Technology is making waves in the marine insurance market

Technology changes quickly, and so do the firms that create game-changing technologies. Constant change is one of the reasons why technology firms are a big part of AXA XL’s Inland Marine Insurance client base in the Western US, according to Russell Crooks, AXA XL’s Vice President and National Inland Marine Insurance Director. But that isn’t the only industry sector turning to Russell and his team for inland marine coverage. Here he explains more.

Why do technology firms need inland marine insurance?

Crooks: Like any other growing sector of the economy, technology firms are on the move. They are hiring new employees, expanding their workspaces and increasing their geographic footprint. They are selling their goods to businesses and consumers all over the world. Therefore, inland marine insurance coverages address their two top concerns. First is rather obvious. They turn to inland marine coverages to insure high-tech equipment, computers and other products they manufacture or distribute while in transit to the consumer.Secondly, tech companies are moving, building, or shifting their offices to attract top talent and get closer to their customers. Tech firms are a big source of construction activity in this region. New building construction, renovation and installation are key coverages in their insurance program. For instance, we are seeing a growing need for our construction products in Las Vegas, where the online gaming industry continues to expand.

What’s driving the business opportunities in your region?

Economic growth in the Western US has been driven by technology for the last 30 years or more. And it’s not letting up. AXA XL’s San Francisco office is growing rapidly due to our ability to service the insurance and risk management needs of the tech sector. Despite being an expensive place to live and work, San Francisco, and the surrounding Silicon Valley, is still a major hot spot for tech firms. According to one real estate brokerage, CBRE, San Francisco-headquartered companies like Salesforce and Uber have been snapping up office space. Tech firms made up more than 60 percent of all leasing activity in San Francisco in 2018. That’s the highest percentage in four years. Tech firms are also expanding into other parts of our Western region, including Los Angeles and Seattle. These businesses need a carrier with inland marine insurance expertise: AXA XL.

Certainly, technology is not your only customer sector. What other industries do your serve?

Many industries buy inland marine insurance, for which there are over 50 different coverage forms.Construction is our leading industry. The technology sector fuels this, but other industries do as well. We provide Contractor's Equipment Insurance (in fact a brand new product is presently being filed) and Builders Risk Insurance (including installation and renovation) and round this out with Property coverage. In California, we serve the agriculture sector by providing Motor Truck Cargo insurance to farming operations that also have trucking operations hauling the commodities of others. We also sell Motor Truck Cargo coverage to the trucking industry. The port of Oakland and other west coast ports are major entryways for imports coming into this country. Someone has to haul these goods to all parts of the US. Our Logistics Services Coverage Solutions product is market-leading. The great thing about our form is it follows the goods – while in motion and at a location – during various links in the supply chain. This flexibility will be important to more and more clients going forward. The transportation and warehousing industries are evolving. Because so many consumers are buying products online, companies need to get their goods to market faster. Instead of a large warehouse in a single location, many are turning to smaller warehouses in many locations, which provide different services (frequently outsourced) to achieve quicker delivery times. These companies are evolving into logistics providers, necessitating different insurance protection. Our solution provides a logistics company with tailored inland marine insurance for virtually any commodity, helping address risks associated with order processing, packaging, consolidation, inventory control, transportation, warehousing and data management.

If property assets can move, structures can be built, or unique valuation needs exist, it’s likely that someone is relying on inland marine insurance for protection. And no one knows inland marine insurance better than Ken Mueller, AXA XL’s Southeast Regional Director of Marine. Ken has helped build AXA XL’s inland marine business from the ground up. And his region -- the Southeastern part of the US – continues to be a hot bed of trade, construction and transportation activity. And he’s eying even more growth. See why.

What’s happening in your region? Where are you seeing the growth opportunities?

Mueller: The Southeast Region an economic powerhouse, fueled by imports and exports, as well as construction activity. The region benefits from international US port markets such as Savannah, Miami and Charleston, as well the widening of the Panama Canal. Thanks to recent infrastructure and dredging projects, more ports in the region can handle increased cargo volume.

