Cargo insurance premiums jump 33% this year
The sudden jump in the volume of oil, gas and coal being transported across the seas is pushing up cargo insurance premiums for India’s general insurance companies.
This is significant as the cargo insurance market had declined by close to 8 per cent in FY21. However, in the current financial year (till August), the total premium for the sector has jumped by 33.6 percent, making it the second fastest after persoanl accident business, eclipsing heavyweights, motor and health insurance.
“The market is very competitive, but the tenders are now coming at a rapid pace,” said a senior marine insurance specialist at one of the state-owned insurers.
The energy trade is fraught with the risks of spillage and natural catastrophes like hurricanes. Despite that, insurance companies are offering almost the same premium rates, banking on high volumes to make up for them. In September, almost all the refineries floated three-month tenders for insurance rates to which all the major underwriters have responded. The low rates are significant as there has been a hardening of premium for global cargo insurance, especially in the latter half of calendar year 2020, a trend which has continued into 2021. Global marine underwriting premiums for 2020 grew by 6.1 per cent to $30 billion year-on-year.
Offshore energy insurance accounts for 12.1 per cent of the total marine cargo business as per figures released by International Union of Marine Insurance (IUMI), the global organisation which tracks the sector.
While Europe remained the biggest contributor, accounting for 47.7 per cent of the premiums, Asia has become the next largest, with a share of 29.3 per cent. In India, the top five insurance companies are ICICI Lombard, followed by New India Assurance, Tata AIG, United India and Oriental Insurance.
To back the low rates, the insurance companies are confident that they will be able to bargain for higher reinsurance support from the global underwriters, despite the perceived high risks of the sector. IUMI has, however, warned that with economies recovering and shipping and offshore activity increasing, “it can be expected that both claims frequency and severity will also rise again.”
IUMI has also warned that the shipping business in the energy sector is particularly susceptible to natural catastrophic events. “Although there appears to be a strengthening of the offshore energy market, the long-term outlook remains uncertain at this point,” it said.
In the pecking order of the non-life insurance business in India, health tops the list, followed by motor. Cargo insurance comes way down the chart, accounting for less than 2 per cent of the total premium (figures for FY22, upto August). The underwriters are hopeful this can change rapidly this year. The large premiums and the larger risks for the business both come from seaborne cargo like ores and fuel.