To date, we have heard confirmation of the following new entrants into the Marine Hull sector :

1)    Barbican
2)    Canopius
3)     Liberty
4)     Skuld
5)     WTK/ Munich
6)     WR Berkeley

Scor may be about to enter the Lloyd’s  Market, although we are not aware as to their areas of interest as yet. Furthermore Aspen are reviewing their existing marine hull book and may start to write Asian Hull business.

We anticipate that such a significant influx of new capacity in to the market will only benefit Assureds as it further increases the excess of capacity in the hull market.

We await with interest the effect that this increase of capacity will have on rates, but it’s fair to assume that the new incumbents will want to gain market share either through targeting previously written accounts or the acquisition of new business or, more likely, a combination of both.

In addition, we are already seeing a number of existing markets extend their core business either geographically or by tonnage in a bid to gain market share and premium income.

Asia, Asian owners and Asian based managers look set to continue benefitting from the opportunities that this represents as the burgeoning capacity is likely to put further downward pressure on rates.

However, in terms of marine liability programmes for large, multi-jurisdictional or complex risks, Asia has not yet responded to local demand, allowing London to continue leading the way.

Whilst small or purely local programmes in Asia can often be placed in their respective domestic insurance markets, this is generally not possible if higher limits are involved or risks are spread across multiple jurisdictions. For example, the Korean, Japanese and Chinese markets have the experience and appetite for domestic programmes, but we are unlikely to see them entering the international arena in the short to medium term.

Generally speaking, international insurers operating in Asia have not placed specific underwriting expertise for larger liability programmes in to the region, contrary to hull, cargo or P&I.

As such, these programmes tend to be underwritten via the US or London head office by an underwriter who may have less in-depth experience or knowledge of the Asian market, the particular legislative environments, or the insurance and servicing requirements of clients in Asia.

It is fair to say that Asia, apart from the developed jurisdictions such as Hong Kong, Singapore, Korea and Japan, often has relatively immature liability legislation or infrastucture. This has historically affected demand for liability insurance in the region; however, the understanding of insurance buyers in Asia is developing, creating an increasing need for liability underwriters. Furthermore, those buyers expect to utilize capacity in Asia in the same way they do for other classes due in part to the perceived servicing benefits.

Some insurers are responding. In the last two years, some Lloyd’s syndicates have sent liability underwriters to Singapore, and other insurers and syndicates are likely to provide the expertise and capacity in the near future. There is also at least one Agency market in Asia currently expanding their liability portfolio and employing underwriters who were previously based in London.

However, London continues to provide most capacity due to its historical experience in this area. It remains the leading market for a large swathe of marine liability programmes across the world.

We believe the Asian market is under-served by liability underwriters, certainly when compared to marine hull, cargo or P&I, and an opportunity exists for a leading liability market to grow an Asian book.

With growing trade volumes, vessel sizes and government legislation, supply chain managers face increasing risks and liabilities in their industry. Insurance is an important risk management tool, but one that has yet to be fully utilised in Asia. For an effective insurance purchasing strategy, supply chain managers should be aware of the changing risk exposures, the breadth of cover available and the long-term benefits that insurance provides by protecting profitability.

Supply chain management, by the diverse nature of the business, is exposed to constantly changing and, in most cases, increasing risks and liabilities. Depending upon the geographical spread of the business, those risks are likely to range from political risks to business interruption and the more specific threats of piracy or theft.

The insurance market has always been keen to respond to these varying and changing risks, not only with more sophisticated products, but also greater expertise and knowledge. In the increasingly competitive environment that the trade insurance market has become, differentiation is a key driver for insurance solutions that can dovetail with existing covers and/or risk management devices already in place.

What remains constant and critical is for supply chain managers to be able to identify the risks and react to them positively. That requires a high degree of both understanding of the exposures as well as the resources required to implement the required risk management procedures. As part of that process, the involvement of the insurance market and its knowledge base can be invaluable not only to determine the possible solutions available, but as a cost-efficient external resource.

Changing Exposures

Supply chain managers have become more risk averse in recent times due in part to the falling cost of insurance, but also due to an increase in the understanding of risk and the constantly evolving legislative environment.

A gradual, but steady, improvement in the understanding of the liabilities of service providers and the courts’ willingness to find new areas of liability or affirm previously held views has focused more attention on the involvement of insurance as a risk management tool. But, is there sufficient focus or understanding on this area?

