Trade Disruption Lessons From Hanjin

Following several quarters of financial difficulties, banks stopped providing financial support to Hanjin Shipping, which has triggered their restructuring and payment default to several counterparties, inclusive of fuel suppliers, port authorities and even its employees. Hanjin Shipping reported a net loss of $233.6 million in Q1/16 citing freight rates’ drop to record lows. By last Friday, Hanjin said 44 out of its 98 container ships have been denied access to ports around the world and one ship was seized. Hanjin isn’t alone in struggling in the current market, several transportation companies have been dealing with increased volatility in fuel costs and currency swings that test even the most sophisticated and larger operators.

Hanjin’s demise demonstrates the perils several companies face in regards to Trade Disruption. Either directly owned money by Hanjin (its suppliers) or having products sitting in containers on their ships (its clients) where its unlikely these products will reach destination in time for their optimal distribution, several dozen companies are now struggling to figure how they will survive without the funds or with contractual penalties deriving from the shipper credit default. Companies of all sizes can run counterparty risk scenarios, however the reality is, these scenarios are only as good as the real protection arranged to indemnify the company, in case they occur.

Daniel R. Galvao
Trade Credit

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Cargo & Supply Chain Insurance

International trade represents one of the largest and fastest growing segments of business globally, offering tremendous potential.

Eagle is pleased to announce a new policy that combines cargo coverage with basic supply chain protection. Our priority is to protect the financial interest of the customer, so this package approach not only protects the customer’s cargo, but also the customer’s loss of profit or expense due to an interruption in their supply chain.

Eagle’s product is unique in that we are able to offer these coverages for single or multiple suppliers or buyers, or for the customer’s entire turnover.


Policy Benefits

Eagle has partnered with Lloyds to develop this unique product. With this, our brokers and clients have many benefits including:

  • ‘One-stop shop’ with simple and easy reporting
  • Customization for a particular peril or geographical area
  • Comprehensive information on developing global political situations
  • A copy of Eagle’s comprehensive Guide to Marine Insurance

Key Coverages

  • Physical loss or damage to most types of goods
  • Loss of profit and extra expense that arise from a disruption in trade caused by a specific event such as force majeure, collision of conveyance, closure of transportation route or port, and war or terrorism
  • Ability to cover special contracts that have penalties for delay
  • We can  provide, if required, other insurance coverages such as rejection insurance, cyber liability, product liability, and political risks.

* Always subject to actual policy conditions


Key Segments

Transportation – Logistics, marine, aerospace, rail, road

Commodities – Agriculture, mining and metals, consumer goods, forestry, machinery, chemicals, and more

Manufacturers – Importers, exporters, wholesalers, distributors


Contact

mwills@eagleunderwriting.com
www.eagleunderwriting.com
905-455-6608

 

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What if Forklifts Could Talk?

Telematics and the Internet of Things are popular buzz-words in the industry right now, as homes become connected and usage based auto rates become mainstream. But what does this mean for the transportation industry?

Imagine if every shipment held a sensor that tracked its movements, storing all the data in the Cloud. Now imagine if over time, we could use big data and advanced analytics to identify specific shipping routes that have a higher claims frequency than others; which ships seem to be more involved with claims activities and which trucking companies seem to damage their goods more often? Could we use this, and an unlimited  number of other factors gleaned from the data, to make our risk selection and rating more precise?

Could we develop usage based insurance products for expensive equipment, airplanes and rolling stock to reward customers who use certain pieces rarely and better rate those with high usage? Might we come up with entirely new products that uses data and analytics about the company’s overall operations to determine rates and coverage?

It’s time that we begin to talking about these emerging technologies and determining how we can use them to better service our customers while improving risk selection and rating. The Internet of Things is about to change how risk is measured. Let’s lead the way.

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Cyber Claims Facts & Figures

Cyber Risk Assessment & Data Breach company, NetDilligence just released its 2015 Cyber Claims Study, and it is quite enlightening. 

The study examined recent cyber claims from 19 North American insurance companies and explores the cause and size of the claim, the outcome, and the amount of settlement.

