Premiums in marine hull segment to see slow growth

Policy covers fire, explosion, piracy, theft, earthquake, sinking and catastrophe such as earthquake and volcanic eruption

The marine-hull insurance segment would continue to see muted growth this year due to low premiums and bad financial health of the shipping industry.

Marine hull insurance covers any loss or damage to ships, tankers, bulk carriers, smaller vessels, fishing boats and sailing vessels. It covers all types of oceangoing vessels, coastal/inland vessels, voyage cover, port package, offshore/onshore exploratory risks and ship-breaking, among others. The policy covers risks related to fire, explosion, piracy, theft, earthquake, sinking and catastrophe such as earthquake and volcanic eruption. Covers are purchased by oil- and energy-sector companies, port authorities, shipowners, shipbuilders, bankers and financiers of ships or vessels who have insurable interest.

Amarnath Ananthanarayanan, managing director and chief executive officer of Bharti AXA General Insurance, said the segment is large and has huge risks associated with it. “This field has not been profitable, and, hence, insurers are going slow,” he added.

Data from the Insurance Regulatory and Development Authority (Irda), for the nine months ended December 2012, general insurers underwrote a gross premium of Rs 832.85 crore in the marine-hull segment. While public general insurers contributed Rs 80.07 crore, private general insurers contributed Rs 752.78 crore.

Mukesh Kumar, member of executive management, head (strategic planning and marketing), HDFC ERGO General Insurance, said the marine-hull segment itself was seeing slow growth, and since the de-tariffing of the segment, on the contrary, prices have dropped. “Due to the fact that the segment itself is growing at a slower pace, the same is reflected in the premiums as well,” he said.

The marine-hull segment was brought out of the tariff regime in 2003-04. However, instead of seeing a hike in premiums, companies saw a drop. This, according to insurers, was due to the bad performance of marine hull as a part of the economy. For most Indian general insurers, marine hull accounts for about one per cent to three per cent of their portfolio. The other main contrbitors to the portfolio include motor (own damage and third party) and health segments.

  An ICICI Lombard General Insurance spokesperson said that in the Rs 1,000 crore marine-hull portfolio, 85-90 per cent was contributed by the energy segment. The other 10 per cent (about Rs 150 crore) was contributed by pure hull. “Hull has seen a slow growth, as international trade and demand for ships have gone down. This has brought down charter rates and decreased valuations, resulting in premium reductions. Devaluation of ships have lead to this muted growth,” the ICICI Lombard General Insurance spokesperson said.

Mining ban
The ban on mining is also another reason for this situation, said insurers. States like Karnataka, Odisha and Goa have barred mining and mining-related activities. The ICICI Lombard General Insurance spokesperson said since the ships used to carry iron ore were lying idle, the premiums on these ‘insured’ ships also fell. “Therefore, we do not see any revival in sight for the hull segment,” the spokesperson added.

However, industry exper said, energy still offered a ray of hope for insurers. Marine hull insurance also covers rigs and platforms under the energy (oil) segment. While progress under the New Exploration Licensing Policy has been slow in the initial phases, it would see a positive impact in the long run, said the ICICI Lombard spokesperson. With companies like Oil and Natural Gas Corporation making new oil and gas discoveries, insurers said the energy segment was expected to pick up in the next few quarters, adding to business growth of the marine-hull segment.