There can be no doubt that it is difficult to maintain adequate knowledge of new risks and the evolution of existing risks. As the size and demands of the industry continue to develop, both in Asia and globally, so too does the list of potential losses that might arise.

One such example is the risk of accumulation brought about by the increased volume of trade. Accumulation arises where a series of shipments are in the same place at the same time, whether that be a warehouse, vessel or other conveyance.

For supply chain managers, this is a difficult exposure to monitor on an ongoing basis, yet can give rise to a significant underlying exposure in the event of just one single incident. Whereas this used to be predominantly the preserve of static risk insurers, due to the progress of, specifically, the shipping sector of the industry, it now has a broader effect across the supply chain.

As the size of vessels increase to meet the cost efficiency demands of global trade, so does the possibility of an accumulation of risk on those very vessels. The capacity of the ‘Emma Maersk’ and her 11,000 twenty-foot equivalent units (TEUs) is a forebearer of things to come. It is perhaps noteworthy to compare her with the recent losses incurred by cargo interests alone on the ‘Hyundai Fortune’ of potentially USD75m and the ‘MSC Napoli’ in the region of USD66m, both of which were unavoidable losses from the point of view of the supply chain managers unlucky enough to be involved.

But the issues of accumulation do not stop once the cargo is discharged from the overseas vessel. As trade volumes continue to rise, specifically to and from China, so consolidation and deconsolidation points become more congested and/or capacity increases.

If we add to the equation the risks of port congestion either through natural or man-made causes such as the recent strike in the US Pacific Northwest, those exposures can result from a number of causes making them difficult to predict.

Being able to calculate these exposures, with a degree of accuracy, requires a high level of risk management capability, which may not be viable within certain areas of the supply chain. It is, of course, difficult enough to manage risk successfully where all the information is available; where that information is not available, it becomes a considerable challenge.

The result of this is that there is only a limited level of protection for even the most sophisticated risk manager. Offsetting risk in the form of insurance should, therefore, play a pivotal role in the overall risk management strategy.

Insurance in Asia

To this end, the insurance market in Asia continues to grow as more and more insurers enter the arena, either as additional offices to bases in London or the US, or Asian headquartered and capitalised. The London and Lloyd’s market is and will remain the epicentre for the complex risks that the supply chain management industry requires, but there is significant shift in knowledge as insurers place expertise on the doorstep of the risks they write.

Indeed, Lloyd’s itself now has hubs in Singapore and Shanghai, allowing Lloyd’s markets to utilise their capital based in London to set up at minimal additional cost in Asia. While the spread of insurance placements is often global, insurers are seeing a real benefit to a presence geographically alongside the risks they are writing.

This provides insurance buyers in the supply chain sector with the services and knowledge base that, all too often, remains under-utilised. While the insurance market is keen to provide this support, generally speaking it has not been considered a traditional option for the supply chain industry. This, though, needs to change if the supply chain sector is to benefit from all the available tools, including insurance, and meet the risk management challenges that Asia will continue to present.

Regulatory and Legislative Environments

The concern, however, has to be that Asia’s trade volume is increasing at a pace considerably in excess of other markets, while regulation and legislation in many of the region’s countries remain in their  infancy. However, this has not dampened the expectation of clients of the supply chain industry in the region, who demand the highest levels of service.

Given the current pace of growth in countries such as China and India and the relative lack of focus on ensuring that the regulatory environment keeps pace with that growth, the protection of that exposure becomes ever more difficult. The changes in regulatory practice will take some time to gain traction and is, perhaps in part, contrary to the desire of those who wish to reap the benefits of the regional growth in trade.

This is likely to continue to have a negative effect on the ability of the supply chain industry to manage their exposures in the developing economies for some time to come.

However, the news is not all bad as insurers have an equal desire to be involved in trade to those regions and, to do that, they want and need to understand the risks involved. This is, in part, the reason for the increase in focused expertise being brought in or propagated in the region by insurers.

To properly understand the environment, they want to be accessible to their assureds and to the risks they face. Whether this proximity will give rise to a consequent increase of insurers’ involvement in the risk management strategies of the supply chain industry remains to be seen.

At present, there remains a relatively low penetration of insurance purchasing in Asia but a change is unlikely to be driven by the regulatory bodies, even with the full support of the supply chain management sector.

Ultimately, an effective risk management strategy needs to be seen as an asset to any company before the costs involved will be accepted. That will require a fundamental change in thinking in some sectors regardless of the regulatory environment.

