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Profiting from marine insurance in the region requires serious risk management practices,writes Mr Joseph Faddoul, Business Development Manager, Chedid Re.

Dubai’s Palms, Qatar’s Pearl and many other multimillion dollar projects are a significant part of the ongoing waterfront developments across GCC countries. This remarkable growth is encouraging the creation of new marinas, yacht clubs and marine leisure resorts, thereby stimulating the marine insurance industry in every area, from project cargo to boat-building, including equipment and supply.The accelerated pace of development has motivated reinsurers to benefitfrom this dynamic climate where investments are necessary to support sustained growth in such a rapidly emerging market.
When we think about the marine business in general and the Arabian region specifically, we should consider the following:

• Dubai Port World (DP World) is one of the largest marine terminal operators in the world with 43 terminals and 13 new developments across 28 countries;
• More than 90% of global trade is carried out by sea;
• The increasing demand for oil increases trade in the region;
• Demand for ocean shipping of raw materials far outpaces capacity;
• Qatar is to become the world’s biggest exporter of LNG. The state-controlled but privatised Qatar Gas Transport Company (Nakilat) is to own 100% of all the assets it will be operating in the coming years. This is taking the LNG shipping industry by storm. In the two years since it was formed, it has acquired 44 LNG tankers from South Korean shipbuilders in one of the biggest ship acquisition programmes ever seen. All will be deployed to transport North field gas in LNG form from Ras Laffan to distant markets such as Europe,the US and Asia.
• Saudi Arabia has the largest oil production capacity, the largest oil spare capacity, and is the biggest oil exporter and holder of the largest oil reserves in the world. The Kingdom has 25% of the world’s proven reserves and a production capacity of 11.3 mb/d (43.5% of total MENA region production capacity). Saudi Arabia holds 35.5% of the proven reserves in the MENA region.All these elements combined are expanding the insuranceindustry in the GCC rapidly and a higher proportion of international suppliers are seeing the region as a priority market.

Industry Outlook
The industry is expected to experience a continuing run of favourable insurance premiums in 2008, despite facing higher risks. The cargo markets will offer a win-win solution to ship and cargo owners who are paying less and to underwriters who remain profitable due to fewer claims – for the time being, at least.
The expectation for cargo business is that rates for well-managed risks will continue falling throughout 2008 by up to 10% due to a plentiful supply of capacity combined with a low claims level, creating fierce competition between underwriters.The relatively benign claims environment in cargo business is a reflection of major advances in recent years in ship design, cargo handling and general maritime safety.However, hull & machinery losses are beginning to
impact the accounts of many insurers. The current rises in costs of steel, raw materials and services have also been a direct cause of price increases for all claims cost factors.The entire scenario has been adversely affected by the weak US dollar. Cost increases are further exacerbated by the increasing complexity of environmentally-aware processes of salvage and wreck removal.Such are the forces that will undoubtedly determine the rise in premium rates that
are now set to befall the ship operator.With little change expected in the external factors at play, it will be up to the industry as a whole to contain the situation as much as possible. This must be done by internal improvement to reduce the number of insurance claims, otherwise the costs may become exponential.Severe losses related to oil pollution under protection & indemnity are still not experienced in our part of the world. However, members in the Arabian region are paying additional premiums to the international P&I clubs, who are currently faced with a considerable increase in costs of their pooling arrangement, covering claims in excess of US$7 million as a result of severe oil pollution claims. Indeed, claims are at record highs. With claims costs likely to continue growing in the future, the group has expressed concern that the industry must take further steps to manage costs without risking safety.

