In September 2020 Sean Dalton, Chairperson of IUMI’s Cargo Committee shared a marine cargo market update noting that 2019 annual loss ratios were showing signs of improvement. While COVID-19 has caused disruption for the market in 2020, the challenges facing cargo insurers around improving results and profitability remain the same.
Below we discuss how data and technology can improve rate adequacy, building on 2019 results.
Digitalisation and rate adequacy
Some view portfolio digitalisation through the lens of improved efficiency and the associated reduction in costs, but the benefits of a digital strategy go far beyond this.
Digitalisation means creating a structure that enables the capture of good quality, standardised data to form the basis of in-depth analysis of the portfolio to improve business processes. Without being able to segment the portfolio in different ways, it can be hard to identify trends that are driving poor performance and address them via increased rates or other remediation strategies.
Concirrus’ commodity coder is just one tool that can help insurers convert inconsistent data into usable data. It uses Natural Language Processing (NLP) to convert free-text cargo descriptions into defined categories without the need for extensive manual work. Defined data then allows the insurer to analyse the rate adequacy of different cargoes quickly and easily and respond as appropriate.
Port and vessel accumulations
The relative infrequency of large port or vessel losses makes them difficult to price at an individual policy level. But if cargo rates are to be sustainable, policy prices need to reflect any exposure to these potentially severe losses.
The first step towards adequately pricing these kinds of losses is understanding the actual values that are exposed. Datasets that allow insurers to estimate historic port and vessel accumulations are readily available to the market, and real-time shipment data that facilitates live monitoring of cargo accumulations will likely be accessible in 2021. Utilising the available data not only provides cargo insurers oversight of their portfolio exposures, but it also enables them to assess the potential impact of large losses and price accordingly.
For more information on digitalisation of cargo insurance, click HERE.