cargo delivers - JLT Specialty

CARGO DELIVERS CARGO NEWSLETTER NOVEMBER 2016

TRAVEL SECURITY RISKS

EVOLVING CARGO MARKET

CARGO RISK AND ANALYTICS

ALSO IN THIS ISSUE

How cargo companies can protect staff travelling overseas

Special feature from Nick Peck, retiring Cargo Chairman at JLT Specialty

How cargo companies can use data to manage their risk exposure

Meet Emma Clack

10

NAPSLO 2016

10

Page 4

Page 6

Page 11

Piracy and cargo theft in South East Asia

12

Insurance Act update

5

What does Hanjin’s collapse mean for cargo interests? The collapse of Hanjin Shipping in August sent shockwaves through the industry. The Korean shipping line collapsed owing USD 5.5 billion to creditors and leaving billions of dollars of cargo stranded on its ships. Andrew Green, Senior Claims Adjuster at XL Catlin and David Clark, Director at Pequod Associates joined Garry Cordess, Senior Partner and Jared Prince, Partner in JLT Specialty’s Cargo team to discuss the impact on the shipping and insurance industries.

What caused the collapse of Hanjin? Andrew Green: “In my opinion we could look back to 2012/13 with a slew of vessels being built, many with far larger capacities than before. These vessels began

entering service at the same time as a major downturn in the global economy, especially the Chinese and Korean. “With less demand for goods and new higher TEU capacity vessels, many lines were forced to slash freight rates to compete. In February 2016 the Shanghai Containerized Freight Index (SCFI) was down a huge 62% evidencing the low demand high supply matrix. Hanjin accounted for about 3% of the world’s fleet. 5% of the global world’s fleet is currently laid up.”

David Clark: “I’d agree with Andy that market overcapacity is one of the key factors behind the collapse. Perhaps some of the causes behind this market overcapacity can be traced as far back as the early 2000s when shipowners started slowing down ships to save on bunker fuel on ‘environmental’ grounds. If you slow ships down from 25 knots to 15 knots, the effect of this is that you end up with more cargo ships on the water and, as a result, you need to create more capacity to ship the cargoes waiting in Continued on page 2 

WELCOME We are delighted to welcome you to the fourth issue of Cargo Delivers. Sadly this will be the last issue of Cargo Delivers published before JLT Specialty bids farewell to Nick Peck, Chairman of Cargo. Nick was a founder member of the Cargo team here at JLT Specialty and has worked in the market since 1978. He reminisces here about what the business was like when he started. Nick has seen huge changes as the cargo market has evolved over the 38 years since he began his career. In that time he has seen the reconstruction and renewal of Lloyd’s, the losses of 2001 and 2005 and the rise of Bermuda. Meanwhile, technology has changed the way the industry operates forever but through it all he believes London has not only managed to survive but is thriving. On behalf of JLT, our clients and markets I would like to thank Nick for his years of hard work, dedication and professionalism which has made our cargo team the success it is today and wish him a long and enjoyable retirement. Elsewhere, our roundtable brings together some of London’s leading cargo experts and key personnel from the JLT Specialty’s Cargo team to discuss what caused the bankruptcy of Hanjin Shipping and what it means for the market. We discuss the travel security risks facing businesses and their employees both at home and abroad. Analytics and big data are finally making an impact on how cargo risk is managed as we assess the opportunity for the industry. Also, we look at the possible impact of the 2015 Insurance Act on buyers and insurers alike. Finally, we round up all the news from the National Association of Professional Surplus Lines Offices conference (NAPSLO) in Atlanta, as well as global piracy activity, and we introduce one of the Cargo team’s newly appointed account handlers, Emma Clack. We would also like to take the opportunity to wish you all an enjoyable festive season.

Gordon Longley CEO of Cargo and North American Property JLT Specialty Limited

2 CARGO | CARGO DELIVERS | November 2016

 Continued from page 2 port. So owners ordered more ships to be built. That all worked well pre-2008 when the Chinese and Indian economies were growing at astonishing rates. Then the global economy crashed in 2008 and demand spiralled downwards but by that time arrangements to increase capacity had already been put in place as the new build order books were full. “Also, as Andy mentioned, the carriers had started building larger and larger ships chasing economies of scale. That’s all very good if they can fill those larger ships but if you can’t fill those ships you’ve got a problem.” Jared Prince: “They can build these large container ships in three years and the capacity is phenomenal. That’s part of the problem that the industry needs to look at as well. The carriers are trying to get more value out of their ships by using them for longer, and low scrap value isn’t helping, so we have an ageing fleet as well as plenty of new ships, contributing to this over capacity.” Garry Cordess: “You’ve now also got recent news that three major Japanese shipping lines are merging. Mistui, Nippon Yusen and Kawasaki Kisen Kaisha. Is this just the crest of the wave?” David Clark: “I wonder if these mergers are a good thing? Again, the mergers seem to be driven partly by a search for economies of scale but possibly another driver may be the desire to kill off some of the smaller container lines. The bigger container lines with their economies of scale

