Digitalization to bring new opportunities to cargo underwriting: IUMI
Cargo insurance has entered a new era that will deliver opportunities to those underwriters who embrace technology and harness its power. This message was delivered by the International Union of Marine Insurance (IUMI) at its data and digitalisation workshop as part of this year's annual conference delivered online from Seoul.
Taking recent experiences from the COVID pandemic, Patrizia Kern-Ferretti, chairperson of IUMI's Data and Digitalisation Forum says:
"Prior to COVID, most global supply chains were constructed on cost only – the focus was to maintain the lowest cost base possible which allowed goods to flow. COVID has exposed this as unsustainable. Today, we are in a much better position to understand and recognise that low cost has translated into low reliability. As a result, our global supply chains are prone to disruption and failure."
"The world needs reliable and sustainable ways of moving goods around the world and that will be delivered through increased transparency. And transparency will be achieved through better and real-time data along with enhanced digitalisation across the entire supply chain."
Transforming global supply chains impacts directly on the provision of cargo insurance. Today, most cargo risk is underwritten based on experience ratings or historical data. This will be largely irrelevant in tomorrow's business environment and cargo underwriters will need to change how they operate.
Patrizia Kern-Ferretti explains:
"To be truly effective in how we assess and price these new risks inherent in a transformed supply chain, underwriters will need to draw on predictive analysis involving the gathering and analysis of real time data derived from multiple sources. Raw data on cargoes, movements, weather, casualties and from a range of IoT sensors will be gathered to highlight patterns and correlations. Combining this with predictive machine learning models will allow underwriters to much better understand the likely frequency and severity of potential losses and claims; and allow them to apply accurate exposure rankings. This will result in enhanced and more suitable insurance products, more accurate pricing, more leverage for prevention and, ultimately, a more disciplined cargo insurance market".
To get to this point, there are a number of issues that need addressing, not least is the current lack of data standards across today's supply chain; the problem of data protection and ownership; and a willingness to share information and collaborate accordingly.
Patrizia Kern-Ferretti is confident these issues will be resolved in time:
"Insurers need to understand that digitalisation is here to stay and recognise it as an opportunity to improve their underwriting business and the products and services they are offering their assureds".
"To drive the fundamental changes needed over the next three decades, we need to think holistically about the entire supply chain ecosystem, leverage new data, and actively partner to develop new solutions to incentivize marine sustainability at scale."