book of business and build more robust models to support complex underwriting.
In March 2023, Applied Underwriters and Concirrus entered into an agreement to support the development of each company’s product. Applied Underwriters plans to enhance its research and development in cargo data processing for underwriting and claims whilst Concirrus is seeking to further evolve its Marine Hull Market Model, reach a wider range of clients and expand into new product lines.
The combination of events referred to at the top of this article has created volatility in the insurance market, resulting in 2023/4 being one of the toughest renewal seasons in recent memory. Looking forward to future renewals, insurers need to be better informed so they can improve underwriting decisions and respond to reinsurers’ demands for greater visibility on underwriters’ decision-making and risk selection processes. Using Quest Marine and its wealth of claims data will make it easier to provide individual company and portfolio-level risk analysis to reinsurers and thereby foster better relations with reinsurers at the 2024 renewals.
S&P Global Market Intelligence – Helping marine insurers measure ESG risk
Insurers, across many lines of business, are also facing pressure to quantify how the businesses they are insuring are affecting the global climate. This pressure is coming from both investors and underwriting regulators. ESG and reporting on it has moved quickly from being a buzzword to a looming regulatory requirement for insurers.
The very nature of the current marine industry involves thousands of long-haul journeys powered by fossil fuels which pose a considerable risk for insurers from an ESG reporting perspective, when underwriting marine business. As a result, a group of global shipping insurers, brokers, ship owners and other societies formed The Poseidon Principles for Marine Insurance. Insurers who sign up to adhere to these standards agree to better alignment of their portfolios towards the International Maritime Organization’s (IMO) decarbonisation ambition to reduce greenhouse gas emissions by at least 50% by 2050. The Poseidon Principles provide marine insurers with a framework to assess and disclose this.
Many marine insurers are yet to develop an ESG strategy and emissions reduction targets. S&P Global Market Intelligence has therefore developed its Poseidon Principles Managed Reporting Service. This service has been designed to assist the Poseidon Principles signatories in collecting, validating and analysing data to calculate and disclose their portfolio’s carbon footprint and alignment with decarbonisation trajectories. Insurers can automate the shipowner outreach process and the identification of data inconsistencies. S&P Global Market Intelligence’s service will provide its customers with a reporting dashboard that can be used to inform the signatory’s end-of-year report.
Loadsure – Pay-per-load cargo insurance for SMEs
Parsyl is not the only business seeking to revolutionise cargo insurance, Loadsure and Otonomi have also introduced new products that seek to address problems in the existing cargo insurance market.
Having worked in cargo insurance broking throughout his career, Johnny McCord founded Loadsure in 2018. Loadsure is an MGA providing both annual and pay-as-you-go insurance products to address rising freight underinsurance resulting from limited availability and flexibility in the types of cargo insurance products available. Too much of the available coverage was static, annual and designed for large businesses. It is difficult to find policies “per load”, suitable for SME businesses and those that are available are annual,often complex and with many exclusions.
To seek to solve this Loadsure is using algorithmic underwriting methods to provide a more flexible insurance product which is called Danube. This provides all-risk coverage for goods in transit with no minimum premium required. The company’s underwriting process is automated, producing a clear risk profile for each cargo shipment and a rating that is provided to the customer in 40 seconds or less. Loadsure’s algorithm then identifies specific accounts that require a rate rise based on historical patterns, for mid-term adjustments.
In January of 2023 Loadsure secured capacity from Tokio Marine Kiln and with this backing it is seeking to further enhance its platform and expand the range of coverage offered to support a wider geography, outside of the USA and Canada.
Otonomi – Per shipment parametric cargo insurance for delays and interruption
Otonomi is another company tackling a different problem within cargo insurance. It offers insurance coverage for the financial consequences of 12-hour cargo delays and interruptions. The insurtech collects logistics, aviation and climate data to inform the algorithms which underwrite its policies. This data is also collated to form part of the Live Air Cargo Delay Index in the USA, which is an official risk contributor in the Nasdaq Global Index Data Services platform.
Otonomi offers parametric policies to companies in the shipping and logistics industry. Policies are provided as an embedded insurance offering which can be administered per shipment. Otonomi uses an API infrastructure to both bind and trigger pay-out policies. Each policyholder has a digital wallet which is used to resolve and pay-out claims quickly. While traditional cargo insurance policies take 45 days on average to pay cargo delay claims, Otonomi says that it processes claims in 45 minutes.
In late 2022 Otonomi closed its seed VC funding round, raising $3.4 million. The company used this money to launch its product and just announced a strategic partnership with one of its investors, Greenlight Re. In this partnership with Greenlight Innovation Syndicate 3456, Otonomi will act as a platform provider for a new parametric cargo insurance program. The next steps for Otonomi are to expand its distribution methods and prepare for new fundraising in 2024.
Conclusion
The advancements we have talked about here have happened because the providers of these new technologies have a genuine understanding of what is required, have articulated the case for it and facilitated implementation through an appreciation of the underwriting processes and sensitivity to the realities of adoption. The incumbent industry did not change from within and has not developed its own solutions. What it has done is be open-minded enough to embrace helpful new technologies that have been well sold to it in a time of need. The insurers of other specialty classes could learn a lot from this.
*Our definition of marine insurance is the physical loss or damage of ships, cargo, terminals, ports, oil platforms, pipelines as well as hull marine casualty, and marine liability.