Logistics_Covid19_amwins

04/15/2020

Mind the Gap: COVID-19's Impact on the Logistics Industry

The disruptive impact of the COVID-19 outbreak on supply chains is already having a pronounced effect on the world of logistics and logistics insurance. Insurance brokers need to understand the changes taking place and plan for what is likely to occur in the months ahead. 

 

Pre-COVID Market Conditions Continue

With relatively few carriers serving the space, the logistics insurance marketplace had already been shrinking in terms of capacity. “Through October 2019, nine companies have parted ways with logistics. Others have increased minimum premiums, which might be perceived as a slow exit strategy,” says Alex Rosas, executive vice president and head of AmWINS Specialty Logistics Underwriters

Additionally, the sector continues to struggle to recruit new underwriting staff, exposing a drastic experience gap in a market that evolves daily. Furthermore, there is close to zero investment in innovation and technology. “Logistics departments are not high on the priority list of any large carriers. There is not enough premium nor understanding of such lines for carriers to invest in technology to create innovation,” Rosas says.  

Motor truck cargo is where the most extreme rate increases are being experienced due to the departure of key market players. London is also pushing to double premiums and lower limits. At the same time, some carriers have seen significant losses in logistics lines. 

Read the full State of the U.S. Logistics Insurance Market article.

 

Pandemic Impacts 

The COVID-19 pandemic quickly has thrown supply and demand out of balance. “Just in time” sourcing, once a popular supply-chain practice because it decreased inventory expenses, has exacerbated the issue and exposed why companies should maintain healthy levels of product backlog. As the supply chain works to meet demand spikes driven by both genuine need and panic buying, the market can expect both short- and long-term consequences.

“We had been expecting a ‘V-shaped’ supply recovery — down and then up. Instead, we are seeing a bottleneck effect with noticeable imbalance between supply and demand. When that bottleneck is released, the supply growth will need to be exponential just to fill out the warehouses, not to mention to satisfy the dire consumer demand,” says Rosas.

Port closures and trade disruptions have wreaked havoc on shipping volumes, with a reported 35% decline in shipper’s interest cargo activity in recent weeks. How quickly shipping activity will return to normal remains to be seen – many insureds are projecting a 20% decrease in exposures at renewal - but it likely will take time to eliminate such deficit. 

Additionally, losses stemming from shipping delays are unlikely to be insured. Although standard bills of lading may not hold logistics companies liable for the inability to provide goods and services, there could be exceptions, and force majeure could create disputes.

“Typically, for a policy to respond, there has to be physical damage, which is not the case in these losses,” Rosas says. “However, we will be closely watching case law because precedents will be created one way or another.”

Long-term impacts include potentially fundamental changes to the supply chain itself. The federal government is already considering legislation to repatriate essential manufacturing like medical supplies and pharmaceuticals, and decoupling from China may take place in other areas as well.

“The Purchasing Managers’ Index has dropped nearly 50% since January,” Rosas mentioned. “That means U.S. buyers’ confidence in China’s manufactured goods are in peril and that many are shifting toward domestic suppliers.”

 

Tech Assist 

Several tech companies are offering digital logistics tools to help minimize COVID-19’s impact on the supply chain by making it more resilient, flexible and efficient. Examples include:


  • A leader in automated freight brokering that is using its platform to normalize the dramatic increase in shipments in one location while absorbing an equivalent drop in another city.
  • A warehouse-connection specialist that is spinning out capacity for emergency medical supplies.
  • A freight-forwarder technology platform that is re-allocating its air-freight shipment capacity to ocean routes.

Other companies have released free job boards, free use of online tracking tools and free predictive-maintenance software. The resilience of these logistics operations is extraordinary and will play a large role in the industry’s ability to overcome the COVID-19 impact.

 

Navigating the Market

Retailers should go to market early with both new business and renewals. “Getting out early is important not just for having a conversation with carriers about changing appetites, but also to have a conversation with insureds about market realities,” says Noah Klein, vice president of AmWINS Specialty Logistics Underwriters. Carrier response may also be slowed in cases where work-from-home directives are in place and underwriters are juggling home and work responsibilities. 