Premium versus Risk Management

An effective risk management strategy that is able to react to new risks and control existing ones can expect to have a long-term beneficial effect on the insurance costs.

When this is compared to the falling cost of insurance even as trade levels continue to climb to some of the highest levels ever achieved, the actual costs of risk management can be eroded, in some cases, to a large degree.

This also gives rise to more specific options within the insurance programmes to create greater premium efficiencies as the risk management strategy provides more predictable results. Increases in self-retention of risk, for example, can mean a beneficial reduction in premium.

Other, significantly more sophisticated, products start to be made available as the risk management strategy becomes a key aspect of the profile of the insurance buyer. The equation between a reduction in claims experience and a reduction in premium becomes weighted in favour of the insurance buyer with a history of successful risk management.

The Impact of Unused Risk Management Tools on the Balance Sheet

Experience shows that, even where a strong risk management structure is in place the understanding and knowledge may not be filtering across to operational levels. This will reduce the ability of companies to extract the most from their risk management strategy and, ultimately, will have a negative effect on profitability. Put in insurance terms, opportunities to recover losses from insurers are simply not identified on an all too often basis. This can be either due to a lack of knowledge of the breadth of cover available or, perhaps, a perception that making insurance claims will increase premiums in the future.

With an otherwise effective risk management strategy in place, it becomes even more important. The reimbursements not only provide financial recompense, but provide the insurer with valuable knowledge of the operational or commercial risks that are occurring. More importantly, it tests the insurance to ensure that it responds as it should do when it is required. The cost benefit to the assured is clear, but the long-term risk management benefits of stressing the insurance purchasing strategy are perhaps not as obvious, until a significant loss arises.

Philip Bilney is an Executive Director at FP Marine Risks, the first Asian broker to receive full Lloyd’s accreditation in its own right. He heads up FP Marine Risks’ Hong Kong Office.

Q1: Why and when was FP Marine Risks set up?

A1: The company was set up in January 1994. At the time, the Asian marketplace was characterised by multi-national broking houses who maintained very little in-house marine expertise, and certainly not across all marine lines. There were no regional brokers with the skills and knowledge required in this market sector, which created a clear opportunity to set up a specialist marine broker.

We have been able to successfully grow within that marine niche since then, and today we have 33 staff in the Hong Kong office and 47 in total.

Q2: Hong Kong is a competitive market – how does FP Marine Risks stand out?

A2: Above all else we differentiate ourselves by remaining focused on our marine specialisation.

All of our tools, resources and processes are designed with that very much in mind, which I think benefits all parties involved.

Many people also comment on the energy and drive of the company. There is a sense of urgency in the place, which I think is vitally important to clients.

Q3: What classes and areas do you specialise in?

A3: All marine classes and all Asian countries. As might be expected, we are finding that China and India are attracting most attention these days, but the rest of Asia Pacific shouldn’t be ignored. There is growth almost everywhere in the region.

Q4: Why did you apply for Lloyd’s broker accreditation?

A4: As individuals we came from a Lloyd’s background so it was an easy decision for us, particularly given Lloyd’s’ pivotal role in our business.

This was further reinforced by the fact that we were keen to be able to conduct our dialogue with the Lloyd’s market without the need to involve third parties, which meant of course having a direct presence in London.

Q5: What do you find is the perception of Lloyd’s in the local market?

A5: Lloyd’s has the best brand and the best name recognition in the business. Perhaps because of that some Asian buyers of insurance perceive Lloyd’s to be expensive, even though we all know that isn’t necessarily the case. So we sometimes have to overcome that obstacle.

There is also a certain mystique about Lloyd’s, making it appear perhaps rather elitist, which can actually help to attract business sometimes. But at the end of the day, price considerations almost invariably prevail.

The insurance market in Asia tends to see Lloyd’s as remote and a little aloof. However more recently there has been a realisation that Lloyd’s has been modernising rapidly and becoming more professional. Lloyd’s chain of security is generally recognised as a powerful asset.

Q6: You have just received your full accreditation as a Lloyd’s broker – how will this help your business?

A6: It demonstrates that we have placed substantial and growing amounts of business into Lloyd’s over the last three years. It also shows that we have met the standards of Lloyd’s brokers, and from a Hong Kong perspective this demonstrates professionalism and credibility.

There are a number of current London market initiatives, such as contract certainty, which of course we buy into as a Lloyd’s broker. But we have also made a conscious decision to extend the same initiatives into Asia – we want to deploy these improvements in professional standards as widely as possible.

Q7: FP Marine Risks opened a London office – why was this?

