Competing insurers help cut cost for shipping companies
Increasing competition among insurance players has helped to reduce the outgoings of Indian ship owners and shipping companies, whose marine insurance bills have reduced drastically over the years.
By ET Bureau |
Increasing competition among insurance players has helped to reduce the outgoings of Indian ship owners and shipping companies, whose marine insurance bills have reduced drastically over the years. The number of players who offer marine insurance products in the country has doubled from that existed a few years ago, and the resultant competition among them has also pulled down marine insurance premiums to less than half of what used to be before.
It was not quite long ago that there were only four players in the marine insurance segment and all of them were government PSUs - New India Insurance (Mumbai), Oriental Insurance (New Delhi), United India Insurance (Chennai) and National Insurance (Kolkata).
With the entry of private insurance companies their number has more than doubled. Of the many players in the private domain ICICI Prudential, IFFCO-Tokyo Marine, Bajaj Alliance, and Reliance Insurance are the four leading players. There are companies like HDFC which are working towards joining the elite group of marine insurance companies.
Since government introduced de-tariff in insurance in April 2005, premium rates have come down. As a result, marine hull premiums have reduced more than 50% over the years. There is also substantial reduction in cargo insurance premiums.
"Today, shipping company claims are more than the premiums they paid,' said a shipping industry analyst.
In olden days, after a claim if the premium claim ratio goes beyond certain level, the insurers used to charge an additional premium. Now with the competition, despite high claim rates they offer reduction in premiums to snatch business.
Global gross premiums have failed to keep pace with the boom in seaborne trade. According to reports, high claims cost have recorded in 2006 and 2007. As a result, members of the International Group of P&I Clubs are faced with a considerable increase in costs of their pooling arrangement, covering claims in excess of $7 million, reports said.
Leading global provider of risk management services, insurance and reinsurance brokerage, Aon in its Annual Marine Insurance Market Review 2008 predicts that the industry would experience a continuing run of favourable insurance premiums during the current year, despite facing higher risks.
Moreover, the report said that the cargo and liability markets would offer a 'win-win' scenario to ship and cargo owners who were paying less.
If hull and cargo insurance are not profitable for international insurers, it is more so for Indian insurance companies. It has been said that cargo and hull insurance alone cannot be viable propositions to any insurance company today. According to an insider, it is the reason why almost all private Indian players have been not able to post a profitable performance.
If you wonder then why banks like HDFC are making a beeline to join the segment, it is because they could get into other profitable areas of insurance business like offshore energy where prevailing premiums more than compensate for the loss in marine and hull segment. For example, global hull premiums were up 10% to $5.10 billion in 2006, cargo premiums increased 9% to $9.96 billion while offshore energy premiums jumped 68% to $2.77 billion.
In that respect, the offshore sector is also proving to be a sunrise segment for insurance companies as well as it is for many shipping companies.
It was not quite long ago that there were only four players in the marine insurance segment and all of them were government PSUs - New India Insurance (Mumbai), Oriental Insurance (New Delhi), United India Insurance (Chennai) and National Insurance (Kolkata).
With the entry of private insurance companies their number has more than doubled. Of the many players in the private domain ICICI Prudential, IFFCO-Tokyo Marine, Bajaj Alliance, and Reliance Insurance are the four leading players. There are companies like HDFC which are working towards joining the elite group of marine insurance companies.
Since government introduced de-tariff in insurance in April 2005, premium rates have come down. As a result, marine hull premiums have reduced more than 50% over the years. There is also substantial reduction in cargo insurance premiums.
"Today, shipping company claims are more than the premiums they paid,' said a shipping industry analyst.
In olden days, after a claim if the premium claim ratio goes beyond certain level, the insurers used to charge an additional premium. Now with the competition, despite high claim rates they offer reduction in premiums to snatch business.
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"Insurance rates in India are one-fourth of that are prevailing in the world market. Unlike local insurance industry, world insurance market is more matured and is less subjected to fluctuations as it is in India.Global gross premiums have failed to keep pace with the boom in seaborne trade. According to reports, high claims cost have recorded in 2006 and 2007. As a result, members of the International Group of P&I Clubs are faced with a considerable increase in costs of their pooling arrangement, covering claims in excess of $7 million, reports said.
Leading global provider of risk management services, insurance and reinsurance brokerage, Aon in its Annual Marine Insurance Market Review 2008 predicts that the industry would experience a continuing run of favourable insurance premiums during the current year, despite facing higher risks.
Moreover, the report said that the cargo and liability markets would offer a 'win-win' scenario to ship and cargo owners who were paying less.
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Hull and machinery losses were beginning to impact the accounts of many insurers, as the Aon report pointed out, because, for example, the hull rates are reducing by 5-10%. "Insurer accounts are unlikely to be profitable due to the combination of falling rates and emerging losses most are subsidizing hull business with profits from other lines."If hull and cargo insurance are not profitable for international insurers, it is more so for Indian insurance companies. It has been said that cargo and hull insurance alone cannot be viable propositions to any insurance company today. According to an insider, it is the reason why almost all private Indian players have been not able to post a profitable performance.
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According to one insurance executive, the present favaourable condition for the ship owners is expected to remain so at least for the next three-four years when there is going to be huge capacity additions with deliveries of newbuilds coming into play.If you wonder then why banks like HDFC are making a beeline to join the segment, it is because they could get into other profitable areas of insurance business like offshore energy where prevailing premiums more than compensate for the loss in marine and hull segment. For example, global hull premiums were up 10% to $5.10 billion in 2006, cargo premiums increased 9% to $9.96 billion while offshore energy premiums jumped 68% to $2.77 billion.
In that respect, the offshore sector is also proving to be a sunrise segment for insurance companies as well as it is for many shipping companies.
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