For instance, the South Carolina Port Authority opened Inland Port Dillon last year to take containers from the Port of Charleston to inland distribution centers via. rail service, enabling The Port of Charleston to have one of its best years ever. The Army Corp of Engineers is about half-way through dredging the Port of Savannah, which is the second busiest port in the nation for exports. The first half of the project deepened the outer harbor to 49 feet at low tide and 56 feet at high tide. The inner harbor channel will be expanded from its current low-tide depth of 42 feet to 47 feet or 54 feet at high tide. In 2018, record container volumes were recorded in 2018, so the region is already seeing these expansion projects start to pay off.

Ports are not the only infrastructure undergoing expansion. Georgia is currently investing about $1 billion per year in transportation projects to widen interstates, add truck-only lanes and improve trucking routes between ports and interstates. 

Given all this activity, the need for inland marine insurance to address builder’s risk, warehousing, transportation, and logistics exposures is growing rapidly.

Where are you seeing the most opportunity for the inland marine insurance market? How is your team prepared to address it?

Because of the booming economy, construction business is increasing about 20% per year organically. Contractors need to make sure their insurance programs properly protect their property assets (including contractors’ equipment) and construction projects. In Savannah, for example, electrical contractors have doubled in size – and the insurance premiums have followed suit.

With our inland marine team’s well-rounded offerings for property, equipment and builders risks, teamed with our North America Construction team, which offers large engineered builders’ risk, GL and Subcontractor Default products for the largest contractors in the US, AXA XL is well equipped to address the insurance needs of the construction industry.

To help contractors manage risk, we continue to develop comprehensive, market-leading insurance products, such as AXA XL’s most recent contractor’s equipment policy.

What other industries are you focusing on? Motor truck cargo is big business, but we are extremely selective about what we underwrite. South Florida is a hot spot for cargo theft. Florida is second, behind California, for the most cargo thefts in the country. Our Motor Truck Cargo Coverage Solutions product protects truckers’ legal liability for damage to the property of others in their care custody and control for the purpose of transportation. Our policy also includes 22 other coverages that protect these businesses from contract penalty, expediting expenses, property that supports your business and more.

Logistics is another piece of the Inland Marine puzzle. Before the Port of Savannah expansion, warehouses were sparse. Today, warehouses are springing up all over the place. These businesses need insurance that address all the unique exposures of logistics operations, including transportation, consolidation, processing and storage.

What have all these opportunities meant for AXA XL’s inland marine business? For your team?In 2011, AXA XL assembled a seasoned team of inland marine underwriters and I was happy to be part of that organization. It was an opportunity to build an operation from scratch. We knew it wouldn’t be easy, but it has been a very rewarding experience - building a team and book of business that is profitable. Now we have 14 Inland Marine professionals throughout the country. I’m extremely proud of our accomplishments. And we’ve only just begun.

With the Southeast Region growing at a record pace, Ken Mueller and his Inland Marine underwriting team, are in expansion mode – and plan to remain in that mode for the near future. To discuss AXA XL’s Inland Marine capabilities in the Southeast, Ken can be reached in our Atlanta office at 1-770-677-4254.

Readers are no doubt familiar with the various changes taking place within our industry. These include, most notably: progressively larger ships, terminals and logistics centres; the increasing use of automated processes and autonomous control systems in all facets of the business; new operating models and procedures enabled by blockchain, big data and cloud computing; and new/expanded routes, e.g., trans-Arctic, Panama Canal and China’s Belt & Road initiative.

As these developments unfold, it’s clear that marine risk engineers will have to become even more versatile and technologically astute. And as seafaring experience becomes less relevant, expertise in diverse fields like automation/robotics, cybersecurity, asset tracking, advanced materials, and building/ship design and construction will become more important.

Marine risk engineers have a unique set of skills for surveying the landscape and assessing the implications of various new technologies in the logistics industry. That’s because we have the opportunity to roam widely across all parts of the business; we can be found crawling around engine rooms, reviewing operating processes with terminal managers, inspecting protection systems in modern mega-warehouses, and on and on.

What are some of the potential outcomes/repercussions of the “disruptions” taking place within our industry, especially as they relate to marine insurance and the role risk engineering plays within our industry? Here’s my take.

Self-steering ships: Coming soon?

There is no question that more and more partially if not fully autonomous ships will be launched in the coming years as the enabling technologies – hardware and software – become considerably less expensive and more powerful. There is, however, an ongoing debate within the industry about how quickly this transition will occur.

