RATES REMAIN SOFT FOR CARGO INSURANCE

Cargo insurance buyers are enjoying continued competition for their risks, though underwriters complain of another year of soft market pressures on profits.

Overcapacity and weakening rates, cited a year ago as problems by cargo underwriters, have only have worsened in the past 12 months, according to members of the International Union of Marine Insurers.

"We see certainly another year of enthusiastic cargo competition," stated James Zrebiec, chairman of IUMI's Cargo Committee.

"For many underwriters, particularly those who have neglected to match rate with exposure, the results will turn exceptionally sour," he said.

At the same time, the problem of cargo losses from thefts and hijackings of high-valued merchandise also continues to hit underwriters, according to a survey of IUMI's 48 member associations on cargo insurance trends.

In fact, the survey found that the only discernible factor causing an increase in losses of more than $200,000 was the problem of hijackings or theft of single trucks or small vessels "with the potential of tremendous losses from a single occurrence," Mr. Zrebiec said.

The results of the survey also indicate that in addition to the problems of competitive conditions and cargo thefts, marine insurance associations are concerned about:

Increasing pressure on rates and conditions as a result of the deregulation of insurance around the world.

The growing influence of the non-marine insurance sector over marine cargo underwriting.

The "negligible" increase in cargo premium volumes, despite a rise in the quantity and value of insured cargoes.

A trend of more cargo owners to either rely on self-funding or shipowners' liability insurance to cover their losses, rather than buying cargo insurance.

In addition to the concerns outlined in the study, Mr. Zrebiec also warned that some cargo underwriters are adopting an "ignorance is bliss" approach.

That means they are underwriting some cargo business, particularly for bulk commodity shipments, with inadequate information about the risk, Mr. Zrebiec said.

By not requiring the policyholder to report details about the vessel, for example, the cargo underwriter has no information on the safety of the cargo carrier or the hazards of the shipping route.

Some of the accounts underwritten in this manner may make a profit, but results of others "will be disastrous," he warned.

Mr. Zrebiec said reinsurers may be aiding this trend.

Cargo underwriters can charge a rating surcharge if a ship has not been classified as safe by one of the ship classification societies, yet some don't bother to do this, he noted.

Some reinsurers, however, don't differentiate between cargo insurers that follow this approach and those that do not, he said.

Meanwhile, Michael Harding, cargo underwriter for London-based Eagle Star Reinsurance Co. Ltd., expressed his concern that consolidation in insurance and brokerage industries will cause cargo underwriting to increasingly be rolled into other departments, rather then kept as a separate entity within companies.

"How many of these have gone or are in danger of going in with the industrial departments? Has the relative important influence of cargo been relegated? Are the package policies which did so much damage in the late 1980s to be resurrected in large numbers? If so, are we coping with them more competently and asking the correct questions via these new departments, or is price still the overriding factor?" Mr. Harding asked.

He echoed the survey's finding that cargo shippers, despite falling rates, are relying less on traditional cargo insurers to cover their risks.

"The risk manager of today is using the soft market conditions to broaden and extend the scope of his cover, while self-insuring his 'bread and butter' cargo exposures," Mr. Harding said.

Richard Lowther, risk manager for B.A.T Industries P.L.C., maintained that while there always will be a need for the cargo insurance specialist, the future of risk financing lies in establishing a balance between retaining the technical skills of cargo underwriting and developing broader-based products to satisfy the more general demands of many customers.

"The aspect of underwriting may actually become less important than some of the other services that the cargo (insurance) community can provide as the structure of our business changes," he said.

Other services, he said, could include providing coverage and expertise on the risks of protecting such items high-value scientific equipment, including satellites; medicines and pharmaceuticals; and valuable goods, such as bullion and fine arts.