Cutting out marine insurance could leave your business high and dry

The recent surge in interest rates and increased inflationary pressure has forced companies to take drastic measures to reduce expenditure. And while insurance may appear like an easy way to cut costs in tough market conditions, companies are taking on huge amounts of risk by being uninsured or underinsured.

Lion of Africa’s head of marine insurance Elesh Bisla, says that South Africa’s marine insurance industry is a particularly “soft market”, where premiums are currently at an all time low. Marine insurers typically insure all cargo in transit, be it by rail, road or sea. Bisla says companies are looking for ways to cut costs and unfortunately insurance in this area is one of the first things to go.

Bisla affirms that business owners and company executives should not underestimate the financial risk they are putting their companies in by failing to correctly insure cargo. “Very few companies can afford to lose millions of rands because of unacceptable loss ratios, particularly as these losses could easily have been avoided, had the risk been underwritten correctly in the first place.”

The risk of sustaining losses at sea was highlighted recently by SA Maritime Safety Authority (Samsa) CEO, Tsietsi Mokhele, who this week, was quoted as saying that South Africa’s “capacity to track and monitor vessels at sea is non-existent.”

Piracy is also becoming an increasingly pressing concern, particularly along Africa’s coastline. According to the International Maritime Bureau (IMB), Nigeria, Africa’s “number one hot spot” for piracy, accounted for 10 out of 49 attacks registered worldwide in the first quarter of 2008. South Africa is seen as the next potential treasure trove for pirates, with unexpected items accounting for much of this ‘precious cargo’.

So then what are the high risk items that, at present are at a risk of being uninsured or underinsured? Bisla says that typical high risk cargo includes computers, laptops and electronics, copper, cell phones, white goods and perishable food items, particularly across border transits in Africa where food is scarce. ‘High risk’ therefore boils down to the specific item that is being insured and items that can easily and quickly be disposed of.

Bisla says it is also important for companies to ensure they have selected the right insurer for this type of cover. “The recent market downswing is putting increased pressure on the margins of insurers. One needs to ask the question “How long will shareholders be able to weather the drought?” It has also resulted in many insurance companies resorting to desperate measures in their attempts to gain market share which leads to incorrect pricing, which places both themselves and their clients at risk.”

He says that Lion of Africa’s survival strategy is in its ability to advise client’s how to better manage their risk and in doing so provide cost effective solutions to meet the specifics of each client. Lion of Africa has shown substantial growth within the last 3 years, with an average of 20% - 30%, far surpassing the industry norm of 8% - 15% in the marine insurance industry. In addition to Lion of Africa’s impressive financial infrastructure and growth, the nature and disposition of the small and well-rounded marine insurance team plays a vital role in its success. “All the members work in sync across all aspects of the department, including claims, underwriting, administration and credit control functions. The agile nature of the department has enabled Lion of Africa to surpass client expectations, with each member of the team being able to add value to customers across a diverse scale of functions” adds Bisla.