Marine Business and Risk Analysis

It is a fact that with over 45 Insurance Companies and 100 brokers, The Turkish Insurance market is growing fast but this is such a growth that is very strictly controlled by The Treasury in order to keep the steady pace and avoid unnecessary competition and most importantly to keep the quality of Insurance at a high level. In spite of this, there is fierce competition in the market and this is quite normal, Competition is an integral part of the business life and it is not unique for the Turkish Market. So far as the Global Marine insurance markets are concerned particularly for H&M insurance there has been over capacity for many years, this over capacity certainly aggravates the competition. The Quality of coverage offered by the underwriters, however, has not been effected by this competition. The major impact of this competition created by the over capacity in the market has been seen on the pricing of the insurance and at the IUMI conference in London last year, it was announced that for the 17th year in succession Hull underwriters have been loosing money.

Unlike the mutual P&I clubs who can make additional calls to balance the books, H&M underwriters and Fixed premium P&I facilities have no such luxury. Even Lloyd’s of London is expressing concern over the continued poor performance of the Hull market.

Turkish Insurance market

Marine insurance only represented 8% of the premium income to Lloyd’s in 2012 even though Lloyd’s was founded on marine insurance back in the 17th century in Edward Lloyd’s coffee house.

We all know that Lloyd’s and Turkey have something in common which is coffee. Even today in London business is discussed in coffee houses around the Lloyd’s building but Edward Lloyd’s coffee house has been replaced by Starbucks, Costa and Caffe Nero, just to name a few.

Lloyd’s have established a number of offices overseas and we know that Turkey is an area of the world where they would like to expand. As I have just said there is fierce competition already in the Turkish insurance market with so many insurance companies and I am not completely confident what Lloyd’s could add.

The Global Insurance Markets are very sensitive in responding to the changing insurance needs of day to day life as well as the changes in Legislation and Turkey unlike in the old days say 20 /30 years ago is not left behind these World Standards in supporting the changing needs of the insurance markets.

Almost all kinds of insurable risks can now be insured by Local Insurance Companies in Turkey with high enough limits whereas 30 years ago some of these local insurance companies were acting like agents to the foreign reinsurance companies, through mainly London Based brokers, and could not proceed further than issuing fronting policies.

The Turkish insurance market is a relatively new comer to the business compared to the London market. As stated earlier Lloyd’s began in the 17th century whereas private insurance companies were only established in Turkey in 20th century with many dating back to the 1980’s. Before that mostly English and French insurance companies date back to the 19th and early 20th Centuries. Even today Fire marks can be seen on old wooden buildings in Istanbul, though very few of them exist. Beginning with 1980’s there has been huge growth in number of the insurance companies in Turkey, many of whom have now been bought by European insurance companies and offering new products mainly in personal lines business, including health and life cover. Not many Turkish insurance companies show an appetite for marine H&M insurance and no wonder why when the international players who are able to underwrite shipping World Wide still struggle to make an underwriting profit.

I am not a non-marine person, in all my business life I have only dealt with Marine Insurance. I can therefore speak for myself and confidently say that the reaction of The Marine Insurance Market towards the changing needs and Legislation has always been very responsive and have always supported the intricacies of Marine Insurance risks.

Increasing Number of huge container ships will make life extremely difficult for Average Adjusters and Claim handlers in Insurance Companies within the scope of the current clauses. Market responded to this by creating a new product which is a standalone G/A Insurance. G/A Insurance is provided within the current Hull and Machinery clauses, under the heading of Small G/A Absorption Clause, for limits changing from $ 100,000 to $ 500,000. This is no way enough for a claim in a sizeable container ship where thousands of B’s/L are involved and a General Average adjustment will almost be impossible to issue. This new Standalone G/A insurance will hopefully solve the problem as there will not be a need of issuing a General Average adjustment to assess the contributions of Cargo, Hull and Freight etc. Another aspect of recently increasing controversy is cargo’s reluctance to pay their GA contribution alleging unseaworthiness of the vessel. This is becoming more common and it seems that the original intention behind the principal of GA has now been lost with cargo regularly looking to avoid payment. I am sure there are Cargo Underwriters among the audience but this has become a fact of life. Perhaps the days of GA are now numbered.

K & R Insurance and Drug Trafickking

Kidnap and Ransom Insurance (K&R) is another good example. It was in early 2008 that Somali Pirates started to highjack commercial vessels and asked ransoms to release them. This situation has caused serious threats for vessels transiting Suez Canal and Indian Ocean. It was not long however that Non Marine K&R Insurers who were active particularly in South America have diverted to Marine K&R and started to provide cover for the ships trading through the Indian Ocean. In a very short period of time K&R Insurance hold a major share in Marine Insurance market. Between 2008/2012 over $ 300Million paid for ransoms by the underwriters. This has now been diminished due to efficient measures such as Naval presence in the area , Guards and other precautions taken on board the ships and by International Organisations like IMO.

Drug Trafficking is another subject Insurance Market has responded immediately. There are countries in The World which are well known for their drug traffic, major ones being located in South America. Numerous vessels have been arrested and even confiscated by local authorities because drugs were found on board in these countries. In most of these cases the owners were innocent as this was not done within their knowledge, however some of them lost their ships for a cause which was not related to a maritime peril. The insurance industry has responded to this fairly quickly by adding a special section to Institute War Risk Clauses called Drug Seizure Clause.

Another example is The International Labor Organization’s implications. The ILO adopted The MLC 2006 and the Convention with its new obligations entered into force in August 2013. The MLC provides a set of comprehensive rights and protection at work for seafarers and aims to achieve the optimal working conditions onboard such as health and safety, crew accommodation, seafarer’s welfare, contractual arrangements etc. MLC also requires shipowners to provide evidence of financial security for cases such as repatriation of seafarers, death or long term disability. The mostly accepted evidence for financial security is to provide a PandI Insurance Certificate. International Group of PandI Clubs were ready to provide this cover for shipowners by having the necessary additions in the rules before the convention entered into force.

Turkish Flag

Last but not least, I will give you an example from my own Country. Turkey has a very large fleet of small crafts, such as; fishing boats, yachts, passenger and car ferries, tugs and barges, tanker and general cargo coasters trading in coastal and/or inland waters. All these vessels or we should better call them crafts because they are very small sail within Cabotage Trading. Over 50% of these vessels have never had any liability insurance and since they did not have to carry any liability insurance they have never gone through condition surveys for safety and regulatory purposes. Ministry of Transportation, Communication and Shipping showed a unique example in Turkey. By bringing together the Local PandI Club correspondents and three state owned Insurance Companies opened the doors for Turk PandI Sigorta to establish itsel. Turk Pandi sigorta will provide Fixed Premium Pandi Insurance for these small crafts up to a limit of USD 500 million but will strictly inspect them for safety, quality and regulatory purposes which will certainly increase the standards of the vessels within this category equal to or over and above the European Union levels. By the way, Turkish Pandi is established by 100% Turkish Capital.

The article taken from the Euromoney Turkey 2nd Insurance and Reinsurance Conference’ speech of the writer.