(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.