Top Tech
Trends in Insurance
Proposed de-notification of
TAC tariff for Fire, Motor & Engineering Insurance
Facilitating Prevention by
Fire Loss Control
Not all fires respond well to water. In areas of the building where grease fires, electrical fires, and flammable liquid fires are likely to occur, a fire suppression system like gaseous fire suppression and condensed aerosol fire suppression systems may be preferable to sprinklers. The main purpose of using fire hydrant system is to give best possible source of water to each corner of the building or premises. It helps in protecting the building by simply taking control on fire during an emergency.
Many large industries have their dedicated Fire Safety Department and Fire Engines so that major fires are controlled and extinguished by the in-house brigade before it spreads. The Department is headed by a qualified Fire Engineer often called the Fire Safety Officer, who has a well-trained team.
Major fires have crippled industries and caused fatal injuries to many. Fire and business interruption insurance covers only the tip of the iceberg, most parts like loss of contracts, markets and goodwill that may take years to overcome have to be borne by the business. While loss prevention and loss minimisation are aspects insurers are concerned with right from the time a risk is assessed to the time a fire claim occurs, there is a need to synergise the activities of the various stakeholders involved in these activities for the larger benefit of all concerned.
New Pricing
Guideline for Property Insurance
International Code of Practice on
Tunnel Construction
Other collective lessons have been that:
- The potential for major accidents must be recognised by hazard identification, consequence analysis and risk reduction strategies.
- New technologies need to be thoroughly understood and tested before being implemented.
- Defensive precautionary systems need to balance program and commercial pressures.
The need to apply rigorous risk-based design and construction principles have evolved in UK civil tunnelling projects out of a series of high-profile collapses, which prompted the insurance industry to raise its concerns.
It remains to be seen to what extent the joint code of practice is adopted and whether it can be exported to projects worldwide with project teams of different cultures. An international version of the tunnelling joint code has been published. GIC Re, the Indian reinsurer has already adopted implementation of this code and have started making it a warranty for insurance policies for tunnelling projects.
Impending Challenges for
The Global Marine Insurance Sector
With such challenges ahead, a strong and stable insurance market is a must have. Marine underwriters will also need to be flexible and innovative if they are to respond to the rapidly changing needs of ship owners, operators, and cargo interests.
The effects of the coronavirus outbreak on global supply chains have disrupted manufacturing output causing delays to cargo in transit. Longer-term moves to improve business resilience could see companies hold more stock in storage and warehouses. This might prove challenging for insurers where accumulations of cargo exposures are already a key driver for losses.
Another area where insurers have experienced significant losses has been with fires on large containerships viz. APL Vancouver in 2019. In recent years, insurers have highlighted this important safety issue, requesting changes to Safety Of Life At Sea (SOLAS) regulations to improve firefighting capabilities on board large containerships. However, the problem of containership fires will not be solved by regulations alone. Improved firefighting capabilities will help, but the shipping industry and insurers must work together to address the root cause of containership fires, that of mis declared cargo. More and more hazardous products being shipped in containers – calcium hypochlorite, lithium batteries and charcoal are all suspected of having caused fires in recent years – yet too often cargo is incorrectly-declared and wrongly stowed.
Climate change and cyber are seen as important drivers of risk in the maritime sector in coming years. Technology brings opportunities to mitigate risks and improve safety, but it also can have unintended consequences. Human error linked to an overreliance on electronic navigation has emerged as a significant cause of claims for insurers. Ransomware attacks and spoofing incidents highlight the growing cyber threat for ports, shipping and logistics companies.
Environmental regulation continues to have a growing impact on marine insurance. IMO 2020, which limits sulphur emissions from ships, has led ship owners to use low sulphur blended fuels or fit scrubbers to clean vessel exhaust fumes at source. The change is likely to cause an increase in machinery damage claims as low sulphur fuels carry an increased risk of catalytic fines, which can clog filters and centrifuges, as well as damage other essential equipment. Teething problems with scrubbers have also led to claims, with fires during retrofitting and flooding caused by acid corrosion.
