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Predictions for the Cargo Insurance Industry

Emerging risks for the cargo insurance industry in 2025

1.Climate Change and Extreme Weather

2.Geopolitical Instability and Supply Chain Disruption

3.Evolving Regulatory Landscape

4.Cybersecurity Threats in Logistics

5.Rising Industry Consolidation

Trends that will shape the cargo insurance landscape in 2025

1.Cyber Shift: From Exclusion to Comprehensive Protection

2.Beyond the Hype: AI and Automation

3.Data-Driven Policies for Unique Business Needs

4.Transitioning from Cost-Cutting to Collaboration

5.ESG for Long-Term Value and Resilience

Emerging

risks for the cargo insurance industry in 2025

Climate Change & Extreme Weather

The increasing frequency and intensity of natural disasters will continue to be a significant challenge for the growing cargo storage and transportation market. Climate change is altering the traditional catastrophe seasons, making weather events harder to anticipate and plan for and therefore leaving buyers and insurers exposed.

Extreme weather events are making trade routes less reliable. These adverse conditions and/or the associated delays in transit jeopardize the cargo being carried. For example, in the US alone, perils such as cold weather, storms and high winds already cost the trucking industry billions of dollars. Insurers will have to respond either by increasing deductibles or increasing premiums.

As we look toward 2025, weather disruption will remain a critical risk, leading to delays in downstream and upstream transportation, higher costs and reduced output across supply chains.

Today, a billion-dollar extreme weather event occurs every three weeks.

Forty years ago, one occurred every four months.

The Insurance Gap

There is a significant opportunity for cargo insurers to expand coverage, especially in underinsured regions, offering protection where it’s urgently needed.

In the first half of 2024, natural disasters in the Asia-Pacific and Africa led to $40 billion in total losses, with only $9 billion insured.

Global insured losses from natural catastrophes totaled at least $258 billion of economic losses and $102 billion of insured losses during the first three quarters of 2024.

Geopolitical Instability and Supply Chain Disruption

Ongoing geopolitical tensions, particularly in Eastern Europe, East Asia, the Red Sea and key US ports, will continue to disrupt cargo transport through war and conflict, port strikes and delays. Many of these issues will be further impacted by Donald Trump’s presidential election in the US, including his plans for new trade restrictions and steep import tariffs.

As companies diversify their sourcing to mitigate these risks, supply chains will become longer and more complex, leading to potential price increases for key commodities, production halts and logistics delays - ultimately presenting more risk across their supply chains.

Furthermore, large Marine War losses from 2024 are looming, such as the Galaxy Leader seized by Houthi rebels and insured for $65 million in the London market. This has underwriters cautious about exposures and opting for smaller line sizes. Shippers passing through challenging routes, like the Suez Canal, are likely to see rate increases as insurers struggle to underwrite these volatile risks profitably.

Transit Activity in the Cape of Good Hope continues to exceed that of the Suez Canal

14-Day rolling averages for number of transit calls made by cargo and tanker ships from January 2023 onwards

The US Election

Donald Trump’s election will materially impact the risk landscape, beginning in Ukraine, the Middle East and the future role of the US in NATO. As of this writing, it remains too early to tell how his forceful campaign rhetoric on foreign policy, trade and climate will translate into tangible policy outcomes. This unknown represents its own risk to operators and insurers as they enter 2025.

RussiaUkraine Conflict

US Port Strikes

Ending the war in Ukraine will be a priority for the incoming Trump administration. The immediate period could very well see an increase in volatility and conflict as both sides use more advanced weapons systems to gain leverage heading into any cease fire talks. All of this is sure to exacerbate disruptions to energy supplies, grain exports, and access to critical raw materials.

Dock workers and port operators reached a tentative deal in October 2024 to end the port strike, which affected 36 ports in the U.S. East Coast and Gulf Coast. However, the agreement is only temporary with a planned strike in January 2025.

TaiwanChina Conflict

Any escalation in tensions between China and Taiwan could severely disrupt vital electronics manufacturing and shipping routes in the region. Some analysts fear a potential conflict between the United States and China over Taiwan could erupt, leading to broader and more significant supply chain disruptions and impacting global economic stability.

Red Sea Attacks

The balance of power in the Middle East is rapidly changing, however, the ongoing threat of proxy attacks against cargo vessels in the Red Sea remains. Transit activity through the Suez Canal has already dropped by half in 2024, with shippers rerouting their cargo to the longer route via the Cape of Good Hope, raising insurance and fuel costs and introducing new risks, like potential loss, damage or delay.

Evolving Regulatory Landscape

New ESG-related regulations, while vital for future business sustainability, are adding complexities for companies managing supply chains. Compliance challenges, issues with traceability across supply chains, certification requirements and enforcement uncertainty are likely to impact the flow of certain commodities and lead to penalties and interruption-related financial losses.

