According to container logistics company Maersk “everything that can be digitized will be digitized,”and there is no doubt that the world of shipping is currently undergoing a digital revolution. From vessel movement data, to port statistics and engine diagnostics and data, the latest technology empowers insurers to segment and optimize their existing portfolio, identify new opportunities, and offer truly connected policies.
Executive SummaryIf the marine insurance industry is to prosper in the new digital age, hurdles of traditional rating factors need to be overcome, writes Mark Phillips of Concirrus, a marine data analysis firm, describing the benefits of behavioral data instead of standardized factors like vessel type, tonnage, year built, yard built to measure risk. Beyond identifying new sources of risk and opportunity, connected policies—targeted coverage that reflects what a vessel is doing at any given point in time—become possible, he notes.
However, risk measurement and ratings remain an issue. As things stand, the marine insurance market measures risk using standardized static rating factors–class, flag and tonnage of the vessel, as well as the year the vessel was built and which yard it was built in. With this limited set of data and an approach to risk analysis that has become widespread, insurers are limiting their ability to innovate, leading to standardized product offerings, broad coverages and downward pressure on pricing.
An increase in megaships has increased capacity, leading to rate reductions. But the entire industry has settled on a standardized approach to risk with little scope for doing things differently. Furthermore, as an intermediated market, it is estimated that 28 parties are involved in a single shipping transaction. If the marine insurance industry is to prosper in the new digital age, these hurdles–rating factors, innovation and operating costs—need to be overcome.