Proper Risk Management Needed
Within different segments of marine insurance, the picture remains distressingly consistent.The present situation has been precipitated by several factors, both internal and external to the maritime industry – and on the internal front the issue of manpower is critical.For some time now, the International Maritime Organization (IMO) has expressed concern regarding the growing shortage of skilled and experienced seafarers to man a growing and increasingly technological fleet. Such is the price for a current shipping boom with resources being stretched by demand, but this shortcoming is now impacting directly on insurance claims. An alarming indication of this is increasing human error statistics as significant causes of marine accidents.One fundamental flaw that is present within the global industry is where the “good-guys are carrying the bad guys”. This goes for operators, flag administrations and classification societies alike. Until management of risk is properly contained across the entire operational spectrum,the costs will be payable in lieu! Healthy competition would result in equilibrium between prices and services to gauge risks and opportunities.However, the current strong local competition is based on price cutting rather than improving services. This has created a mood of pessimism among international underwriters.The results of The Arab World Competitiveness Report 2007 indicate that while countries in the region have made great strides, challenges remain. It said: “To boost competitiveness and increase productivity, economies should look to remove obstacles to growth while at the same time fostering the development of sectors with high potential including insurance. In the insurance sector, policy reforms are needed to create the right regulatory framework to promote further growth in the industry. The market is opening up and competition is increasing. The key to success is improving service quality and developing common standards across the region.”

Solutions Needed
We rarely see an account which is rated based on analysing the risk. In many cases, reinsurers find themselves writing the risk on commercial grounds in line with the market trend. To defend such an action, each party is shooting the ball into the others’ court, even though risk management and loss control, rather than premium reductions, should be everyone’s priorities.The industry needs a wake-up call, seeing that international maritime hull underwriters are quickly fleeing our market and the shipowners and ship managers will be left unattended with their vessels hard to place. Our local insurance companies have the expertise and knowhow to assess and manage risks, and a dialogue should be started with the maritime industry to arrive at a global solution. From our perspective, everyone has to seriously think about market reform which should involve all the players.The ultimate objective should be that everyone should contribute to the insurance industry’s prosperity and success.This could be achieved by the creation of a marine insurance association which guides the local market based on frequency, severity and market average claim cost.This is for the benefit of the overall future of all types of marine insurance.

