The Swiss Re Institute is warning marine insurers to adjust premiums such that they are commensurate with the risks being insured, manage exposures and strengthen prevention measures by working with their clients to improve safety, as increasing geopolitical risks threaten to dampen global trade flows.
Demand for marine insurance is likely higher, as port container traffic rose 6.6 per cent in 2023, year-to-date in August 2024. “Yet geopolitical risk poses a threat as higher tensions could impact volumes and demand ahead,” the institute writes in its recent economic insight paper, Marine insurance: geopolitical tension creates a choppy outlook for seaborne trade. “Marine insurance is particularly exposed to geopolitical risks.”
Trade tensions
Among them, they say longer alternative shipping routes increase exposures and uncertainties, and congestion can lead to higher accumulation risks for insurers. They add that any escalation of conflict would also create challenges for marine insurers, with the potential to create losses. “They also have a stark impact on trade and therefore demand for coverage,” they warn. “Trade tensions have the potential to directly impact demand for marine insurance through reduced trade flows. In 2019, during US-China trade tensions, the fall in demand for shipping led to a 15 per cent drop in marine insurance premiums in North America.”
The report also looks at higher trade tariffs and countries subject to trade sanctions, but also at the opportunity for expanded coverage being created by the net-zero transition. In particular, they note that only six per cent of global shipping is currently equipped to use alternative, lower carbon fuels. This is up from 2.3 per cent in 2017. In 2023, however, they note that 45 per cent of new orders were for ships built to run on alternative fuels, including liquified natural gas (LNG).
“Marine insurers can weather geopolitical risks through their premium setting, by managing exposures and by strengthening prevention measures,” they write.