29 January 2021
Mike Karbassi

The hard market for Ocean Cargo won’t be helped by vaccine roll-out

But brokers and insurers can still take a few steps to optimize pricing and coverage

Ocean Cargo Graphics

The global roll-out of vaccines underway now is unprecedented in its speed, scale and complexity. And as we’ve seen in reports from around the country the past few weeks — of long lines, crashing registration systems, and shifting government guidance — that challenge is most apparent in the last mile. A good outline of the challenges of getting shots into arms in an orderly and fair fashion can be found here

But there are more hidden challenges in the middle miles as well, the part of the supply chain that those of us who work in Marine Cargo or other lines of cargo insurance are familiar with.

Among the risks involved in vaccine rollout:

Security. These enormously valuable shipments are at risk of theft and, in the U.S. at least, also sabotage given the strong “anti-vax” movement. As Insurance Journal reports, “A consignment carrying tens of thousands of packs of a COVID-19 vaccine that is lost, stolen or damaged…has an estimated value of $15-$50 million.” Especially now that the rollout has proven bumpy and states are desperate to get their hands on greater quantities of vaccines, there’s a heightened risk of criminal activity. 

Ultra-cold storage and Inexperienced Handlers. Most of the cold chain is not equipped for the temperatures required for the Pfizer vaccine, and even the Moderna vaccine strains the limits of typical refrigeration. Long before COVID-19, the WHO estimated that over half of all vaccines were wasted every year due to “temperature control, logistics and shipment-related issues.” Given the added constraints of ultra-cold storage and the unprecedented demand around the world, we could see very expensive losses. 

Further complicating an already taxing supply chain is the potential entry of less experienced handlers. As Willis Towers Watson’s Philip Clayton and Andy Bowman wrote in Aircargo News, “pressure to deliver the vaccine as quickly and widely as possible is expected to bring new, less-experienced operators to assist in their distribution,” since the small number of specialized cargo carriers who normally handle most pharmaceutical transportation will not have the capacity to take on the unprecedented number of shipments.  

…All of the other risks. It’s winter in North America — we cannot discount the impacts that a major blizzard could have in moving extremely time-sensitive shipments and the potential spoilage that comes with the disruption. That or any other number of risks that are normally part of transit in any circumstance are heightened by the high value of the vaccines. Plus when it comes to spoilage, there’s added questions of liability around the side effects of that vaccines are administered after experiencing temperature excursions without anyone’s knowledge.

How will this impact insurance?

The market for Ocean Cargo has been hardening for the last two years, and the added risk of a global vaccine roll-out is likely to make it worse.  

For more on the underlying market fundamentals in Marine Cargo see our whitepaper: Cargo in Chaos

For instance, renewals on existing risks have been already coming in with rate increases in excess 30% rate increases, and, as Business Insurance noted this week, “Where previously an insurer might have offered $10 million, $20 million, or $40 million in primary limits, it might now take several insurers to assemble the same limit.”

Where the lack of reinsurance capacity, political tensions and numerous other factors have been driving the hardening market, vaccine deployment may accelerate the hardening trend.

Consider a pharmaceutical company. Whether the manufacturer is utilizing in-house captive insurance or an outside insurer, the insurance capacity demanded by its shipments, in an environment of already limited risk capacity, may ripple into the broader market via pricing and availability changes that account for heightened liability of vaccine distribution. It could even stretch beyond the most immediate lines into adjacent lines, like Ocean Cargo. 

This puts the manufacturers in a double bind. Skyrocketing insurance prices will coincide with the general lack of availability of adequate cold chain distribution, which will drive up prices of the shipment itself. There’s plenty of funding to ensure there’s no slowdown, but some impacts will be felt by various actors along the way.

What can brokers do?

Whether it’s a vaccine shipment or something else that’s being affected less directly, we know one thing that can help clients, brokers and insurers alike: data about past and present temperature control. 

As Tiina Ruhlandt, President of EIMC put it: 

“The unique logistical demands of the CoVID-19 vaccines coupled with the intended distribution volume exceeds capacity amongst cold chain specialists. Rapid adaptation of non-specialist facilities, staff and equipment to the cold pharmaceutical transport mission presents inherently magnified risk of loss, which can be offset by careful loss prevention planning and data-centric supply chain monitoring.”

“Careful loss prevention planning and data-centric supply chain monitoring are key to meeting the unique logistical demands of successful CoVID-19 vaccine distribution.”

Companies like Sensitech offer technologies to monitor the temperature of goods throughout the cold chain. Properly arranged sensors could give the assured the comfort to know the products have not had any temperature excursions that would compromise the vaccines. In fact, at Corvus we can go a step further by offering insureds full spoilage cover with no waiting period, based on data from Sensitech, in the event of a claim due to delay or refrigeration breakdown. (Drop us a line for more info). 

If clients are struggling with the rising rates in Ocean Cargo, whether they’re carrying vaccines or are just collateral damage from the constrained cargo risk capacity, temperature readings can provide a definitive history of performance that helps insurers to place coverage and even offer coverage enhancements.

Mike Karbassi

Mike Karbassi is Vice President and Head of Cyber Underwriting at Corvus. He specializes in Network Security, Privacy Liability, Technology E&O, Media Liability, and Miscellaneous Professional Liability. Karbassi has over a decade of experience in insurance and is a graduate of the Boston University Questrom School of Business.

Gerritt Graham

Gerritt is the Chief Commercial Officer at Corvus. He has over 20 years of sales and marketing experience, primarily focused on technology and data solutions for the financial services industry.

James McElhiney

James co-founded Corvus and is the company’s Chief Technology Officer. A 30+ year technology veteran, Jaimie most recently served as CTO of Iora Health and previously co-founded Gazelle.

Mike Lloyd

Mike Lloyd is the Co-Founder and Chief Product Officer of Corvus Insurance. Previously, Mike co-founded Poncho, a personal lines agency InsurTech startup, and was a venture investor at FJ Labs. Mike has an MBA from Harvard Business School and engineering degrees from Virginia Military Institute and MIT.

Phil Edmundson

Phil is the founder and CEO of Corvus. A 30+ year insurance veteran, Phil co-founded broker William Gallagher Associates (acquired by Arthur J Gallagher in 2015) and was an active leader in both the Worldwide Broker Network and Council of Insurance Agents and Brokers. Phil is the Managing Partner of Edmus Ventures where he invests in InsurTech companies including Verifly, Wellthie, Agentero, and Cover Wallet, and serves on the board of Cover Wallet.

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