	Proper Risk Management Key to Success Profiting from marine insurance in the region requires serious risk management practices,writes Mr Joseph Faddoul, Business Development Manager, Chedid Re. Dubai’s Palms, Qatar’s Pearl and many other multimillion dollar projects are a significant part of the ongoing waterfront developments across GCC countries. This remarkable growth is encouraging the creation of new marinas, yacht clubs and marine leisure resorts, thereby stimulating the marine insurance industry in every area, from project cargo to boat-building, including equipment and supply.The accelerated pace of development has motivated reinsurers to benefitfrom this dynamic climate where investments are necessary to support sustained growth in such a rapidly emerging market. When we think about the marine business in general and the Arabian region specifically, we should consider the following: • Dubai Port World (DP World) is one of the largest marine terminal operators in the world with 43 terminals and 13 new developments across 28 countries; • More than 90% of global trade is carried out by sea; • The increasing demand for oil increases trade in the region; • Demand for ocean shipping of raw materials far outpaces capacity; • Qatar is to become the world’s biggest exporter of LNG. The state-controlled but privatised Qatar Gas Transport Company (Nakilat) is to own 100% of all the assets it will be operating in the coming years. This is taking the LNG shipping industry by storm. In the two years since it was formed, it has acquired 44 LNG tankers from South Korean shipbuilders in one of the biggest ship acquisition programmes ever seen. All will be deployed to transport North field gas in LNG form from Ras Laffan to distant markets such as Europe,the US and Asia. • Saudi Arabia has the largest oil production capacity, the largest oil spare capacity, and is the biggest oil exporter and holder of the largest oil reserves in the world. The Kingdom has 25% of the world’s proven reserves and a production capacity of 11.3 mb/d (43.5% of total MENA region production capacity). Saudi Arabia holds 35.5% of the proven reserves in the MENA region.All these elements combined are expanding the insuranceindustry in the GCC rapidly and a higher proportion of international suppliers are seeing the region as a priority market. Industry Outlook The industry is expected to experience a continuing run of favourable insurance premiums in 2008, despite facing higher risks. The cargo markets will offer a win-win solution to ship and cargo owners who are paying less and to underwriters who remain profitable due to fewer claims – for the time being, at least. The expectation for cargo business is that rates for well-managed risks will continue falling throughout 2008 by up to 10% due to a plentiful supply of capacity combined with a low claims level, creating fierce competition between underwriters.The relatively benign claims environment in cargo business is a reflection of major advances in recent years in ship design, cargo handling and general maritime safety.However, hull & machinery losses are beginning to impact the accounts of many insurers. The current rises in costs of steel, raw materials and services have also been a direct cause of price increases for all claims cost factors.The entire scenario has been adversely affected by the weak US dollar. Cost increases are further exacerbated by the increasing complexity of environmentally-aware processes of salvage and wreck removal.Such are the forces that will undoubtedly determine the rise in premium rates that are now set to befall the ship operator.With little change expected in the external factors at play, it will be up to the industry as a whole to contain the situation as much as possible. This must be done by internal improvement to reduce the number of insurance claims, otherwise the costs may become exponential.Severe losses related to oil pollution under protection & indemnity are still not experienced in our part of the world. However, members in the Arabian region are paying additional premiums to the international P&I clubs, who are currently faced with a considerable increase in costs of their pooling arrangement, covering claims in excess of US$7 million as a result of severe oil pollution claims. Indeed, claims are at record highs. With claims costs likely to continue growing in the future, the group has expressed concern that the industry must take further steps to manage costs without risking safety. Proper Risk Management Needed Within different segments of marine insurance, the picture remains distressingly consistent.The present situation has been precipitated by several factors, both internal and external to the maritime industry – and on the internal front the issue of manpower is critical.For some time now, the International Maritime Organization (IMO) has expressed concern regarding the growing shortage of skilled and experienced seafarers to man a growing and increasingly technological fleet. Such is the price for a current shipping boom with resources being stretched by demand, but this shortcoming is now impacting directly on insurance claims. An alarming indication of this is increasing human error statistics as significant causes of marine accidents.One fundamental flaw that is present within the global industry is where the “good-guys are carrying the bad guys”. This goes for operators, flag administrations and classification societies alike. Until management of risk is properly contained across the entire operational spectrum,the costs will be payable in lieu! Healthy competition would result in equilibrium between prices and services to gauge risks and opportunities.However, the current strong local competition is based on price cutting rather than improving services. This has created a mood of pessimism among international underwriters.The results of The Arab World Competitiveness Report 2007 indicate that while countries in the region have made great strides, challenges remain. It said: “To boost competitiveness and increase productivity, economies should look to remove obstacles to growth while at the same time fostering the development of sectors with high potential including insurance. In the insurance sector, policy reforms are needed to create the right regulatory framework to promote further growth in the industry. The market is opening up and competition is increasing. The key to success is improving service quality and developing common standards across the region.” Solutions Needed We rarely see an account which is rated based on analysing the risk. In many cases, reinsurers find themselves writing the risk on commercial grounds in line with the market trend. To defend such an action, each party is shooting the ball into the others’ court, even though risk management and loss control, rather than premium reductions, should be everyone’s priorities.The industry needs a wake-up call, seeing that international maritime hull underwriters are quickly fleeing our market and the shipowners and ship managers will be left unattended with their vessels hard to place. Our local insurance companies have the expertise and knowhow to assess and manage risks, and a dialogue should be started with the maritime industry to arrive at a global solution. From our perspective, everyone has to seriously think about market reform which should involve all the players.The ultimate objective should be that everyone should contribute to the insurance industry’s prosperity and success.This could be achieved by the creation of a marine insurance association which guides the local market based on frequency, severity and market average claim cost.This is for the benefit of the overall future of all types of marine insurance.