Some observers predict that, compared to the automotive industry, shipping companies are likely to move more cautiously in adopting autonomous control systems. One reason for that is the fact that safely operating a massive vessel carrying highly valuable cargos in an ever-changing and dynamic marine environment is a vastly more complicated and risky undertaking compared to, say, a self-driving taxi maneuvering within a defined territory.

The international regulatory framework also could be a factor. The various global conventions like SOLAS or UNCLOS that govern our industry will need to be updated, and that won’t happen overnight. In fact, current maritime law doesn’t consider the possibility of an unmanned ship; salvors today might reasonably claim that a vessel without a captain onboard is a wreck.

Nonetheless, once the industry starts to embrace autonomous control systems – a question of when not if – self-steering ships should quickly become more common. That’s likely to have significant implications for the shipping industry and marine risk engineers. My colleagues and I, for example, could be expected to assess the safety and reliability of interconnected and sophisticated control systems as well as the capabilities and fitness of shore-based “crew” responsible for monitoring a vessel in real-time.

A more automated and transactional operating model

In the very near future, on the other hand, blockchain will make marine insurance more automated and transactional, and improve asset tracking. Marine insurance is a fast-paced, high volume undertaking involving multiple stakeholders. These characteristics make marine insurance a prime candidate for implementing blockchain platforms to streamline the underwriting process while also providing greater security and transparency. In this case, our industry has been a leader as opposed to a follower; we’re one of the first sectors to demonstrate the viability of blockchain.

And XL Catlin has been one of the first insurers to authenticate the potential benefits of blockchain in the marine sector following a successful 20-week proof-of-concept involving A.P. Møller-Maersk A/S, consulting firm EY, blockchain vendor Guardtime, XL Catlin and others.

Based on the success of this pilot, a global blockchain platform is set to launch later this year that will connect clients, brokers, insurers and third parties to distributed common ledgers that capture data about identities, risks and exposures, and then integrates this information with insurance contracts. The platform’s capabilities will include the ability to: create and maintain asset data from multiple parties; link data to policy contracts; receive and act upon information that results in pricing or business process changes; connect client assets, transactions and payments; and capture and validate up-to-date first notification of loss data.

Marine risk engineers will play a more critical and expansive role

In the wake of these and other technological innovations, the contributions of marine risk engineers will become even more critical. The data collected and analysed by risk engineers will play an important role in imparting a level of trust/confidence that the counterparties in a more transactional business model require.

At the same time, seafaring experience is becoming less relevant – and sufficient. Marine risk engineers are increasingly expected to operate across classes and support underwriting decisions in different lines-of-business including Hull, Cargo, Property, Construction, Liability and Cyber. That, along with the industry’s ever-growing scale, sophistication and interdependencies, means the skills and capabilities we relied on in the past will need to be extended and upgraded.

We will also have to contend with an evolving risk landscape. As automated systems and autonomous controls eventually become more common, new threats will be introduced, and the current liability regime will be transformed. Cyber, in particular, represents a multi-dimensional and demanding new risk; combating cyber-attacks promises to be an ongoing and escalating challenge.

Some open questions

These developments also raise an important question: With ever larger and more technologically advanced ships, ports and logistics facilities, how will we recruit and train a new generation of risk engineers who can support underwriting decisions in different lines-of-business, while also working with clients to create safer and more efficient operating environments?

I suspect this will be one of the most vexing challenges facing the industry in the coming years. And while a clear solution is not readily apparent, I believe that marine risk engineers’ contributions will remain so critical that coordinated efforts involving insurers, shipping/logistics companies, and the academic community will be launched to remedy this gap.

The shipping industry has repeatedly experienced disruptive change over the years, and marine risk engineers have always managed to adapt and adjust; while this voyage may not be as smooth as we’d like, I expect we again will weather the storm.

About the author:Jarek Klimczak is a former seafarer and Master Mariner. Nowadays he is a Marine Risk Engineer based in Singapore supporting a broad range of transportation clients, over the sea and inland. He can be reached at jarek.klimczak@xlcatlin.com.

This article was first published in Asia Insurance Review.