CONTEMPORARY ISSUES IN MARINE INSURANCE

According to the Marine Insurance Act 1906, a contract of marine insurance is defined as a contract whereby the insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the losses incident to marine adventure. Marine insurance is one of the most established and the oldest forms of insurance in the market today. From the Babylonian times around 2100 BC to modern times, marine insurance has faced a lot of changes and developments catered to serve new emerging needs and other corresponding changes in other related regulations. The following is the discussion on the contemporary issues in marine insurance.

Introduction of maritime cyber risk insurance. Maritime cyber risk is the measure of the extent to which a technology asset could be threatened by a potential circumstance or event, which may result in shipping-related operational, safety, or security failures as a consequence of information or systems being corrupted, lost, or compromised (IMO Guideline on Maritime Cyber Risk Management, 2017). Companies are exposed to hacks, viruses, malware, ransomware, and other unknown technological risks that can impact both shore and vessel operations. Addressing the emergency of maritime cyber risk, BIMCO has issued the BIMCO Cyber Security Clause 2019, which is a standardized wording that can be incorporated in a wide range of marine insurance contracts. The clause requires parties to implement and maintain a level of cybersecurity appropriate to their businesses and reasonably ensure that their subcontractors do the same.

Introduction of the Consumer Insurance (Disclosure and Representation) Act 2012 (UK). This Act came into force on 6th April 2013 and removes the duty on consumers to disclose any facts that a prudent underwriter would consider material and replaces this with a duty to take reasonable care not to make a misrepresentation. When a customer makes a claim, a marine insurer may find something which they think suggests that the customer misrepresented material facts when they took out the policy and hence have a reason to decline a claim, settle a claim disproportionately or even cancel the policy altogether based on the breach of utmost good faith. The provisions under the Consumer Insurance (Disclosure and Representation) Act 2012 put the obligation of acquiring material facts on the insurer by imposing that they ask clear and specific questions with regards to the inquiry of the material facts. If the policyholder did take reasonable care not to make a misrepresentation while providing information to the insurer, even if there was a misrepresentation, this Act prohibits the marine insurer from taking any action against the policyholder.

Introduction of the Insurance Act 2015 (UK). This Act came into force on 12 August 2016 and made substantial changes to insurance law in the United Kingdom with regards to the policyholder’s duty to make a fair presentation of the risk to insurers when obtaining insurance (including renewals and endorsements). The Insurance Act 2015 provides that the policyholder makes a fair presentation of the risk meaning there is the requirement to disclose every material fact the policyholder knows or ought to know. This Act came in force to level the plain field towards insurers after the issuance of the Consumer Insurance (Disclosure and Representation) Act 2012, such that the policyholder is required to make effort to a fair presentation of the risk by disclosing the material facts he knows or ought to know. Such disclosure must give the marine underwriter sufficient information to put him on notice for further inquiries for the purpose of revealing those material facts.

Impact of information technology on marine insurance. The impact of technological development on the insurance industry is phenomenal. Delivery systems for insurance products have become much more digitalized, making it easy for the insureds to take out marine insurance policies through the internet. The advancement in technology has also made it possible for the marine insurance industry to have a quick claim filing and approval process that uses Artificial Intelligence (AI) to settle minor claims. Artificial Intelligence requires a lot of statistical data of claims of similar nature to enable the computer to intelligently make approval decisions on such claims. Following such an approach will save insurance companies a lot of resources as the process requires zero paperwork and fewer claims officers. The technology, therefore, contributes to the commoditization of insurance services, which in turn encourages competition by-products on the basis of price rather than historical relationships. This does surely improve the customer experience; however, this constitutes a direct attack on the insurer-insured relationships which continues to be at the heart of most marine mutual insurers. 

Introduction of UK Enterprise Act 2016. This Act came into force on 4th May 2017 and gives policyholders a right to claim damages in the event of late payment of claims due under a policy (sections 20-30). The Act applies to any insurance policy placed or renewed on or after that date if it is subject to the laws of England and Wales, Scotland, or Northern Ireland. Importantly, the Act provides that insureds have one year to make damages claim, from the date on which the insurer has paid all the sums due under the policy. Under the old marine insurance law damages for late payment of claims were not recoverable from insurers. An insured could only recover what it was owed under the policy and could not recover from insurers any additional losses it had suffered due to delay in payment by them. Under this Act, it is an implied term of every contract of insurance that, if the insured makes a claim under the policy, the insurer must pay any sums due within a reasonable time. Breach of this implied term may give rise to a claim against the insurer for damages. This Act has therefore impacted the claims management of marine insurance companies as now the total annual claims cost is likely to increase because if the insurer does not pay claims on time could be sued for damages.

Introduction of ICNZ Fair Insurance Code 2016. The Fair Insurance Code is a code of conduct developed by the Insurance Council of New Zealand (ICNZ) to set out industry best practice standards for insurers in all their dealings with customers in addition to other obligations imposed by the law. The Fair Insurance Code sets minimum service standards for insurance companies, describes the responsibilities that the customer and their insurance company have to each other, and encourages professionalism in the insurance industry of New Zealand. The Fair Insurance Code imposes the responsibility on its members (insurance companies) and insureds to act honestly, fairly, transparently, and with utmost good faith. Members of the ICNZ are required to follow the Fair Insurance Code, a breach of which could result in an insurer being reprimanded, fined, or expelled from ICNZ by its board.

Impact of E-commerce in the marine insurance industry. Another area where competition seems set to increase is electronic payments processing and the provision of insurance services over the Internet. This is a global phenomenon that will certainly affect the marine mutual industry. Non-financial firms who control communication networks and the gateways could set themselves up as brokers directing customers to the best product. The loyalty of the customer would increasingly be to the broker rather than the producer of the product or the one who actually provides the insurance service. It is also highly likely that there are non-financial firms offering such services who would be in a position to design a new product by using the information available to them through data mining technology. E-commerce brands trading marine insurance have the power to disrupt the marine insurance industry in the manner of the policies that they offer such as an integrated service of P&I, Hull, Cargo, and FD&D cover that combines the best aspects of each cover. At the very least this process will squeeze the margins of traditional insurance providers.

The marine insurance industry has good prospects for growth and improvement in the future. Advancement of technology and newly imposed regulations have the power to steer the industry in the direction where marine insurance provision is fast, convenient, and fair to all parties involved in the placement of marine insurance contracts. Insurance regulatory authorities worldwide such as TIRA should consistently keep up with new developments in marine insurance. Insurance regulatory authorities should also seek new innovative solutions to improve the marine insurance products available in the market.