The Scope of the Market
Global marine transit is a critical component of international commerce. According to the New York-based International Union of Marine Insurance; maritime trade has increased 220 percent over the last thirty years, from 2.5 billion tons of cargo in 1970 to 5.5 billion tons in 2002. Over the last decide, growth was similarly brisk for cruise lines, increasing from five million passengers in 1991 to 10.5 million passengers in 2002. Only the trade volume for crude oil and oil products remained flat at 1.5 billion tons shipped per year since 1970.
Seaborne trade is largely controlled by a handful of nations. According to Tore Formso of the Oslo, Norway-based Central Union of Marine Underwriters (CUMU), Greece commands 19.6 percent of the reported world fleet tonnage, followed by Japan (13.2 percent), Norway (7,8 percent), China (5.6 percent) and the United States (5.4 percent). Germany, Hong Kong, South Korea, Taiwan and the United Kingdom also have large shares of the market.
Despite the global scope of most maritime firms' operations, a vast majority obtains insurance domestically, which means that the major shipping nations are also the largest markets in ocean marine insurance. Japan and the United States, for example, each have large and powerful domestic ocean marine markets because Japan must import most of what it needs to survive, and the United States is one of the world's largest exporters. Norway, which has traditionally been a noteworthy sea power, also has a major market. So does the United Kingdom, but over the last decade its global ocean marine maritime market share has slid (especially cargo premiums), as client countries have developed their own insurance markets.
CUMU reports nearly $11 billion in global ocean marine premium was collected in 2001, the most recent year for which data is available. Transportation/cargo, which covers goods in transit, comprises $6 billion. The next largest sector is global hull ($3 billion), which involves damages to the ships. Offshore/energy ($1 billion) covers offshore petroleum exploration and production ships, rigs and platforms. And marine liability ($600 million) covers the damages arising from marine transit operations, including oil spills.
A Spate of Losses in 2002
The biggest news in the marine market was a catastrophic string of claims in late 2002. In the span of just three months, the global ocean marine insurance market suffered over $750 million in hull losses alone; the cargo losses are possibly worse. London's Joint Hull Committee, which represents U.K. marine underwriters, has complained for more than a year that hull rates have been inadequate. The 2002 losses, it claims, more than justify hull rate increases across the board.
The committee may have a point. Aside from the claims fluke, the loss concentration among commercial vessels is on the rise, exposing shippers and insurers to greater damages.
According to Antwerp, Belgium-based cargo handling company and port terminal operator Hesse-Noord Natie, the average cargo vessel's capacity has increased over the last decade from 1,400 containers to roughly 1,870 containers. The largest vessels have grown from 4,400 containers in 1991 to 7,500 containers in 2002, and even vessels holding 10,000 containers may debut within the next few years. Given that the average cargo container contains between $50,000 and $100,000 of merchandise, the increasing size of cargo vessels is exposing shippers--and their insurers--to potentially unacceptable loss potentials. Insurers are already fighting to recover from 2002; were five or more billion-dollar ships to go down, the market might be stressed to its breaking point, with or without reinsurance.
While the 2002 losses occurred among many different ships, a handful of them comprised the bulk of the damage, and are a good indicator of where future loss potential is heading. …