Protectionism such as raise in custom tariff rates has taken the spotlight recently on a global basis. In general, it is rather a controversial topic however, from a Marine underwriter’s perspective it is nothing but a concern. Unlike most other lines of business, Marine insurance has direct impact from the consequence of protectionism. Especially Cargo insurance will have an immediate hit if the global trade starts reducing it’s volume.
The positive aspect which is assumed to be relatively smaller than the negative aspect is the possibility of domestic industries picking up new business when the import cargo stops flowing into the country. This may turn out to be some new domestic transit needs which could generate some domestic transportation (inland marine) insurance. However, in most states the ocean cargo insurance is much larger than the domestic in terms of premium volume. The negative impact on the ocean cargo insurance would probably exceed the positive impact on domestic transportation insurance.
Getting to the bottom of the global trading, the primitive patterns of trades are : “If you want to buy it, come pick it up” or “I want to sell it so I will deliver”. Trading on primary commodities such as minerals and grains has a tendency of “If you want to buy it, come pick it up” so typically we see FOB types of terms which makes the cargo insurance stick to the importer’s side. On the other hand, finished products trade tends to be more “I want to sell it so I will deliver”. As a result, trade terms are more likely to be CIF types of terms with the insurance on the exporter’s side. That is one of the reasons countries such as Germany and Japan that were known as the traditional powerhouse of manufacturing has had been in the world’s top notch for decades in terms of cargo insurance premium volume. This fact is still being able to be found in the recent stats of IUMI (International Union of Marine Insurance) ........ manufacturing powerhouse states, today there is China added as well, import a lot and export a lot with the cargo insurance sticking to their side.
Looking back in history
From a general point of view, if protectionism in global trade starts to rise globally, it could be considered that the impact to cargo insurance business could be proportional to the size of the cargo premium volume which will turn out to be quite an impact for these top notch countries.
…Okay, this might have been an exemplary perspective of a Cargo Underwriter. Why…