Shipping, facing the rare prospect of solid returns for 2022, will see its bottom line take a hit as insurers come in demanding far higher rates.
The shipping industry has been spooked by twin announcements this week from two British P&I Clubs, giving a strong hint that insurance costs are set to go through the roof.
First, the London Club came out this week with a supplementary call for members covering the last three years. The additional hike works at 25% over original budgets with the struggling insurance firm citing the “acute softness” in rating levels in the P&I sector as well as the high level of claims this year and an increase in the cost of claims involving Covid-19 as reasons for the additional hikes. The last time the London Club was forced to call for additional cash was in the wake of the global financial crisis of 2008.
This P&I bombshell was swiftly followed by the first inkling of what owners will be forced to shell out for cover next year with the West of England P&I Club yesterday calling for a 15% hike in rates. Other P&I Clubs will make their own 2022 price announcements shortly. 15% is far above a normal annual raise, typically a 5% increase would be considered a large call in years gone by.
“Record pool costs and Covid-19 related liabilities mean that a corrective action is now necessary,” the West stated in a note to clients.
“The Pool continues at record levels in terms of the magnitude of claims and this trend shows no sign of abatement. At the six months position this year, the incurred cost of the Pool already exceeds that of the same position in 2020 which was itself a record high,” West pointed out.
Like the London Club, West stressed current rates are too low and must increase to better equate premium with claims, especially where a low investment return environment means that investment returns will not support continued technical losses.
Other clubs will announce their 2022 intentions soon with UK P&I Club tipped by Splash sources in London to go for a 10% hike with Britannia and Gard likely to be in the same ballpark.
“A boom in the freight market always causes heavy losses in P&I. Because of the lag effects, the P&I situation will be worse next year and the year after,” warned one well-placed London observer of the marine insurance markets today.
By Sam Chambers