are theoretically able to drive freight rates down to levels that become unsustainable for the smaller container lines. “One of the problems with this is that even these large mega container lines are then forced to run on very tight profit margins which need to be balanced against a large debt/mortgage exposure. Maybe as well their business models are also not diversified enough – perhaps, they’ve got all their eggs in one basket; i.e. their income stream is pretty much solely reliant on container freight.”

Could the collapse of Hanjin have been foreseen and will it result in clients being more careful in their selection process given that the situation could be repeated? Garry Cordess: “The insurance press and the shipping press have been relatively vocal on the decline of freight rates. Much depends on the type of cargo being shipped. We are talking about containers on vessels and often the cargo owner has no direct control over which vessel or shipping line it is shipped on.” Andrew Green: “We’ve seen some evidence of key accounts doing just this. This was an unpredictable event and those with the foresight to manage down were few I’d suggest. The industry has seen some smaller lines failing over the past 18 months but the lesson to be learned here is ‘you’re never too big to fail’. “What can or will shippers do now? Deal only with who they deem to be the most stable companies out there.”

www.jltspecialty.com | CARGO DELIVERS 3

Left to right: Garry Cordess (JLT Specialty), Andrew Green (XL Catlin), Jared Prince (JLT Specialty) and David Clark (Pequod).

David Clark: “In an ideal world shippers should have a risk manager assessing the risks that the company is exposed to throughout their whole supply chain. Thus, not only risk relating to the selected carrier but also risks such as those relating to suppliers, storage etc. “In terms of assessing the quality of the carrier, their role might be quite restricted in as much as shipments made with the container lines are not made directly but rather via a freight forwarder, also known as a non-vessel operating common carrier (NVOCC). Thus perhaps their risk management in terms of the carrier vetting should be focused on assessing their NVOCC? “The advantage of having a risk manager assessing the risks throughout the supply chain process is that you then have someone who should be able to rapidly react if a problem occurs. That response time is surely going to be slower if you haven’t got a team monitoring the risks?” Garry Cordess: “Historically it has been the age of the vessel that has attracted market attention, not necessarily the financial viability of that particular shipping company.” Andrew Green: “Some large organisations with dedicated risk managers in place may possibly consider adding the financial stability of their chosen shipping line much like their

regular selection criteria when assessing third party contractors/storage providers.”

Has Hanjin prompted many enquiries and what has the response been in the London Market? Andrew Green: “Initially once the news first made the press we received numerous requests to comment on policy coverage and the scope of the individual Extra Expenses and Forwarding clauses. As an industry, we have to understand and appreciate the position this event has put on our assureds and their businesses and if we can assist we will wherever possible.” Garry Cordess: “I would say a client doesn’t always need to see the speed of claims settlement, but they do want confirmation of coverage. It is important that insurers make a difference there.” Jared Prince: “I think the insurance market has responded pretty well. We did have a large number of enquiries from our clients but in many instances they were hypothetical, because there had not yet been a physical or financial loss. Our policies are bespoke and our clients needed guidance on how their policy would respond in the circumstances they were facing. “There were several instances where we had to go to the market for a formal coverage position from insurers and we have had good support.”

Garry Cordess: “The shippers might have containers stuck in different places, some still at sea, some stuck at a port or laid up and they want to know how do I get my cargo off the ship? How do I get it landed? What are the implications and who pays? When you are talking about cargoes with a short shelf life then spoilage is an issue if the vessel is laid up. You have to take all steps necessary to get the cargo off.” David Clark: “The standard problem is that the shippers have their cargo stuck on Hanjin ships. Perhaps their cargo might be stuck on ships that are under arrest or on ships that the terminals are refusing to discharge.”

