COVID-19 will have both short-term and long-term implications for the marine insurance market. On 30 March 2020, as part of two IUMI webinars, HFW presented on the potential implications for marine insurers, and the issues being faced by insureds. We have outlined the key themes below.
The majority of the difficulties deriving from COVID-19 are likely to be experienced by assureds themselves, for example travel restrictions, business closures and shifting supply chain demands. However, marine insurers may also be affected by business infrastructure, government and regulatory, consumer demand, and operational and supplier factors.
COVID-19 has resulted in disruptions throughout global supply chains. For example, some companies are seeking to renegotiate supply contracts or delay payments, terminals are accumulating cargoes and risk, vessels and crews are facing quarantine and crew change challenges, and deliveries are being delayed. Disruptions to even one section of a supply chain will naturally have cascading effects, and may ultimately affect a range of insurance policies.
In the short term, insurers will need to determine how they respond to potential non-disclosure and non-compliance with policy terms. Additionally, we expect to see an increase in insolvencies and fraudulent claims, but do not expect any novel insurance products.
Fundamental changes can be expected in the longer term. Given that vulnerabilities to just-in-time supply chains have been exposed, production and purchasing activities could begin to shift more locally. If that happens, even to a small extent, there will be a large impact on international trade, transportation and marine insurance.
Insurers might also alter the ways in which they conduct business. We have already witnessed greater electronic support and automation in underwriting. However, it will be interesting to see whether enforced lockdowns have demonstrated to the London insurance market that business can be written and brokered without face-to-face contact. If so, London’s unique selling point may be eroded and other insurance centres around the world will be able to compete on a more equal footing.