MARINE INSURANCE PROBLEMS
[Although we are glad to publish this article we keep an open land on the views expressed by our contributor.—En. Spectator.] - Tula important branch of Insurance business is at the present time a source of considerable anxiety to prac- tically all of those who are responsible for its conduct. It may be of interest, therefore, to consider what are the cir- cumstances which have led up to the present situation and what measures can be taken to place the business again on a reasonable profit-earning basis. At one time the principal silarket for marine insurance was "Lloyds," and, with one `or two exceptions, a comparatively small number of inde- pendent marine companies, who concentrated their attention on marine business only and wrote moderate lines, the bulk of which they retained on their own account. In other words, these companies did not undertake large amounts and farm the same out by way of reinsurance.
A similar practice was followed by the " Lloyds " Underwriters, who took an amount sufficient to give a small line to each member of the syndicate for whom they were underwriting. As a whole, the result was good, although, as will be readily understood, the profits and losses varied according to the skill and judgment of the individual underwriter. As time went on the big fire offices, for reasons which they considered to be good, came to the conclusion that they should undertake all classes of insurance, although the process was gradual.
This was accomplished in two ways : either by setting up a new department or by the quicker and easier method of absorbing the independent companies which gave them an established business and, what was equally important, a trained staff. Up to 1914 the business ran a steady course, although there had been cycles of lean and fat years, but the War gave rise to an entirely new set of problems quite apart Isom the War risks involved. The underwriter was suddenly called upon to make two rates— one for the ordinary marine risks and the other for War risks.
Some of the underwriters decided not to write War risks at all, but this meant to a great extent that they stood out altogether, as the tendency was to insure both risks where possible under one, policy._ Considering the difficulties the underwriters were able to fix rates with a considerable degree of accuracy, although it is certain that during some periods of the intensive submarine campaign a number of the underwriters spent a very anxious_time. So far as the ordinary marine risks were concerned, these were increased from sundry causes, of which delay was one leading to an accumulation of liability at the ports, the usual policy covering the goods from warehouse to ware- house. The active part taken by the Government at this time in the matter of War Risks must not be forgotten.
Another feature arising out of the War which altered the whole tendency of the business was the increasing values of goods and ships. These reached such proportions shortly after the War that the existing market was in- sufficient to cope with the large insurances which became necessary, more especially as the German reinsurance market was closed. As a consequence a large number of new marine insurance companies were formed, and in addition existing insurance companies, who had not pre- viously transacted the business, thought it a good time to come in. To those companies and underwriters who wrote consistently through the War considerable profits as a rule accrued, although these were sadly dimmished by the incidence of the excess profits -tax. To those who came in. later some were fortunate and others succumbed. After the War, during the boom when values were still. high, it looked as if there might be some prospect for the newcomers, but with the slump things became increasingly difficult and there was not enough business to feed the hungry mouths, with the result that rates were cut to shreds. Another factor in connexion with hull insurance was that on lower values the total premium paid fell enormously, whilst the risk did not fall in ratio. As -a matter of - fact, the rates paid to-day compare none too favourably with pre-War rates, although the cost of repairs-is in many cases double. Many of the weaker companies "'mire disappeared, and the market is now more stabilized, but there is one feature which is open to criticism, and that is a tendency for underwriters to accept large lines with the object of reinsuring. The effect of this is held by many to be unsound and bad for- the business as a whole. The reinsurer pays an overriding commission, usually about 5 per cent., to the original company, who can by this means accept risks at what' is really an unprofitable rate—but although it may appear to be a paradox—becomes a profitable one in' effect. To give an example, an underwriter accepts. £10,000 at a premium of, say, £5 per cent. net, or £500 in all, and gives away £9,000 at £5 per cent, less 5 per cent. The amount he will receive is £50 and 5 per cent, on 1450; making in all £72 10s., or a rate equivalent to over £7 per cent., whilst each of the reinsurers will receive £4 15s. per cent. only. Time will no doubt cure this, as if the original com- panies are not making any profit except out of the reinsurers, the reinsurance market is bound to dry up. From time to time there have been agreements as to rates, more especially in connexion with hulls, but from sundry causes these have broken down. The time seems ripe, however, for some strong action to be taken at an early date, as shareholders and others will not be content indefinitely to see the profits from other sections of Insurance business diverted to make up losses in the marine department.
One suggestion which might lead to unity is that of some mutual restriction whereby no individual company or underwriter should accept more than a fixed percentage of the amount to be insured on any one hull, thus leaving a reasonable amount to be divided amongst other sections of the market, or, alternatively, such an amount as the company or underwriter keeps for "own account" only. The subject is one of considerable interest, and if this article should give cause for thought to some of those who act as leaders in the marine underwriting market, it will more than accomplish its object.
ANON.
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