Will there be any recourse for cargo owners to claim via the bankruptcy proceedings? Jared Prince: “Unless you have a huge claim, lodging a claim as a cargo owner within the bankruptcy proceedings will surely leave subrogated insurers quite far down the food chain?” Andrew Green: “I agree, insurers of cargo I’d suggest will be considered towards the back of the queue in these proceedings.”  For more information please contact Garry Cordess on +44 (0)20 7558 3012 or email [email protected]


Travel security risks Travel security risks facing multinational corporations in today’s business environment are diverse and ever-changing; active shooter, hostage crisis, kidnap-for-ransom, hijack and extortion are just some of the dominant risks facing employees both at home and abroad. Whilst traditionally these sorts of events have targeted specific industry sectors and territories, in effect these types of security risks have evolved so that anyone anywhere can be a target. However, industries with a global footprint and trade network with personnel travelling worldwide, such as cargo operators, are more likely to be more exposed to such risks.

volatile, high risk countries such as Nigeria, Brazil or Philippines, no country is immune from such incidents.

There is significant legal pressure and moral expectation for corporations to deliver a high-level duty of care for their workforce. Failure to provide adequate levels of security and education, as well as a failure to develop and implement robust crisis management procedures, will expose a company to potential brand and reputational damage, as well as litigation on the grounds of negligence. It is crucial therefore that corporations build resilience and undertake constant monitoring and stress-testing of their crisis management and safe travel plans to ensure a fast and effective response to whatever crisis event occurs.

•• Wrongful detention

Executives in particular are a prime target for such incidents. Their rank and profile alongside their extensive international travel itinerary means that their exposure to such risks is heightened. Whether the travel is to fairly benign locations such as France, Japan or Singapore or to more

What are the most frequently reported security risks facing business travellers? •• Robbery •• Express kidnap •• Virtual kidnap •• Cyber extortion •• Disappearance Given the entirely unpredictable nature of these events, the question is not ‘how do we stop such incidents’ but rather ‘how can we minimise and mitigate the impact of an event when one happens?’

CASE STUDY 1: ARGENTINA Express kidnapping An Argentine businessman was express kidnapped by four criminals in Buenos Aires. The victim’s car was intercepted by the criminals while on route from work to home. The victim was held in the car and driven around the city for two hours while the gang demanded a USD 50,000 ransom from the victim’s family.

Each organisation has their own risk appetite and will have procedures in place that are bespoke to their own risk outlook. While adapting a plan to suit your organisation is crucial in effective implementation, it is also challenging for the organisation to ensure their procedures adopt to the changing risk environment. The specialist nature of ‘people’ security risks coupled with financial implications and planning time often means there is a reluctance and complacency to constantly monitor the travel and crisis plans. Furthermore, the unpredictable nature of security risks worldwide, makes it a challenge to accurately prepare for a crisis. However, a general awareness of risks relevant to the country of exposure, with a proportionate balance against threat reporting can help inform an itinerary plan. Enhanced training and policy communication for personnel is crucial. Capability during an incident can be enhanced through the use of travel risk management platforms feeding data on employee locations to crisis management teams (CMTs) to obtain last known positions. Pre-identification of information sources during an incident will also improve decision making at crisis management team and senior executive level.


Victim’s family

Victim

KEY STAKEHOLDERS INVOLVED IN A CRISIS EVENT

Company / employees / shareholders

CASE STUDY 2: FRANCE Cyber extortion A businessman received a malicious email while on a business trip in France threatening to release confidential company information which was stored on his laptop unless he paid a ransom in bitcoins.

Media

management plan (CMP) should include protocols on how to manage these relationships and more importantly, expectations during the event. A failure in adequate and timely response and communication with these parties may result in: •• Brand and reputational damage •• Business interruption •• Financial implications

An effective CMT is one with prepared and resourced contingency plans for differing perils – be that terrorism, evacuation, cyber extortion – that are properly owned, maintained and cascaded internally, all sitting within one overarching crisis management framework. Listed below are just some considerations to take into account when building a safe travel plan:

•• Legal liability implications

CASE STUDY 3: MALAYSIA Disappearance A businesswoman, in Jakarta for a conference went missing. Her disappearance was only noticed 24 hours later when her family reported their concerns to her company.

