The TT Club, the London-based mutual insurance association specializing in coverage against risks in freight transportation and logistics, is adding a new arrow to its arsenal. For the first time in its 44-year history, the TT Club is covering risks to cargo in transit.
The new product, it says, complements its line of other maritime coverage: assets that handle cargo, such as ports and terminals, the ships themselves, and cranes, containers and other physical equipment.
Cargo insurance historically has been a difficult area for insurers to cover because of disputes about the value of a shipment. Until the past few years, claims for losses incurred in transit were based on paper documents, which are subject to error and dispute between cargo owners and insurer. That’s changing as documentation goes digital.
“What we developed in the product was completely transparent,” said Graham Hooper, senior cargo underwriter in the U.K. for the TT Club, which stands for Through Transport Mutual Services.
The freight forwarder books the cargo insurance online, including information on the name of the cargo owner, the type and value of the cargo. “We can see what he’s done, and we can check that to make sure it complies with company policy,” Hooper said. “If it’s outside of what we agreed, we have an opportunity to immediately do something about it. It’s a much safer way of trading.”
Hooper, who had developed a similar product for the Lloyd’s Agencies, came to the TT Club two years ago to develop the new cargo product. “A lot of the TT Club’s customer base consisted of freight forwarders and logistics companies, but the one thing missing from the TT Club’s type of cover was cargo insurance,” he said.
The new cargo coverage is aimed mainly at forwarders who aren’t necessarily insurance experts. “It gives the sales guys on the desks who are handling freight inquiries the confidence to sell cargo insurance with the knowledge that the TT Club is in the background,” Hooper said.
The TT Club launched the cargo insurance product in 2010. It generated $2 million in premium income last year, mostly from the United States. It’s expected to bill $5 million in premiums this year.
The club aimed the product at the U.S., where it was able to capitalize on existing relationships and where its bylaws enabled it to sell insurance. The cargo coverage has sold particularly well in Miami. “There’s been a lot of interest from small insurance brokers around Miami, where there is a lot of cargo theft,” said Leo Kirchner, the TT Club’s regional director for the Americas.
The TT Club also is selling the coverage in Europe, Russia, eastern Europe and Hong Kong, but not in China, where it doesn’t have a license. The product will account for approximately 10 percent of the club’s premium revenue in the next five to 10 years, Hooper said. It also will help balance the club’s business against the kind of catastrophic events impacting its results last year, when its net income dropped 90.6 percent to $1.2 million from $12.8 million in 2010.
The club paid out a record number of claims last year — primarily tied to the Japanese earthquake and tsunami, a second earthquake in Christchurch, New Zealand; flooding in Australia and Thailand; and more normal events such as the grounding of the container ship Rena off the Port of Tauranga, New Zealand — offsetting an increase in premium income.
“It was an extraordinary year,” CEO Charles Fenton said. “We had 10 claims of over $1 million.”
Like other marine insurers, the TT Club also has been hit by low premiums, because of excess coverage capacity as investors flooded the market. But this may be changing, Fenton said. Premiums are increasing this year for the first time in seven years. “But it’s too early to tell if this will continue up,” Fenton said.
Despite low premiums last year, premium income increased 8.5 percent to $181.7 million in 2011 from $167.4 million the year before. The TT Club’s combined ratio of 98.6 percent remained under 100 percent, meaning premium income more than offset claims payments and expenses, “which is a very important and healthy position to be in with market conditions as they are,” TT Club Chairman Knud Pontoppidan said.
With a $1.2 million surplus of income over claims, the TT Club maintained a stable financial platform, good underwriting results and its “A plus” rating from Best Insurance. The club’s total surplus and reserves reached a record $145.4 million.