“Brokers need to show customers the changing dynamic of the business and the potential need to restructure their insurance program. Also, some customers might be looking at decreased payrolls, revenue and stock, whereas others are seeing inventory being stockpiled,” Klein says. 

Lastly, brokers need to be aware of how different state insurance regulators are responding to financial distress being faced by businesses. The majority have created guidance or mandates around how carriers can proceed during the pandemic with regard to cancellations, non-renewals and changes in coverage and terms.

In a time of uncertainty, partnering with a wholesaler that understands market changes is essential. AmWINS is working closely with carrier partners to understand their changes in operations and protocols, advocate for flexible payment terms exposure-basis relief, and policy extensions when possible; and ensure as minimal disruption with regards to servicing, claims, binders, endorsements and renewals.  

 


 

About the Authors

This article was written by AmWINS Specialty Logistics Underwriters Executive Vice President Alex Rosas and Vice President Noah Klein. 

AmWINS Specialty Logistics Underwriters (ASLU), an AmWINS Group company, is a managing general agency specializing in the complex risk factors of the logistics and cargo industry. ASLU is dedicated to offering a high level of service to their clients through a unique balance of industry knowledge, responsiveness and technology. To learn more, visit amwins.com/aslu


Contact Us

To learn more about how AmWINS can help you place coverage for your clients, reach out to your local AmWINS broker.  If you do not have a contact at AmWINS, please click here.

Legal Disclaimer. Views expressed here do not constitute legal advice. The information contained herein is for general guidance of matter only and not for the purpose of providing legal advice. Discussion of insurance policy language is descriptive only. Every policy has different policy language. Coverage afforded under any insurance policy issued is subject to individual policy terms and conditions. Please refer to your policy for the actual language.

(c) 2017 AmWINS Group, Inc.

Most Popular Insights

Employment Practices Liability: #whatstrending

08/18/20

Employment practices liability (EPL) insurance in the U.S. marketplace has always been affected by social trends. This article explores the top factors influencing buyer behavior, product development and underwriting appetite associated with EPL coverage.​

Unpacking Warehouse Legal Liability

07/28/20

Warehouse Legal Liability is a complicated line with many gray areas and multiple interpretations of its coverages. This article discusses coverage triggers, legal vs. contractual liability and the importance of warehouse receipts.

5 Strategies for Successful Small Business Renewals During COVID

07/21/20

In the current economic climate, many small businesses are struggling and some may even fail. Despite these challenges and the continued hardening market, there is opportunity for retailers to write and retain business. This article provides guidance on navigating the complex small business marketplace and helps retailers fine tune their understanding of what insurable risks will look like over the next 12 to 24 months.

What Product Recall Insurance and Risk Mitigation Plan Is Right for Your Clients?

07/21/20

​Product recalls are one of the most damaging events a business may encounter. In order to effectively respond to an incident, companies must be prepared with proper risk management strategies. As policy wording varies, it's also critical to ensure your clients have the right policy type in place to appropriately address their first- and third-party exposures.

Is Your Insured’s Website Compliant with the Americans with Disabilities Act?

07/17/20

Court rulings, have extended the Americans with Disabilities Act (ADA) to apply to websites that are "heavily integrated" with and serve as a "gateway" to a physical stores/services. As a result, companies are now finding themselves targets for ADA claims based on the inaccessibility of their websites and media by those who are disabled.

State of the Market - Q2 2020

06/15/20

Our Q2 2020 State of the Market report provides a holistic view of highly impacted industry segments as well as overall market trends. This report is designed to help our retailers gain the knowledge they need to retain accounts, write new business, overcome challenges and capitalize on opportunities that do exist.

10 Catastrophe Claim Tips for Severe Weather Season

05/27/20

Severe weather can be unpredictable and strike at any time. Help your clients be prepared in the event their property is damaged by a hurricane, tornado, hailstorm or similar disaster with these 10 catastrophe claim tips.

On-Demand Webinar: COVID-19 Economic Impact and Future Outlook

05/15/20

As a result of the COVID-19 crisis, our industry is facing a broad array of challenges that impact insureds of every size and in every industry. In the first of a series of webinars, we hear from an economist on the financial impacts of COVID-19 and what we can expect in the future. This webinar is intended to complement your conversations with clients about how to plan for the next 12 to 24 months.