Among the Study’s findings:

  • 54% of the breaches occurred at small and medium size companies
  • The size of company had no relation to the size of the breach or the claim
  • There was insider involvement in 32% of the claims
  • The average cost per record affected was $964.31 (median cost was $13)
  • The average cost for legal defense was $434,354 (median cost was $76,000)
  • The average cost for legal settlement was $880,839 (median cost was $50,000)

The median costs are significantly lower, because a number of claims are still open, with only certain expenses being reported to date. 

The report is a fascinating overview of the type of breaches occurring and the costs that insurance companies are experiencing. I encourage you to see for yourself the toll that cyber crime is taking on NA companies of all types and sizes.

Download the report

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Transportation & Consolidation

(This article by Mike Wills originally appeared in Insurance Business Canada, edition 3.5)

As a market segment where risks are constantly changing, the transportation industry especially stands to benefit from an MGA partnership.

Since the wheel was invented, its use has stimulated transport and commerce, and has raised the whole standard of living throughout the world. But, the movement of goods and people can be a complicated practice.

Transportation is a crucial segment of the Canadian economy, providing the link to every industry across the country. Air, Rail, Sea and Road encompass areas such as scheduled airlines, forest fighting, logging, local transit, ferries, tug & barge, waste haulage, logistics, and many many more. Support activities for transportation, including air traffic control, stevedores, and salvage, add to this complex and extensive industry.

Things That Move require a different approach to risk management and insurance. Add to that the multiple risks of international exposures, and there is a vital need to utilize specialized expertise in the field of transportation and trade.

How transportation risk has changed

Over the past 10 years, the changing risks to transportation and trade have ranged from economic and political to environmental and societal.

Economical

The worldwide economy has suffered from fiscal imbalances, currency fluctuation and volatility in energy and agricultural pricing. The risk of a global systemic financial failure is very real, and regulations continue to grow at an exponential rate. The challenges in the economy have led to neglect in infrastructure in many cities, including the transportation network. Roads, bridges, rail lines, and ports are more vulnerable to natural disasters, and are often antiquated and crumbling. In many places, there has been a lack of development and maintenance.

Political

Canadians are leaders in the export of goods and services, and have been actively pursuing new opportunities in global markets. With these new opportunities come new risks, with organizations facing complex exposures related to international hazards. Political Risks are at the forefront, and are usually highest in developing countries where the economy and/or politics are unstable. Canadian businesses need to protect physical assets from risks of confiscation, expropriation, nationalization and deprivation. They also have a high risk of non-performance of a contract caused by a political event or act of a government entity. Increased political violence and terrorist incidents add to the difficulty of doing business overseas.

Supply Chain Disruption

Many businesses rely on ‘just-in-time’ shipping, and consequently a disruption in trade can cause serious damage to profitability, shareholder value, brand and reputation. This risk is rapidly increasing with the complexity of multi-modal transport and globalization. Major causes of disruption can include adverse weather, closure of transportation routes, and political events. A proper supply chain risk management plan and insurance program can help mitigate these risks.

Environmental

Environmental impairment is a growing concern for many businesses that are involved in transportation or trade. Conventional coverages under a general liability policy are no longer adequate to protect the sophisticated and complex operations of today’s businesses. Stricter regulatory requirements have increased the demand for a broader risk management and insurance solution.

Technological

The movement of people and goods has never been as reliant upon the movement of data as it is today, nor have businesses been as vulnerable to the wide ranging consequences of a data security breach. Advances in technology have made the challenges of securing data ever more complex while escalating threats from external parties and increasingly stringent regulatory requirements have made the consequences of data breaches ever more severe.

Societal

Perhaps the greatest risk to transportation and trade is our rapidly changing society. Concerns about our fresh water supply and food shortages may result in the migration of the population to more habitable geography. The transport of goods could encounter great risk, as our infrastructure ages, the environment changes, government regulation increases, and trade is constantly disrupted. In addition, human error is the primary cause or contributing factor to transportation disasters and accidents, often resulting from improper or inadequate training. With our aging population there is a very real concern that this problem will be exacerbated as transport continues to become more complex and there is a lack of expertise and experience.