•• Itinerary planning •• Travelling party •• Transport and booking •• Mode of transport •• Accommodation and booking •• Security team •• Drivers •• Method of communication •• Sanitise social media •• Monitoring movement •• Hostile environment awareness training (HEAT) •• Insurance cover While this checklist of procedures and training is one key way of improving the personal safety of your travelling employees prior to departure, it is equally important to have a response plan in place. The above diagram details just some of the key stakeholders involved in a crisis and a comprehensive crisis

WHAT’S THE SOLUTION? Managing a crisis is complex, sensitive and time-consuming. What many organisations may not realise is that there is an easy and proactive one-stopshop solution. Special risks policies will provide holistic crisis management response support and financial indemnity against a wide range of security risk perils facing your workforce at home and abroad, such as disappearance, active shooter, hostage barricade, emergency evacuation and wrongful detention. Your entire workforce can be covered by this policy on a 24/7 worldwide basis thus providing a company with peace of mind in delivering a comprehensive and tangible duty of care.  For more information please contact Lucy Higgins on +44 (0)20 7528 4253 or email [email protected]

Insurance Act update – in practice The Insurance Act 2015 came into force in August 2016, introducing new disclosure requirements for UK companies. The Act aims to create a more level playing field between insurance buyers and insurers, and represents a significant change to UK insurance contract law. While insurance buyers face more rigorous disclosure requirements, the law makes it more difficult for insurers to void a claim on grounds of non-disclosure or breach of warranty. The new law has yet to be tested in the courts, and disputes are expected to arise in coming years as insurers and insurance buyers seek clarity on certain provisions, such as fair presentation and how concepts like proportional remedies play out in practice. All companies will need to review their risks with fresh eyes at each renewal and ensure a more thorough and properly conducted search, informing their brokers of any changes relevant to insurance, such as new products, suppliers, processes and territories. In future, the ability to document and evidence the search for information and determine fair presentation will likely be central to successfully resolving disputes over claims. The insurance industry is also still finding its way with regards to the Act. Most insurers have already amended their wordings to align with the Act, though future changes are likely as the law is tested in the courts. Yet there are notable differences in approaches from insurers. Some insurers have offered customers little guidance. Other insurers are pro-actively using the Act as an opportunity to improve their offering and better differentiate themselves. 


The cargo market and how it has evolved over my career since 1978 By Nick Peck, Chairman of Cargo at JLT Specialty I was asked to summarise the above, which I find hard to fully get my mind around, given my career covers 38 years, starting on Monday 30th October, when I sat in the Ibex House Coffee shop in the Minories, waiting for my “arrival time” of 09:45, and wondering what the world of insurance, especially for those carrying the title “marine clerk”, held in store. The story can continue, however to set the scene, the “cargo market” was, and remains, that unique physical trading entity comprising of cargo underwriters, and, as we used to be called, “Lloyd’s brokers”. So any comments made apply to that unique group, which even, many

years on, remains unparalleled anywhere in the world. Other centres of insurance have, in the past, and as they do now, tried to reproduce the unique tension and dynamic of the market – and have failed to reach anything of like scale. As I started my career, the “New York Exchange” had opened, and was to close within a few years. Now the press talks often about the Singapore Exchange, and the Dubai Hub, not to mention Miami, but does anyone think the true aim of these vital hubs is really to usurp London as the epicentre of the international wholesale market place,

or to duplicate, or improve upon, the technical knowledge and innovation which exists in London? I think not. I will not be attempting to grab numbers, or to validate or justify my views through statistics etc. because they can tell a different story depending on the intended conclusions, so these are just my recollections and observations, for the reader to take or to leave, as they will.

CHANGE IN THE MARKET I will, however, give the background that over the period of my career, the market


has moved from a wholly entrepreneurial, undisciplined, light data, largely unregulated, entirely relationship driven business network, comprising of a large number of firms and traders, into a large corporate, data driven, highly regulated and disciplined, major insurer and broker dominated network. The market has gone through significant upheaval, caused by excessive losses, especially the overhang of asbestosis and pollution claims, and especially in the case of Lloyd’s, the very real danger of shut down, had not both Lloyd’s Underwriters and Lloyd’s Brokers worked hard and in an unprecedented way to satisfy the NAIC, led by a friendly chap from Georgia, that Lloyd’s could recapitalise, continue to pay its claims, and remain a key component of the US surplus lines marketplace. Had Sir David Rowland failed to pull that off, and successfully launched “reconstruction and renewal”, I doubt few if any of us would have enjoyed our careers. Lloyd’s has transformed from a market where its capital was solely derived from its “names” individual funds, with unlimited liability, into a limited liability capital market structure. What of company underwriters? When I started, company names included Iron Trades, The Royal, The Sun Insurance, the Orion and Commercial Union, to name a few. For a time, there were so many companies trading that an alternative to Lloyd’s, called the Institute of London Underwriters (ILU), was set up in its own trading building near Lloyd’s. A cargo broker could easily place all his or her business into the ILU market, without setting foot into Lloyd’s! The market, following R&R and a mass withdrawal of company support from the ILU due to very poor losses, then crystallised during the 90s into a largely Lloyd’s dominated scene, with major underwriting groups, such as the CU, setting up their own Lloyd’s syndicate, or alternatively, major companies like Allianz, AXA, Royal & Sun Alliance and

AIG leaving the ILU, rebranding in their own “global insurer” colours, and joined by emerging Bermuda players, namely ACE and XL, both set up initially to provide excess US pollution capacity. The early 2000s were dominated by deteriorating losses due, once again, to depressed rates and a lack of discipline, and the shockwave which followed the tragic events of 9/11, which set the scene for the market we enjoy today, some 15 years or so later.