Lloyd's CEO and Property Underwriters Share COVID-19 Response and Market Update

05/11/20

This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Property underwriters on how they view the pandemic's impact both the Property sector and their syndicate's business.

Lloyd's CEO and Casualty Underwriters Share COVID-19 Response and Market Update

05/11/20

This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Casualty underwriters on how they view the pandemic's impact both the Casualty sector and their syndicate's business.

Lloyd's CEO and Professional Underwriters Share COVID-19 Response and Market Update

05/11/20

This podcast features an update from John Neal, CEO of Lloyd’s, on the state of the Lloyd's market and their response to COVID-19 as well as a panel discussion with London Professional Lines underwriters on how they view the pandemic's impact both the Professional Lines sector and their syndicate's business.

Flood 101: What to Know About Standard Flood Insurance

04/28/20

Ninety-eight percent of all United States counties were impacted by a flood event in 2018, yet many property owners remain unaware of their true risk of flood or what their existing policies cover. This article highlights key statistics about flood risk and outlines the differences between the National Flood Insurance Program and private market flood insurance.

Professional Lines Challenges and Market Response During the COVID-19 Crisis

04/28/20

The COVID-19 crisis has created a rapidly changing environment for the Professional Lines market. With the uncertainty of how claims will develop and the potential for increased exposure, retailers must be proactive. In this article, AmWINS specialists share their insights on why this is more important now than ever, including reactionary underwriting trends, D&O policy exclusions and impacts to EPLI, as well as the threat for increased cyber attacks and crime losses.

Small Business and Personal Lines During the COVID Crisis

04/22/20

Loss of revenue caused by stay-at-home orders due to the coronavirus pandemic has affected small businesses and the insurance industry serving them significantly. As retailers and carriers prioritize their focus to adapt to the “new normal” of daily transactions, underlying market dynamics remain unchanged. In this article, our experts share their insight on the current changes that we are seeing the small business and personal lines market, and how to navigate the market a this time of uncertainty.

Mind the Gap: COVID-19's Impact on the Logistics Industry

04/15/20

The disruptive impact of the COVID-19 outbreak on supply chains is already having a pronounced effect on the world of logistics and logistics insurance. Port closures, demand surges and production shifts are requiring nimble response to keep up with change. This article arms insurance brokers with the information needed to understand the changes taking place and plan for what is likely to occur in the months ahead.

Navigating the Casualty Market’s Response to COVID-19

04/15/20

The Casualty market’s response to COVID-19 is continuously evolving. With a wide array of factors already impacting this sector pre-crisis, segments of the Casualty marketplace are responding to the pandemic differently. In this article, our industry specialists share overall themes in the Casualty market and take a closer look at how various segments are being impacted.

Top COVID-19 Issues Impacting Builder’s Risk Insurance

04/15/20

The COVID-19 pandemic is causing historical disruption to the construction industry. These changes mean that risk mitigation strategies need to be implemented or revisited, policy language should be reviewed, and carriers should be apprised of all changes at the work-site. In this article, AmWINS specialists examine the major areas of concern for Builder’s Risk insureds, including government-mandated shutdowns, supply chain-driven slowdowns and policy wording that could limit coverage, and provide guidance for retailers to achieve the best results for their clients.

State of the U.S. Logistics Insurance Market

04/10/20

For decades, the logistics insurance market has been considered a sub-market of the cargo or ocean marine market. However, the continual rise of e-commerce and its effect on the global supply chain has carved out a complex and expansive industry niche. This article provides insight into the various lines of coverage, the specialized underwriting approach, and rate surges within the U.S. logistics insurance market.

Lloyd’s & the London Market’s Response to COVID-19

04/06/20

During the COVID-19 pandemic, Lloyd’s remains open for business and syndicates have successfully transitioned to working from home. However, there are notable changes in how the London market is approaching business. In this article, specialists from THB, AmWINS’ London broker, share their insight on consistent themes across the London Market as well as updates on various lines of business.

COVID-19 Claims Advice

04/02/20

There have been a lot of questions regarding COVID-19, in particular about coverage and claims handling. This claims advice is intended to offer guidance to help our retail clients through these difficult times.

Sign Up For Our Monthly Newsletter

Sign Up