Who can meet these needs?

The Canadian insurance market is dominated by large scale insurers. These companies are very good at the delivery of ‘transactional’ insurance products, and their competitive advantage is the efficiency that they offer due to the large number of policies they write.

Niche insurers serve the remainder of the market. They rely on expertise and deliver good products to certain segments in the marketplace.

As a result, the insurance market for transportation is quite fragmented. The large-scale player and niche players are good at what they do, but with all the challenges in the transport and trade industries, it is not enough to properly service the clients. Brokers need a need for a ‘one-stop shop’ where insurance coverage is consolidated – a place where they can go to put a program together that encompasses all the risks that their client will encounter.

This is where the MGA has an advantage. Combining the benefits of expertise in multiple areas and a focus on a niche area, the MGA can develop comprehensive insurance programs that are meaningful to the client and are not readily available in the market. The broker benefits from working with a local MGA, but also has access to the worldwide expertise of their underwriting partners. Many MGAs are able to offer local syndication of Lloyds, benefiting from the company’s expertise and diverse worldwide product offering.

Key Transportation Risks

Lloyds is the largest specialty insurer in Canada, and with extensive product offerings that are available to Canadians, they provide the most comprehensive insurance solutions in the world.

Marine Cargo

Cargo Legal Liability

Hull & Machinery

Marine General Liability

Aircraft Hull & Liability

Aviation Liabilities

Non-Owned Aircraft Liability

Airports and Aerospace

Rolling Stock and Railroad Liability

Truck and other vehicle physical damage

Political Risk

Contract Frustration

Kidnap & Ransom

War & Terrorism

Trade Disruption

Trade Credit

Environmental Liability

Professional Liability

Management Liability

Cyber & Privacy Risk

Why it pays to Specialize

Virtually every business enterprise has a transport or trade risk, and those with global exposures have enhanced risk. Financial institutions, agriculture, mining, energy, forestry, manufacturing and construction all are affected by these risks.

Focusing on a special segment will enhance innovation, offering the ability to create new solutions (for example, combined insurance coverage for aircraft and environmental liabilities). This specialization also offers the ability to identify new risks (for example supply chain disruption), increasing the loyalty of the client.

Focusing on the segment will also provide an ability to develop a comprehensive risk management program – something that can only be done with an in-depth knowledge of the segment.

Partnering with the right market

The key to success in meeting the challenges of transportation clients starts with participation. We need to immerse ourselves in the industry, engage in discussions, learn and share knowledge. An MGA is the ideal partner – they can participate in the industry, and can tap into global expertise such as Lloyds to ensure that the transportation industry continues to prosper.

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Elections, Riots & Risks

As the longest Federal election campaign in history winds down, Canadians are about to head to the polls to determine who will lead our country for the next four or five years.

Regardless of the outcome, we can assume a few things; none of the parties will employ thugs to prevent people from voting; we will not have riots in the streets when a winner is announced; and the losing parties will concede and allow the winner to lead a government, according to our constitution and the rules of parliament.

The same can¹t be said for many countries, where election fraud and violence is a way of life. While the human rights cost of these situations is tragic, Canadian companies can also face a perilous situation.

In times of political strife, company assets can be seized and nationalized; employees can be put in peril; property can be vandalized and destroyed. Even small Canadian companies with no foreign locations or staff can see shipments of important parts held at foreign ports, suppliers’ manufacturing facilities destroyed or damaged; and commerce with entire regions frozen during political unrest.

Instead of making a pitch to you about the importance of buying political risk and supply chain insurance for your clients, I¹ll instead simply encourage you to vote on Monday ­ and be thankful for our system of government, regardless how flawed it sometimes appears.

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Aviation & Aerospace Insurance Program

Many traditional risks have an aviation or aerospace component. A road builder may also work on airport runways; an auto parts manufacturer might also build parts for aircraft. Excluded under standard insurance coverage, these exposures are often protected with a hodge-podge of policies and coverages, written by multiple carriers. This can result in potential gaps in coverage and a general sense of unease.