“All instructions and enquiries from clients and prospects arrived in the office by letter, phone call, business lunch, telex or the “just emerging” fax. The other way was via the travelling broker, who would phone in, or cable, exciting news of a new opportunity from the road.”

TRAVELLING BROKER So let me go back to 1978, and please remember, as a reference point, that there were no, repeat no, computers on brokers desks until at least 1994! The typing pool ladies had word processors, eventually, but in the early days, golf ball typewriters, and tippex! All instructions and enquiries from clients and prospects arrived in the office by letter, phone call, business lunch, telex or the “just emerging” fax. The other way was via the travelling broker, who would phone in, or cable, exciting news of a new opportunity from the road.

colleagues, a slip would be generated. The broker would then take the slip, listen to the story, and then return, usually sometime after lunch, with the terms, and ask the technician to put together a quote telex – all by hand – which would then be given to the telex operator to type up, and then, before being sent, to be checked again by said technician. It all sounds slow and clunky, but, believe me, it was the norm, and the phones were ringing non-stop with enquiries, requests for (100% manually produced) certificates, invoices, cover notes, bank requests etc. That will sound familiar in several ways to the reader, I am sure. Then there were the (manual) signing slips, debit notes and so on, and the need to remain popular with members of the typing pool, which was excellent training for a young aspiring broker! Jumping forward, the second best decision I made was in 1982, to join Sedgwick Cargo Limited, working under the leadership of Ken Carter (later to be CEO of JLT Group) and where I forged my friendships and market relationships, which flowed through, naturally, to following Ken to Lloyd Thompson Limited, and of course the company evolution through to JLT Specialty as it is today.

The “technician”, by now I was one of those, would seek guidance from the manager, and would be referred to a previous “slip” of a similar nature. There were no templates, but there was no MRC. The slips were several panels, and with a mix of common sense and knowledge gleaned from the witherby’s clause book and helpful/unhelpful Continued on page 8 


EVOLVING MARKETPLACE So what do I recall with fondness from the market in those 20+ years before 2001, as opposed to the market as I see it today? To be fair, the market of old was sometimes described as like a golf club, but I think, without being too rude, it was a little more like a gambling house in terms of the way in which risks were assessed, and all powerful underwriters would accede to the requirements of their favoured brokers. Many risks were utterly straight forward and therefore relatively benign and easily managed through the requirement for “overage

additional premiums”, and “scale war” and storage additional premiums – each 30 days or part thereof, but with high inflation and the relentless need to increase premium income, it became easy for the creative broker to add in some additional coverages. Onshore pollution, offshore pollution, property, BI, workman’s compensation, you name it, if you could structure the slip and had a top rate broker, which we always had, someone, often a very well respected market figure, would lead it and the slip would be fully supported. The trouble for the insurers was that often ego overcame experience.

Records were not kept, risks, certainly, were not always properly assessed, and premium was paid, often outrageously, late. I remember very professional underwriters, in an effort to stay competitive and in the game, having to develop new ways of assessing risk with little empirical data, but using their gut feeling and common sense. At least, if the premium were equal to the value of a container load, the insurer had a fighting chance! From my standpoint, those were incredible times. We designed our own slips in our image, we were very professional and proficient in existing clauses, and developing new clauses, and, most importantly, we had great support from the market which understood what we were trying to do.

MEGA BROKERS The other factors from those days which are important to understand were: Marsh, Sedgwick, Willis Faber (Corroon), Johnson & Higgins, Alexander and Alexander, Frank B Hall and others were the mega brokers. All had their own Lloyd’s brokers or strong relationships with a Lloyd’s broker. All traded on a regular, sometimes exclusive, basis with us at Lloyd Thompson. This meant we had open access to the retail brokers, mostly expert mariners, who helped us understand the weaknesses of their “in house” London broker, and encouraged us to be extremely creative, and the market loved the business flow, and no doubt “hedged” our business against the rather more straight forward business from those brokers! We had little regulation to concern ourselves with, but, believe me, we worked to the highest professional standards and I have always strongly believed that personal integrity coupled with working in an extremely competitive and demanding environment, serves the client rather well.


