Recent events such as the Maersk Eindhoven and Essen container losses in the Pacific have put into sharp focus the need for digitalisation in the cargo market. Until recently, the data has not been available, but this is quickly changing. The author examines why the market must grasp the benefits that data can deliver.
By Juan Carlos Martinez, CEO of CargoCorp Underwriters and Edward Ronayne, Cargo Subject Matter Expert at Concirrus
The move towards a more digital future for the cargo market is not simply a case of driving efficiency.
Recent high-profile losses, coupled with the disruption that COVID has caused across the globe has only sought to highlight the need for underwriters to better access data to both understand and manage their exposures.
“Cargo insurers have, in the past, been in a position where they have not had the ability to access the data to understand the impact of an incident on their clients and their own exposures,” explains Mr. Martinez. “For instance, when a port has closed, it may well be they have two insured vessels in port, but another three in the approaches which had been seeking to access the terminals, creating not just a two vessel but a five-vessel accumulation risk, due to the closure.”
He adds the lack of data creates delays in reaction and decision making which in turn increases the threats of additional costs and greater damage to the cargo by failing to take the necessary actions in time.
“The ability to assess the impact of future events is essential to ensuring the long-term stability and profitability of a portfolio, which is why regulators expect insurers to be able to articulate the impact of certain events on their book,” adds Ed Ronayne. “Virtually, all cargo insurers will perform catastrophe modelling on their storage exposures because they have the data that enables them to do so. Until now, the fluid and fast-moving nature of global trade means that transit exposures are continuously changing. This means that you are modelling moving targets, and the only way to solve this issue is to embrace data to help you understand what those exposures are, and when and where they might occur.”
One of the key factors that will open up the ability for the better use of data according to Ed Ronayne is around how it is delivered. “What we are seeing is a development of data standards across the market,” he explains. “At present, while the data is available across the various supply chain participants from the logistics firms to customs authorities, there is still the challenge of first getting access to it, and then making sense of data being captured in a range of different ways.”
The benefits of digitalisation are clear according to Mr. Martinez.
“We will be able to react quickly to a vessel or cargo on the move and adapt prices and coverage in real time to manage risks more accurately,” he adds. “It will allow better understanding and control of accumulations in real-time for cargo in ports, customs, and other points across the logistics chain.”
As climate change and more extreme weather events increase, Mr. Martinez believes that weather related data will allow underwriters and clients to be more proactive, moving cargo and assets away from the path of bad weather events in time to avoid delay or damage.
“Digitalisation opens up the door to a host of capabilities that are not possible in a purely analogue market,” adds Ed. “Things like analysis of big data for decision-making, improving process efficiency, or even automation of simple tasks to allow skilled experts to focus their attention where it is most needed. These are things that other areas of the financial sector are already capitalising on.”
Mr. Martinez agrees saying the use of machine learning and data would also allow the market to focus their human expertise where it is needed most.
“The use of machine learning has the potential to deal with the range of risks which are more straightforward, allowing insurers to use their experienced underwriters to focus on those risks which are more complex,” he says. “It allows insurers to better use their expertise for the benefits of clients.”
For Ed, one issue is the quality of the data that insurers have captured over the years. “Insurers need to capture data in a way that enables analysis,” he explains. “All too often, it is captured in an inconsistent or unstructured way. Insurers who are looking to capitalize on their data assets need to take steps now to improve how they manage their data, otherwise your competitors will, and in five years’ time, you will find yourselves struggling to compete.”
Partnerships will be key to the future with Concirrus and CargoCorp already working on a new partnership that will have data at the core.
Ed adds that the industry’s move from analogue to digital has begun and will not stop. However, firms need to understand that success will not be measured in quick wins. “You need to think about the end goal that you are seeking to achieve with the process,” he adds. “You need to view the digitalisation journey as a series of steps that will allow you to achieve that long term goal.”
Mr. Martinez adds that insurers need to understand that digitalisation will require a level of investment, but the long-term benefits are significant. “The more efficient use of data will deliver a deeper product knowledge, which in turn will increase insureds’ confidence,” he says. “It will enable insurers to troubleshoot quicker and tailor coverage to individual clients. That in turn, will enhance client retention.”
While the benefits are significant, Ed warns that failure to digitise will leave cargo insurers exposed to the threat of disruption. “Digitalisation will bring with it efficiencies and make the market more attractive to new entrants, who will be able to use data to more accurately price the risks, and better monitor exposures” he explains. “However, these new technology-fuelled entrants will arrive in the market without the legacy issues of the existing players and as such will have an advantage. Harnessing data will become non-optional. Data-driven decision making will be the standard and anyone who doesn’t start their journey now risks being left behind.”
Featured photo created by Racool_studio – www.freepik.com
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