Product overview: Transport

A long-standing tradition of trading goods means that marine insurance is one of the oldest forms of insurance, with historians able to trace cover right back to the Phoenician traders in around 1000 BC. Methods of transporting goods have changed significantly since those early days on the sea, but it remains a valuable but challenging market.

A report, Marine Insurance Market Outlook – 2028, from Allied Market Research forecasts that the global marine insurance market will grow from US$26.83bn in 2020 to US$33.90bn in 2028. This represents annual growth of 3.1%.

Over the years, additional methods of transporting goods have emerged with the road network particularly key. To protect the interests of those transporting goods by road, haulage insurance products first emerged around 100 years ago. “Motor insurance first became compulsory in the UK under the Road Traffic Act of 1930, and was followed by a more specific act for haulage contractors in 1935,” says Simon Lancaster, chief executive and founder of SJL Insurance Services.

Little has changed in terms of products, with cover for the vehicles and third party liability the main elements. However, Lancaster says the way these products are interpreted has evolved, with amendments to the Road Haulage Association’s conditions helping to shape cover. “This particularly applies to carriers arriving at ports without the correct documentation,” he explains. “Where this is down to an error on the part of the customer, the haulage firm is within its right to terminate or suspend the contract and claim for damages, loss of business and driver’s wages.”

Market conditions
The haulage insurance market is performing well. Unlike other parts of the commercial market, which have hardened over the last few years, rates are very stable. “Risks are running well due to the roads being less busy during the pandemic,” says George Bryant, director of transportation and freight at Gallagher. “Some businesses were flat out during the pandemic, for instance food hauliers, but other sectors, such as those that move band gear for gigs, had nothing to do at all. It’s changing now but, with the roads emptier, there were fewer claims.”

Although composite insurers were active in the market in the past, it’s now a market dominated by MGAs. Bryant says it suits them better. “They can be agile and more niche, which means they rate these businesses better,” he says. “There’s plenty of competition and we haven’t found a risk that we can’t place.”

Claims cost controls
Other factors are also feeding into this more benign market. The whiplash reforms, which form part of the Civil Liability Act, will restrict how much third parties can claim for whiplash injuries. This will help to control litigation costs and keep rates stable.

There are some potential causes of claims inflation that may put pressure on rates. Lancaster says there has been an increase in vehicle thefts but also that general repair costs of vehicles are increasing by more than a third.

A firm’s approach to risk management will also play a significant part in an underwriter’s decision. “It’s a stable market but each organisation will be assessed on its own merits, especially around its risk management strategy,” says Bryant. “A haulier can get a price differential if it takes steps such as installing telematics and cameras and assessing driver behaviour. On some products you have to have some of this technology in place. It is in the haulier’s interest to invest in this technology: there are a lot of costs involved in the event of an accident, including down time and loss of income.”  

Losses at sea
The situation for those on the roads may be fairly benign but there are choppier waters in the marine market. After facing large losses from a series of natural  catastrophes, including hurricanes Dorian and Harvey, but also a number of fires on large container vessels such as Maersk Honam and Yantian Express, the market started hardening in 2018.

The sector is hopeful that rates are beginning to stabilise again but there are still some significant risks to consider. Cyber is one that particularly troubles underwriters, especially as the space is adopting more and more technology.

Already cyber attacks have taken place, most notably back in 2017 when Maersk was hit by the NotPetya ransomware. This forced it to shut down its IT systems, causing problems processing orders and delaying cargoes.

The risk that a cyber attack could potentially lead to a criminal taking over control of a ship and potentially grounding it, means that insurers are introducing more requirements around cyber security.

Haulage issues
Back on dry land, there are also issues to consider. Bryant sums the main one up in one word – drivers. “Haulage companies would like to operate more vehicles, and they definitely have the work, but they can’t find the drivers,” he says. “They can’t even subcontract the work out at the moment.”

Brexit and the visa requirements that are now in place for foreign drivers means that most are heading to other countries rather than return to the UK. On top of this, with higher salaries and golden hellos being offered to qualified drivers, firms are seeing their already meagre profit margins being further squeezed.

Tackling the driver shortage by recruiting new people into the industry could cause issues for insurance. Without the experience, it could lead to more accidents, putting rates under pressure. 

There are also concerns about proposed changes to the Highway Code, which are due to come into effect in 2022. In particular, a shift to a hierarchy of road users, could see road users such as lorry drivers who could do the greater harm in a collision having the greatest responsibility to reduce the danger they present to others.

Future outlook
Shifts in the way people shop that were accelerated during the pandemic mean the transport sector has a bright future. “The growth of online shopping will lead to an increased demand for goods to be transported to distribution hubs,” says Lancaster. “This will lead to an increase in UK haulage and subsequently the courier market too.”

As well as increased demand – once the driver shortage is solved – both Bryant and Lancaster expect to see more appetite for pay as you go style products. These would offer firms a more flexible approach to insurance, particularly benefiting newer entrants who can control costs as they get established in the market. 

*Correct as of November 2021*