ROLLING FORWARD TO THE LAST 15 YEARS The brokers are consolidated and independent broker access to business from Marsh, Aon and Willis is virtually non-existent. The base of independent US brokers is of vital importance. Many of those brokers left the “big 3” for the same reasons as JLT exists today. The downside is that we no longer have that comparison tool with our “big 3” competitors, and the creation of market templates and the far stricter demarcation between insurance classes has stifled creativity. Every insurer now has strict peer review, modelling, aggregates to manage, and still a colossal amount of time wasting and energy spent on housekeeping issues – copy spreadsheets, premium queries, tax queries, and local policy queries. While, even in a very soft market, the results are not stellar right now, the upside/downside swing is far more predictable than it was 15 years ago, and that has to be a good thing for the market, and therefore, for our clients.

During Q4 2001 and the first half of 2002, today’s generation of senior cargo insurer earned their spurs. There are two main reasons for this. The insurance market as a whole overreacted tremendously to the tragic events in the US. Mandatory rate increases, 50% to 100%, were being applied in many classes, whether US risk situ or otherwise. Terrorism was being excluded without discussion. Reinsurers were overreacting.

SO WHAT HAPPENED? Cargo insurers were willing and interested to meet with clients, and explain that whilst there remained the reality of unprecedented losses to the market, and the need for increases, they would be controllable/acceptable And They delivered on that promise! And Due to unprecedented conditions, risk managers and chief financial officers were at the meetings, and so, for the first time, cargo insurers were elevated, in the eyes of boards, as problem solvers!

In addition to this, the cargo insurers, through the Joint Cargo Committee worked with the brokers to negate, as far as possible, the reinsurer demands to exclude terrorism. This resulted in generally free coverage for the risk terrorism whilst in transit. This relationship development, I believe, is the single most important development over the last 15 years. There is now an exceptionally transparent relationship between the market and its client base. The buyer knows the insurer, and therefore the deal gains mutual trust. I do believe that those many relationships forged in those difficult times, remain unbroken. Cargo underwriters now rightfully expect to meet clients, to travel to RIMS and other major conferences, to go on road shows with brokers, to drop in on clients unaccompanied. All this has created a higher level of trust, and for all that can be frustrating, for all the regulatory red tape, the most important component of the market remains and has been enhanced, that of the relationship between underwriter, broker, and the insured. 


Have you met… Emma Clack, Account Handler What is your role likely to involve? “I work with clients to put together a proposal for the market. Our clients come in with an enquiry, we look at the information they’ve provided and put together a wording to present to potential underwriters. We have standard wordings which we tailor depending on the insured business and exposures. “The insured’s type of business can vary and therefore as an account handler you handle many different interests, including the manufacturing and moving of general goods, pharmaceuticals and high tech equipment. The most challenging part is trying to understand the insured’s exposures so that we can come up with the best product and price. “We are also here for clients throughout the policy period, answering potential technical or coverage related questions as well as how to manage any potential changes in exposures or new exposure.”

What experience do you bring to the role? “I started working at Lloyd & Partners a decade ago and worked on a variety of different accounts from general cargo accounts to stock throughputs and a

small amount of project cargo business. In addition to this I have worked with a selection of cover holders and global programs which involve arranging the issuance of local policies in a number of different countries. I left in 2013 to work at another broking house but have returned in 2016 to undertake a similar job role.”

“Price is the major challenge for our clients because everyone is under pressure to cut down on outgoings and insurance is no exception.”

What interesting placements have you worked on? “I’ve been fortunate to work on a number of interesting accounts, but I find pharmaceutical accounts particularly interesting to work on. The cargo typically has to be stored/shipped within a fixed temperature range and if they fall outside of that, then the insured is unable to sell them. Under general cargo conditions this would

not be a valid claim, so we have to look at extending conditions.”

What challenges are your clients facing? “Price is the major challenge for our clients because everyone is under pressure to cut down on outgoings and insurance is no exception. “We have worked with our clients to achieve the best terms without them having to sacrifice any of the insurance cover which they have previously had, but if that’s not enough we have been able to look at the structure of the programme.”

What’s currently happening in the cargo insurance market? “It is an interesting time for the market, as over the last 18 months we have seen a lot of new syndicates opening in Lloyd’s from underwriting firms that have not previously written cargo insurance. Although this does seem to be slowing down now. “The increase in capacity hasn’t helped the soft market which we’re currently seeing but I doubt that will be changing in the near future.” 