Eagle Underwriting provides one-stop-shopping for risks with an aviation or aerospace exposure. We offer a vast array of aviation and related coverages, and have teamed up with Evolution Insurance to provide coverage to those clients that also have non-aviation liability exposures. We can assemble a portfolio of insurance that protects your client against all forms of risk, including standard P&C, cyber and supply chain.

The next time you have a client with an aviation or aerospace exposure, give us a call. We’ll demonstrate how we are the experts in Things That Move.

Download our Aviation and Aerospace Product Sheet

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Cycling for Wishes

Today, I along with 19 other insurance professionals, embark on a 500 km cycling journey from Montreal to Quebec City in support of Make a Wish Canada.

This is actually the second time I’ve biked for charity. The first trip was in 2011 and took place between Toronto and Ottawa. Like that first journey, we are scheduled to arrive at the RIMS Canada conference, the day before it begins.

Unlike that first trip, this one is going to hurt. Probably a lot. The terrain between Montreal and Quebec City is quite extreme, and it is certain to test the mettle of those of us used to our comfortable offices.

Why would we undertake something so crazy? My motivation comes from raising money for a charity I truly support, the chance to bond with other, similarly crazy insurance folks, and a stubborn streak that won’t let me say no.

So far, our team has raised $100,000 for Make a Wish. If you’d like to climb aboard a (virtual) bike and join us, you can sponsor me, or other members of the team by clicking on the link.

https://cause2give.unxvision.com/P2PWeb/PublicParticipantPage.aspx?ParticipantIdView=27632&EventId=730&LanguageId=1

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Uber is Just the Beginning!

Much has been written about the recent Intact decision to partner with ride sharing giant Uber to provide insurance products to part-time drivers. The announcement essentially removes the number one criticism of the service, opening the door for further expansion.

But, Uber is just the tip of the new “sharing economy” that is changing the way we look at resources. Consider:

  • Airbnb is now the largest vacation accommodation provider in the world, connecting travelers with private owners who have unused accommodations they would like to rent.
  • RelayRides allows car owners to rent their vehicles for a few hours, when not being used
  • Boatbound connects watercraft owners with those seeking to rent a boat for a few hours or a few weeks
  • Snapgoods connects owners of high value items such as musical instruments, power tools and cameras with those needing them temporarily.

In the future, we can likely expect services that connect pilots to unused aircraft, introduces cargo haulers (companies and private individuals) who have excess capacity in their vehicles to those who need to ship something fast or cheap, and allows owners of expensive heavy equipment to earn money by renting their gear to someone in need.

Each of these poses an interesting insurance challenge, that likely makes most underwriters cringe. After all, our manuals tell us that mixing personal and commercial use is bad, right? And what is the wisdom of handing over expensive property to a stranger?

But that old-school thinking completely misses the opportunity that this new sharing economy offers. Insurers need to think of ways to offer insurance to these emerging risks; to respond to the needs of our customers, and do it profitably and responsibly.

The insurance industry has an opportunity to shape how these relationships are defined, and to lead, rather than respond.

All it takes is a fresh outlook, a lot of creativity, some true innovation, and a will to benefit from emerging opportunities.

Resources & inspiration

Lead the Pack or Follow the Leader: Insuring Risk in the Sharing Economy, Michael Costonis, Accenture, 2015

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Environmental Liability Insurance isn’t for you? You might want to reconsider

In 2012 directors of Northstar Aerospace Inc. were held personally liable by the Ontario Ministry of Environment for contaminating the surrounding area of their Cambridge, Ontario manufacturing facility. Unfortunately for Northstar, environmental remediation costs were excluded from the directors’ and officers’ insurance policy.

In the end, “the directors and officers were forced to pay approximately $800,000 out of their own pockets for the completion of interim remediation work,” and “subsequently reach a settlement with the Ministry of Environment to withdraw the remediation order at $4.75 million.
(more…)

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