A7: We opened the office in London in August 2003 as we knew we needed it in order to operate effectively as an accredited broker. We found it essential to have a presence on the ground, and since then have been able to recruit a number of specialist brokers in our office there.

We have two routes to Lloyd’s underwriters – the first is directly from Hong Kong by email to underwriters in the Room. Some underwriters have been adept at changing their own practices to accommodate this and in practice can work with us in the same way that a local underwriter can – a Lloyd’s underwriter who replies to us first thing in the morning in the UK will sometimes have responded more quickly than his Asian-based competitors. This is important to us and has worked well.

The second route is via our brokers on the ground in London. Dealing directly with a broker 7,000 miles away from Lime Street requires a particular mindset, so we find having the two approaches essential.

We now have 12 people in London and nine who regularly walk around the Room, which has had a massive impact on our profile in Lloyd’s. Having a fully operational London office also sometimes presents us with new business opportunities – being Asian specialists we often get referrals and enquiries related to the region.

The more we become engaged in London the more it becomes apparent that London and Lloyd’s remain the epicentre of marine insurance. There is tremendous value in the way Lloyd’s operates – it enjoys a unique physical marketplace that is just not found in other centres around the world.

Q8: Do you see syndicates setting up in Asia having an advantage?

A8: Yes, the syndicates who set up in Asia are in the front-line and as such are much more likely to see a greater choice of risks, and to understand the market better.

It’s worth bearing in mind that marine underwriters operating in Asia are generally doing well. Although rating levels here are often lower than in other parts of the world, claims tend to be as well.

Q9: FP Marine Risks recently set up a Melbourne office – what was the rationale for this?

A9: Australia and New Zealand are markets that suit us perfectly in terms of language and legal systems, and of course they share similar time zones to Hong Kong. But they can also be quite introverted markets, and therefore a presence on the ground is essential. So when the opportunity presented itself we were very keen to quickly establish ourselves.

I’m very pleased to say that the office is doing well – we are seeing business that is of high-quality and well-presented. It’s tremendously exciting.

Q10: What are your predictions for the Hong Kong and regional market for ten years time?

A10: I hope and expect that Hong Kong will still be the key regional Financial Centre for Asia in ten years time – it has all the infrastructure that it needs for that, and many advantages over Shanghai or other cities.

Many people expect China to continue on its path of tremendous growth and reform, and I’m sure that will be the case. But it won’t all be in a straight, trouble-free line – expect many bumps to come. The insurance market there will no doubt continue to develop and open up, and the indigenous insurers will continue to become more sophisticated. The old polarisation of the market into one or two huge players will never return.

Q11: What is the future for FP Marine Risks?

A11: We will continue to be marine specialists – that focus has worked well for us. I see huge and exciting potential for considerably more growth for us in the Asia-Pacific region, and indeed elsewhere around the world.
Philip was in conversation with Alex Faris, Lloyd’s General Representative for Hong Kong

Brokers are becoming an “essential part of the insurance buying process” in Asia, according to Lloyd’s first accredited broker in the region.

Philip Bilney, executive director of FP Marine Risks, says that although there is a well-established market in Asia already, there is still a lot of potential for growth. He adds that the time is right for brokers who want to start offering their services in the region.

“As a developing market, the primary distribution channels have traditionally been via insurance company agents,” he says. “But as risks become more complicated and buyers more sophisticated, brokers are becoming an ever more essential part of the insurance buying process.” This sentiment echoes the findings of recent research conducted by Lloyd’s which found that there is significant and growing demand for specialist services offered by commercial brokers.

Bilney adds: “Looking at the region as a whole, the insurance industry is more experienced and better founded than it was a decade ago. The Asian market is more mature and has more experienced individuals within it.”

Bilney believes that this has in part been reinforced by the Lloyd’s syndicates established in Asia over the last several years.

“From our perspective, the Lloyd’s market is enormously relevant,” he says. “It’s at the hub of marine insurance worldwide. It has far more experience than any other single market or body of underwriters. There are very few risk types which are entirely new to Lloyd’s underwriters, so it’s not just about innovation, but experience and expertise.”

The Lloyd’s market is also willing to commit substantial capacity to specialised or complex risks, the kind that some Asian international insurance companies might be more wary of, according to Bilney.

FP Marine Risks is a specialist marine insurance broker with offices in Hong Kong, London, Melbourne and Taipei, operating in key markets such as Asia, London, continental Europe, the United States and the Middle East.