NAPSLO 2016 In September the National Association of Professional Surplus Lines Offices (NAPSLO) held its annual conference which was attended by around 3,500 insurance professionals. Paul Adam, Senior Partner in JLT Specialty’s Cargo & North American Property team, attended the three-day event in Atlanta, Georgia along with Angela Whybrow, Partner and Matt Jessop, Associate, who are both from the Lloyd and Partners Programmes team.

The event featured a keynote speech from US author and historian David McCullough, recipient of the Presidential Medal of Freedom and twice received a Pulitzer Prize. There was also a special leadership workshop on “leading with certainty in uncertain times” as well as plenty of opportunities for networking.

Paul says that conferences like NAPSLO benefit JLT’s clients because: “wholesale brokers have distribution channels that will bring us business that London otherwise wouldn’t see, it’s also a great opportunity to sell London as well.” For further information please contact Paul Adam on +44 (0)20 7466 6569 or email [email protected]


Cargo risk and analytics – the brave new world Global trade and the movement of goods is more important than ever and as cultures become more diverse, there is a desire for different foods and products from overseas – global sea bourn shipments increased by 3.4% and world merchandise trade increased by 2.3% in 2014. By Liz Lotz, Head of Client Development Analytics, JLT Re

It is becoming cheaper to transport the products than ‘make’ it ourselves, and let’s not forget the internet: quite simply, the developed world is changing its daily life around internet shopping. In a busy environment, this convenient method of obtaining our goods allows us to find our required product at the best price from our desks – but these goods need to be stored somewhere and these distribution centres are becoming larger, filled with more expensive goods and generally more extensive than ever. One of the biggest issues seen during my career is the re-keying of data and information, both in terms of quantity and quality. Twenty or so years ago when we started to capture information into databases, I realised that all of this information is already captured somewhere, so why are we capturing it again (and again and again)? Today we have the Cloud, big data and handheld technology to allow us to capture all of the information we need – in fact my smart phone has 4,096 times more memory than the Apple Mac of 1984. So why are we still not capturing information in a much smarter fashion? But what does Utopia look like? Assume some goods leave a warehouse for shipping, they are logged into a device and provided with a bar code. This code helps us to understand what is packaged, its weight, its size etc. It is taken to a distribution outlet where it’s packed into a container and needs to be shipped abroad. The Bill of Lading is completed for this and information is held against that container number. The

container is loaded onto a ship and that is registered on the vessels manifest. The ship starts to move – we can track this using the automatic identification system (AIS) and can easily obtain details such as the last port of departure and arrival. We know where the ship is at any time of the day. It arrives at its destination and the goods are off loaded and placed into a warehouse for further distribution. All of this information is stored electronically somewhere, but it is still difficult to access the information relating to our risks, which can in turn assist us in managing our exposure, but very little of it finds its way to the insurance analytics desks. Individual risk exposures need to be understood in order to manage risk accumulation. One of the most recent instances of risk accumulation was the explosion in the port of Tianjin in 2015, which once again surprised the cargo market with the scale of the loss but involved many different lines of business, even though all risks were contained in a relatively small area. If the information flow, as per the example above, was more streamlined and aligned, then risk managers can more quickly assess the actual exposure and risk within a certain accumulated zone – for example, clients could better manage their risk to ‘zonal limits’ or build out short term insurance placements if a more ‘real time’ approach was in place and manage these potential accumulations. Both AIR Worldwide and Risk Management Solutions (RMS) vendor

modelling companies have recently released catastrophe models for cargo risk, which can assist insurers in their value at risk by understanding the vulnerabilities around a matrix of information such as product, packaging and storage. Couple this with port exposure information and the accumulation of risk becomes an understandable reality but not yet, as collating the originating data is still an issue. The broker role is very important to the data capture process. The ability to obtain, manipulate and use the big data is critical in helping clients understand their risk, ensure that the right amount of cover is being offered in relation to that risk, and subsequently assist insureds in obtaining more accurate data for their internal management processes. Natural catastrophe and man-made risk, according to the 2016 Global Risks Report, is still high in terms of potential impact and is monitored in all insurance organisations in order to manage related capital. Insurer ability in assessing the risk to the overall balance sheet is becoming more pertinent at each insurance or reinsurance renewal, therefore effective risk and capital management is a key ingredient to any modern insurance organisation. To affect this, individual risk information as per our example, needs to be accumulated, monitored and subsequently aggregated into actuarial models to ensure overall capital efficiency is maintained.  For further information please contact Liz Lotz on +44 (0)20 7886 5408 or email [email protected]


JLT Specialty Limited provides insurance broking, risk management and claims consulting services to large and international companies. Our success comes from focusing on sectors where we know we can make the greatest difference – using insight, intelligence and imagination to provide expert advice and robust – often unique – solutions. We build partner teams to work side-by-side with you, our network and the market to deliver responses which are carefully considered from all angles. The Cargo team are leaders in the London and international market and provide specialist programme design and transactional services to a broad spectrum of industries around the world by combining in-depth sector expertise with innovative claims solutions.

