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Smoother seas predicted for marine insurers.

With a stretch of the imagination, one could compare the American marine insurance industry with the hapless ship of the film "The Poseidon Adventure": a proud craft battered by turbulent and uncontrollable forces before being flipped topsy-turvy. Yet not unlike the movie, the industry could also have a theme song that announces "there's got to be a morning after"--which, according to industry experts, could well be this year.

The industry has not been enjoying the best of times. "Profitability, for several years, has been a losing proposition," says Tom Predergast, chairman and president of the Marine Office of America Corp. in Cranbury, New Jersey. "Everyone has tried to position themselves to make some level of market share, which has not worked out with any successful results."

How bad is bad? Harry Keefe, vice president of GRE Insurance Group in New York, says operating losses over the past decade have left the industry with less than 0.5 percent operating profits. "It's a totally unregulated business and you can quote any rate you want," he says. "We've had more capacity available for the business than was needed for quite some time. Rates have just been driven down to where they're unprofitable."

Mr. Prendergast adds that a series of natural and man-made disasters during the past few years reminded the industry it was still "a catastrophe-driven business," and adequate prices and reserves were necessary to meet future demands. "Hurricane Bob last year was relatively small," says Mr. Predergast, "but in terms of my company, it was a $15 million gross hit."

Underwriters believe that the flow of red ink will begin to dry up. For example, an increase in hull insurance premiums is predicted by David Bebbe, managing director of Chubb & Son Inc. in Warren, New Jersey. He thinks the London and Scandinavian markets have realized the severity of their losses and will now begin to offer premiums that are "becoming more realistic." He adds that the international nature of this particular market is one that lends itself to competitive pricing.

Further changes in the industry are following the problems in the London Market Excess-of-Loss reinsurance system. Mr. Keefe believes the dimished effectiveness of this system will force marine underwriters, both domestic and foreign, to retain more risk and enjoy a lower capacity, thus affecting price levels accordingly.

The industry is also taking a more proactive approach to legal and regulatory matters affecting its operation. Fraudulent claims concerning marine property damage have heard the first peals of their death knell with the introduction of the Marine Property and Pier Damage Register in January by New York-based Marine Index Bureau Inc.

The register will function as a database of property damage and claims involving piers, terminals, cargo loading facilities, lockgates and marinas. Insurers can use it to determine if property damage claims could be attributed to prior occurrences.

"There are definite cases of intentional misrepresentation or fraud as to current damage," says Ezra Schneier, president of the Marine Index Bureau. "Most underwriters, owners, insurers and claims handlers can recite incidents when they've been ripped off on exaggerated, duplicate and repeater-type property damage claims."

On the regulatory side, the government relations committee of the American Institute of Marine Underwriters, the industry's association, is making a concentrated effort to monitor and lobby for legislation. Mr. Beebe, who is also chairman of the AIMU, says the committee has "made some headway" in getting its message heard in Washington, D.C., in working with the Department of Commerce and the U.S. Trade Representative on the North American Free Trade Agreement, and has urged President Bush and the Department of Agriculture to allow American insurers to bid on Russian grain shipments.

However, the year will not be without its share of difficulties. The Russians, Mr. Beebe continues, may have less money to spend on American exports, while Mr. Keefe is hopeful their market could be lucrative if only they could "get their act together and get into the free enterprise system."

Mr. Keefe also expresses concern for the lack of American success in the Japanese marine insurance market. "Almost nothing exported from Japan to the United States is insured by American companies," he says. "We're bucking up against Japan Inc. when we try to insure Japanese imports here."
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Author:Hall, Phil
Publication:Risk Management
Date:Feb 1, 1992
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