DRIVING KEY IN HCV
Southern Africa has witnessed a steady increase in projects that require cover for special and oversized cargo in transit from port to end destination. A softening marine insurance market may however be making the underwriter’s task more difficult.
Steffen Siljeur, marine underwriting and business development manager at Mutual & Federal, explains that a new development in the industry has been the notable increase in renewable power generation projects. “There have been more solar- and wind- powered projects that have been taking place in South Africa, the components for which are mostly being shipped in from abroad since they cannot be sourced locally,” Siljeur starts. “The rest of Africa is also developing more renewable projects but from our perspective, the biggest drive seems to be locally. The only real challenge has been to make sure that the various projects are correctly underwritten and what we at Mutual and Federal have done is to co- ordinate the various components for these projects in- house, from an insurance perspective. Our marine cover for the components coming in from China or Europe, ties in with our engineering department, and we have done a lot to become a one- stop provider for these kinds of projects in terms of cover,” he says. CEO of Tradesure, David Leclezio, also notes that the demand for new mining projects has been on the increase, and a significant number of the abnormal loads that the company has underwritten are related to new plant equipment and mining infrastructure entering the country. “There is not necessarily a lot of this mining activity happening in South Africa, but we have seen a lot of mining machinery being shipped to places like Zambia and
Mozambique. One of the abnormal load specialists that we work with, Transcor, reports that they have been transporting around 450 to 500 abnormal loads per month and they get about 25 times more than that, in enquiries,” he says.
Softening in the market
While one cannot complain about an increase in business in one’s sector, one weighty problem has developed from an underwriting standpoint. Petra Fordyce, head of marine at Zurich Insurance, tells RISKSA that the marine insurance industry currently finds itself in a soft market cycle, putting the underwriting process under strain. “Especially with project cargo, your underwriting needs to be sensible and you need the right level ofexpertise. We are unfortunately seeing less and less that the underwriting for these projects is being done wisely. There are a lot of juniors and inexperienced players entering the marine insurance market and we are generally seeing a lack of appropriate expertise,” she starts. According to Fordyce, abnormal loads are predominantly linked to substantial projects, and issues arising from their transport inevitably have a knock- on effect into the project costs and liability side. “So to get that cargo from point A to point B in a satisfactory condition is absolutely vital. With the economic pressure being what it is at the moment, we see that many clients are looking to save money wherever they can. It predictably leads that many companies will go with the cheapest insurers and policies, instead of the most sensible ones,” she says.
Fordyce attributes the influx of capacity in the market to the fact that marine insurance has always been viewed as the sector with the most profitable lines. “There are a lot of companies entering this sector in order to diversify from the less profitable lines, like the motor portfolios that have been experiencing a lot of difficulty lately. The barriers for entry into the sector are percieved to be low, and it has resulted in increased pressure on our rates,” she says. Fordyce says that on Zurich’s side, the company does not compromise on pricing for these policies. “One cannot compromise on sensible premiums and cover but as a large company, we have the benefit of being able to offer better value- adds and global support, so we are still able to make a good case with clients on why they should be covered by us.” The effect of this softening in this market is a major source of frustration to other players as well and Leclezio points out that it has impaired the ability to accurately underwrite cover for the overland transporters as well. “The biggest challenge here is quoting and insuring correctly and there is a major problem that creeps in when clients ( transporters) are making an enquiry. They can give you the weight and dimensions of the cargo but they generally don’t know the value of the cargo until the last minute. These clients now need insurance but they don’t know how much cover they need,” he says. “In the case of intermediaries, we’ve found that they often do not take the time to gather all the information that they need for a proper valuation. Part of the problem is that a transporter and an underwriter can’t hold out on a quote until a client provides all the required information, because the competition in the market is such, that this client can simply take his business to someone who offers a looser approach to underwriting the risk and a lower price,” he says. Another industry insider comments that the short lead times regarding cargo information has meant that some transport companies do not have enough time to acquire the proper permissions. “We have seen more than a few abnormal loads being transported without licences because they simply didn’t have enough time,” he says.
Educating the industry
“We have covered our share of abnormal loads going to the major coal- fired power stations under construction. We have also seen the increase in abnormal cargo intended for mining projects in sub- Saharan Africa. The modes of transport have obviously changed very little over the years but project cargo and the necessary skills to manage their risks have certainly become more complex,” says Andrew Walker, AIG’s marine loss control manager for Africa and the Middle East.
“We have found that every single aspect of the transport needs to be scrutinised, from the lashings and transport used, to the port where the cargo is offloaded. It has happened before that the project cargo could not fit through the exit gate of the harbour,” he continues. Walker states that, along with that, risk management has started taking on an increasing role. “Obviously getting these project loads to their destination intact and on time is becoming more and more important. Getting the route planned and mapped out is a huge part of managing this risk and some of the biggest challenges for us have been when one of these loads gets stuck under a bridge or similarly we have cargo shifting because of uneven road surfaces,” he starts. Walker also points out that correct route planning in South Africa has its own complexities. “A road may look fine on paper but we need to make sure that there are no road works planned on that route and that all the traffic arrangements are in place. Even then, there could sometimes be unexpected surprises and last minute route changes that once again increase the risk to the cargo,” he says. Walker adds that the need for detailed information regarding the project cargo is paramount to managing risk in this respect. “AIG now provides presentations aimed at intermediaries, clarifying exactly what the value- adds are that clients can benefit from, how our cover works and what kind of information we need to accurately underwrite that risk,” Walker concludes.