CONTACTS Gordon Longley Cargo and North American Property, JLT Specialty Limited +44 (0) 20 7466 6555 [email protected] Jay Payne Cargo and North American Property, JLT Specialty Limited +44 (0) 20 7466 6236 [email protected]

This publication is for the benefit of clients and prospective clients of JLT Specialty Limited. It is not legal advice and is intended only to highlight general issues relating to its subject matter but does not necessarily deal with every aspect of the topic. If you intend to take any action or make any decision on the basis of the content of this newsletter, you should first seek specific professional advice. JLT Specialty Limited The St Botolph Building 138 Houndsditch London EC3A 7AW www.jltspecialty.com Lloyd’s Broker. Authorised and regulated by the Financial Conduct Authority. A member of the Jardine Lloyd Thompson Group. Registered Office: The St Botolph Building, 138 Houndsditch, London EC3A 7AW. Registered in England No. 01536540. VAT No. 244 2321 96. © November 2016 273281

Piracy and cargo theft in South East Asia Whilst many would naturally associate the threat of piracy with the Gulf of Guinea and the Indian Ocean High Risk areas, it is actually South East Asia that sees the highest number of incidents. The ICC International Maritime Bureau recorded 246 actual and attempted incidents of piracy and armed robbery on ships in 2015. Of those, 147 occurred in South East Asia, representing a 59.75% global share. This is significant for an area which predominantly sits outside the Joint War Committee’s listed high risk areas, and represents a small increase on 2014. Although the Regional Cooperation Agreement on Combating Piracy (ReCAAP) recorded a 65% year on year decrease in the number of incidents for January-September 2016, the region remains an area of concern for piracy and armed robbery. Of particular concern is the threat of armed robbery in conjunction with piracy. The hijack of a vessel and kidnapping of the crew is often a pre-cursor to its cargo theft, a trend which is characterised by recent incidents.

CASE STUDY On 15 May 2015, a local product tanker was attacked by armed pirates whilst the vessel was passing near Sarawak, Malaysia. The pirates held the entire crew hostage, damaged the vessel’s communication equipment and hijacked the vessel, then proceeded to transfer the fuel oil cargo to another ship and steal the crew’s personal belongings. The crew were found safe.

The spate of hijacks/kidnaps off East Africa between 2008 and 2012 were often characterised by lengthy kidnap periods and significant ransom payments, but not necessarily by cargo theft. In the Gulf of Guinea, cargo theft is a common issue, but is generally a secondary crime following the kidnap of crew, as evidenced by the spate of incidents in the Gulf of Guinea thus far in 2016.

In South East Asia, however, recent incidents are notable for the lack of kidnapped crew. The incident in May 2015 near Sarawak involved a clear intention to steal the fuel oil cargo, but no serious effort to kidnap and then ransom off the crew, a pattern which has been seen in other similar events over the last 18 months. It is therefore important for owners and charterers to have a robust and appropriate piracy kidnap and ransom (K&R) cover that covers all areas of the world in which they operate, even areas which sit outside the Joint War Committee Listed Areas (JWLA) 022 High Risk area. A standard piracy policy excludes cargo theft, and the cover must be built in separately. Although not a standard covered peril, cargo theft can be built into cover and the piracy markets are responding to this specific issue. Aspen Insurance have recently released a ‘South East Asia’ threat product, which includes up to USD 1 million of fuel oil theft and up to USD 10 million for general cargo theft. In addition, the policies cover up to USD 100,000 of vessel damage cover, in order to protect the no claims bonus on hull policies. Piracy incidents can also often be violent affairs, with 25% of attacks resulting in threats and injuries to crew, and K&R piracy policies include personal accident cover of USD 250,000 per crew member, with a typical event aggregate of USD 1.25 million. Given the specificity and range of associated risks in South East Asia, charterers and owners should try to ensure appropriate piracy and cargo coverage is in place to cover their crew and their assets.  For more information please contact George Potter on +44 (0)20 7558 3571 or email [email protected]