Supply chain environment plays major role in risk assessment

CRITICAL TO any underwriting assessment of cargo risk carried out by brokers and underwriters when “pricing” the insurance component of a risk management programme, is a clear understanding of the environment or supply chain within which the risk being treated takes place, says Eikos Risk Management’s Hugh Reimers. “Sustainable and effective cargo risk management must of absolute necessity begin with an assessment and manipulation if necessary of not only the physical aspect of the supply chain (logistics profiling) but of the quite complex legal relationships that exist between the owners of the cargo and their insurers, and the various entities responsible for the handling, storage and delivery of the cargo during the insured voyage,” says Reimers. “Ultimately it is these issues that define the risk - not only the previous year’s claims records.” Very often the real drivers of risk such as number, type and the competence of carriers are overlooked in favour of short term expediency and a frantic desire by underwriters and brokers to “grow the book” on the basis of sub standard underwriting, says Reimers. “Frequently this leads to insurers adopting an avoidance approach when unwanted claims occur. “It is unfortunately often the cargo owners who drive this unrealistic pricing strategy, ignoring the long-term stability of a programme driven by optimum cost of risk pricing in favour of short sighted and sub economic premium.” The severe shortage of specialist skills within the insurance market poses further problems. “More often than not it supports these unsustainable practices and leads to long term detrimental results for the client and the market as a whole. “The practice of hiding unqualified and inexperienced advice behind a general insurance licence flies completely in the face of the new FAIS legislation and makes a mockery of the protection supposedly provided by the Act.”