The IUMI Hull Inflation Index: A way to explain claim cost inflation
Why do hull insurance claims keep getting more expensive? Is it hull values, trade volumes or macroeconomic drivers? The latest Allianz Safety and Shipping review clearly states that inflation for marine claims is on the rise. We went one step further to quantify the effect.
The IUMI Hull Inflation Index was developed to deliver tangible insights with recent, real-world data. It brings together three economic drivers – global steel prices, construction wages in key shipbuilding regions, and shipyard capacity – and uses them to explain the development of average hull claim costs over time.
What makes this index different? It’s not just about explaining the past – it’s about inspiring you to build something similar for your own market. Whether you’re insuring ferries in Northern Europe or fishing vessels in South America, the principle remains: a small number of well-chosen economic indicators can go a long way in helping us understand structural cost changes.
Of course, building a meaningful model with only a few points is ambitious but surprisingly it works quite well. The chosen variables can explain more than 83% of the average claims’ development over time. Statisticians refer to this as the R². That’s a strong performance – especially when compared with a common equity benchmark index, which turns out to be a poor stand-in for hull-related cost development.
Can we use the index to forecast the future? Not perfectly but we can try. A time-series model called Auto ARIMA was applied to estimate how average claim costs might evolve over the next few years. Of course, any prediction involves a degree of uncertainty and that’s where confidence intervals come in. These ranges tell us how far up or down the outcome might move, depending on how much certainty we demand.
The more ‘room’ we allow the model – that is, the higher the certainty level we demand – the broader the prediction range becomes. At a 97.5% confidence level, we expect that the value will increase between 7 and 39% by 20230 compared to today’s level. However, if we’re satisfied with only 90% certainty, the model narrows down this windows to a maximum of only 22% increase.
The IUMI Hull Inflation Index isn’t meant to be a final answer—but a starting point for your own thinking. And the best part? You can build your own version, too.
Download the full document: IUMI Hull Inflation Index
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