Inland marine insurance theme brokers should consider in 2023

inflation

Inflation is increasing material costs, exacerbating an already troubling problem in inland marine insurance, Soja said.

“One of our biggest challenges is making sure we get the right price for our exposure due to the increased cost of paying claims,” ​​the executive told Insurance Business. “Providing adequate insurance for value, whether for fixed-location businesses such as builders’ risks, or mobile such as contractors and equipment, has long been problematic.”

In addition to the increased cost of materials to replace or repair damaged property or equipment, rising wages also increase claims. Finding qualified workers in some fields has become increasingly difficult, so the cost of those workers continues to rise. The global supply chain also remains a challenge, causing material and labor procurement to be further delayed than before.

“If inland marine insurers offered a time element cover, the exact same loss today would be more costly in a business interruption loss claim than it was a year ago,” Soja noted.

The trucking industry will be most affected by inflation. According to Soja, more than 90 percent of U.S. trucking companies operate fleets of six trucks or fewer. Smaller fleets taking a bigger cost hit could struggle with insurance issues.

“Historically, trucking has been a relatively low-margin business. The smaller the truckers are, the less reserves they have to tide them over,” he explained. “The obvious way to fix this is to stop operating, or get the independent drivers to join a larger company. But if they follow through, the financial woes could affect underwriting and claims for inland and trucking underwriters, as you might see to reduced investment in vehicle maintenance, or other cost-cutting measures that could impact quality risk. We are keeping a close eye on financial stability and the types of claims we are seeing.”

Increased construction spending

A big boon for inland marine insurance has been the recent construction boom in the U.S., fueled in part by President Biden’s bipartisan infrastructure laws. Even as the U.S. enters economically difficult times next year, the federally funded program will help ensure that the pipeline of construction works continues.

“Inland marine underwriters stand to benefit from a range of infrastructure and renovation projects that will last for several years,” Soja said. “A potential recession could affect other construction starts. Government-funded, they should be less sensitive to this dynamic.”

The localization of the supply chain is also playing a role in boosting local construction. Soja explained: “Many companies are rethinking their dependence on foreign material suppliers. While heavy reliance on foreign suppliers will continue, companies are localizing some of their products, providing another injection into new building construction in the United States. “

reinsurance challenge

Soja pointed to “huge changes” in the reinsurance market that will affect inland marine insurers. As renewal season approaches, brokers should brace for higher contract prices and more limited capacity with higher company retention rates.

“Higher prices, higher retention rates and potential capacity reductions in the reinsurance market will put major insurers in a bind. We pay reinsurers more for excess loss protection, which means that if we don’t Passed on to insurance companies, margins will be eroded,” Soja said. “At this point in the market cycle, we’re seeing interest rates rise, but much less than in the past few years.”

But next year there will be inconsistencies in the reinsurers’ approach in the market due to natural catastrophe risks. “Most marine insurers are part of larger organizations that also underwrite natural catastrophe risks. So each Marine is assigned differently within their respective organizations,” he said. “I think you’re going to see a different reaction in the market, a small marine insurer might react differently than a larger, more sophisticated insurer just because of what we cover, how we reinsure and how we are in the market. influence on the

Despite these headwinds, AGCS hopes to cultivate long-term relationships with brokers and grow its market share responsibly over the next year.

“We are optimistic about 2023. Within AGCS, we have a growth view,” Soja said. “We strive to maintain the right balance between our internal focus by delivering products and services of value in the market, to ensure we generate adequate returns for our investors, and to remain customer-focused.”

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