The marine insurance industry as of now has a problem with profitability. Despite growth in seaborne trade, global marine insurance premiums have not kept pace, and are lagging behind the increase in exposure from larger vessels, bigger ports and higher cargo values and accumulations.
Insurers are under intense pressure from stakeholders to produce underwriting profits, and it has been seen that capacity has contracted in major markets like London, where some insurers have withdrawn from marine lines. A healthy insurance market is essential for customers because a strong insurance industry is better able to respond to their needs. Rates are now increasing, but they have yet to reach levels that will compensate for the growing numbers of large claims, while the industry has yet to solve the problem of how to assess and price for accumulation.
Ransomware
Surety Bonds
The Game Changer
Surety bonds are an agreement between three parties, that is, the contractor, the government, and the insurance company. The contractor pays a premium to the insurance company, which will compensate the government if a contractor defaults or abandons before completing an infrastructure project by the mutually pre-decided deadline.
Surety bonds will aid in developing an alternative to bank guarantees for the construction of infrastructure projects. However, these are different from bank guarantees as in this a considerable amount of the project funds of contractors does not get frozen as a requirement of collateral.
Security bonds act as damage control for the government if the infrastructure building company runs out of money or is not able to complete the project on time. It remains a legal document which assures that in the event of non-performance of the specified obligations, the insurer must provide compensation for loss and damage.
Worldwide, surety bonds are generally mandatory for public tenders and are extensively used in large projects, including infrastructure, construction, manufacturing, and resources, etc. Surety bonds are of two general categories: Commercial surety bonds and contract surety bonds. Commercial surety bonds are used by the judiciary to offer some kind of protection with regard to monetary deposits. Contract surety bonds are extensively used in the construction industry to cover the obligee against uncertain risks.
Considering that surety bonds tend to be long-term, they remain quite unaffected by economic volatility. This is what makes surety bonds more suitable than other forms of financing for the development of infrastructure projects.
With concern about interest rates on the rise, surety bonds shall prove to be a reliable and cost-effective solution.
Capturing
The Climate Opportunity
The insurance industry is aware of the risks and knows it will require increased underwriting capacity and specialized talent to adequately serve the sector.
The renewable energy insurance market is set to grow by more than $200 billion worldwide in the next decade. Solar and wind outpace other forms of renewable energy deployment in North America, while the continent trails Europe and parts of Asia in developing offshore renewable sources.
More particularly, solar is on the rise, driven by its affordability as well as government incentives. Solar has experienced a 33% average annual growth rate in the last decade.
Natural catastrophe and extreme weather event claims continue to hit the renewables sector with greater frequency and severity. Cyclone and hailstorms resulted in solar losses almost twice as severe as the other top renewable losses of the last three years combined. Solar installations are most vulnerable to hail, which damages solar panels and takes away their output.
Advancements in solar engineering have led to the development of panels that are more resistant by moving away from hail or tilting in the right direction to protect themselves. However, the kinds of panels that are resistant to hail are not going to give operators the price break that they would probably want to justify purchasing them.
Supply chain issues will impact how soon hail-resistant panels can be purchased and whether they are cost effective enough to bring to market.
Insurers have begun charging solar developers higher premiums with large deductibles in response to recent hail losses.
The wind and solar sectors face many of the same natural catastrophe perils, such as flood, lightning and wildfire, as other industries such as construction. Wind farm underwriters are also concerned with the availability of cranes and rigging contractors to respond to repairs and installations.
Because wind turbine machinery breakdown is not automatically included in property coverage, it is critical for insureds to make sure they are covered. The same goes for transformer failure, which often needs to be added to coverage or bought by a separate policy.
While wind, like solar, is prone to losses during convective storms, many wind farms have monitoring systems that can identify when a lightning strike takes place.
The insurance industry will continue to play a critical role in the renewable energy sector as more complex Hybrid renewable energy projects are being developed around the world which will need comprehensive insurance covers. As new technologies emerge and the regulatory
landscape continues to evolve, insurance companies will have to continuously innovate in order to keep up with the changing needs of their Renewable energy customers. Insurance brokers and Insurance/ Reinsurance companies are developing innovative insurance solutions viz. parametric covers, to address the unique risks and challenges associated with these projects.
