As conference season gets underway, the current landscape of marine re/insurance is in focus, with the global economy still recovering from multiple shocks.
Watkins identified three key themes influencing the industry. These themes are interconnected and have both short- and long-term effects on the marine insurance landscape, making risk management a critical focus for insurers.
Global trade confidence has slightly improved in 2024 as the economy continues to recover from the COVID-19 recession, supported by stronger policy measures.
According to Watkins, the United Nations Trade and Development (UNCTAD) estimates that the volume of world merchandise trade will rise by 3.3% this year, a recovery from the 9.2% contraction in 2020 and the 2.4% growth in 2021.
Despite these signs of recovery, Watkins cautioned that trade confidence remains fragile. Consumer confidence is still low, and global trade remains vulnerable to macroeconomic and geopolitical shifts.
For example, the US-China trade war in 2019 resulted in a 15% drop in marine insurance premiums in North America. Watkins emphasized that these trends require close monitoring by marine insurers as they navigate the potential impact of changing conditions on their portfolios.
According to Watkins, geopolitical tensions are a significant factor impacting marine insurance. In 2023, the United Nations reported the highest number of violent conflicts since World War II, with 110 million people displaced. Conflicts in Ukraine, Gaza, and other regions, along with ongoing civil wars, are creating disruptions in global supply chains.
Watkins noted that incidents like the activities of Houthi rebels in the Red Sea, which forced ships to avoid the Suez Canal, have increased shipping costs and shifted trade routes.
These disruptions, along with growing protectionism and the use of tariffs and sanctions, continue to impact the cost of goods and logistics.
Watkins emphasized that insurers must stay vigilant, adapting to evolving trade laws and geopolitical conditions, particularly in conflict-prone areas. War and strike cancellations, along with event limits, are becoming critical in managing risk in these volatile regions.
Watkins also highlighted the importance of the energy sector for marine and energy insurers. The need for decarbonization is paramount, while global energy demand is expected to increase by 50% by 2050, compared to 2019 levels.
The energy sector has responded with strategies like enhancing operational efficiency and investing in renewable energy sources, but progress has been uneven.
Watkins pointed out that the energy transition offers both challenges and opportunities for insurers. This emerging risk pool, centered on renewable energy and new technologies, will play an increasingly significant role in insurance portfolios.
As global economic and geopolitical challenges continue to influence the marine re/insurance sector, Watkins emphasized the need for insurers to remain adaptable and forward-thinking, particularly as new risks and opportunities emerge in the years ahead.
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