Regulations to watch in 2025

The European Union Deforestation Regulation (EUDR)

A law that ensures certain products entering or exiting the European Union are deforestation-free. Products include cattle, wood, cocoa, soy, palm oil, coffee, rubber, and some of their derived products, such as leather, chocolate, tires and furniture.

• When does EUDR go into effect? The EUDR is set to take effect on December 30, 2025.

• Risks for non-compliance: Financial penalties (up to 4% of the company’s EU revenue), confiscation of products, income, and revenues, market restrictions and reputational damage.

Food Safety Modernization Act, Food Traceability

Final Rule

Requires traceability record keeping beyond current regulations to allow for faster identification and removal of potentially contaminated food from the market.

• When does the rule go into effect? January 20, 2026

• Who does it apply to? Anyone in the US or anyone who produces food for US consumption involved in manufacturing, processing, packing or holding food on the Food Traceability List.

The EU’s Corporate Sustainability Due Diligence Directive (CSDDD)

Requires companies to end or mitigate environmental and human rights abuses in their supply chains. These include slavery, child labor, labor exploitation, biodiversity loss, pollution or destruction of natural heritage.

• When does CSDDD go into effect? Each EU member state has until 2026 to turn the directive into national law. The directive will apply to companies in 2027, beginning with the largest companies.

• Risks for non-compliance Civil liability, damages to victims and financial penalties, such as fines of up to 5 percent of a company’s net worldwide turnover.

Carbon Border Adjustment Mechanism (CBAM)

Puts a carbon price on imports to ensure that the imported carbon price is comparable to the domestically produced carbon price. This EU trade policy is intended to level the playing field for domestic industries and promote global climate action.

• When does CBAM go into effect? The transitional phase began in 2023 and goes until 2025, with 2026 being mandatory.

• Who does it apply to? Imports of certain goods, such as cement, iron and steel, aluminum, fertilizers, electricity and hydrogen

The EU Forced Labour Regulation

Similar to the Uyghur Forced Labour Prevention Act (UFLPA) in the US, the sale, import and export of products made using forced labor will be banned in the EU.

• What’s next? EU countries have three years to start applying the law.

• Canada passed a similar ban, which came into effect on January 1, 2024, and is taking steps to introduce stricter border measures to restrict goods allegedly made of forced or child labor from entering the country.

Cybersecurity Threats in Logistics

With increasing reliance on digital tools between buyer and supplier, the threat of cyberattacks on shipping logistics and supply chains is rising. Vulnerabilities in suppliers’ systems can lead to data breaches, major disruptions or stolen goods. Hitting a critical link in the supply chain, such as digital infrastructure providers, has raised concerns about potential major disruptions to global logistics.

Cargo policies do not cover cyber-related disruptions, data loss or recovery costs caused by a supplier being attacked and represent a major vulnerability and uninsured exposure for companies today.

Notable cyber losses in 2024

Blue Yonder, a supply chain software provider, experienced a software hack in November 2024 that impacted major supermarkets and suppliers, including Sainsbury’s and Morrisons. For some customers, the hack caused outages for demand forecasting and replenishment, particularly affecting the supply of fresh produce and chilled foods.

CrowdStrike caused a global IT outage that affected 8.5 million machines, costing Fortune 500 companies $5.4 billion in losses. Because of the outage, many companies experienced delayed shipments, disrupted production schedules, and lost access to essential systems, such as inventory and shipment tracking.

Could there be an increase in AI-generated attacks?

Supply chain cyber attacks increased by 431% between 2021 and 2023.

90% of risk managers agree that scams and fraud attempts using AI have become more sophisticated.

Rising Industry Consolidation

Ongoing consolidation in the insurance industry is changing market dynamics, impacting policy terms and coverage availability for businesses managing supply chain risks.

Within the wholesale insurance market, the brokerage business is about 95% consolidated.

Binding Authority/Coverholder business is about 50% consolidated.

Are companies getting the best the market has to offer?

As retail brokers increased their reliance on wholesale brokers, the wholesale brokers moved to consolidate and more effectively control business flows. Where retail and wholesale brokers have common ownership, this can restrict choice.

The disappearance of smaller, local firms also comes at a cost. Local buyers are more important to local brokers, who will offer a personalized service and better understand the nuances of local needs.

Can a fragmented landscape become whole?

Modern supply chain management requires elements of coverage that are spread across different traditional insurance markets and not confined to marine cargo, potentially leaving insureds with gaps in coverage. This raises an important question: can insurers shift from siloed policies to integrated solutions that mirror the complexities of modern supply chains? Insurers that embrace this shift will bridge critical coverage gaps, creating a more complete and resilient approach to supply chain insurance.

Trends that will shape the cargo insurance landscape in 2025

Cyber Shift: From Exclusion to Comprehensive Protection

What’s Out?

Cyber Coverage Exclusions

The widespread adoption of the LMA 5403 Marine Cyber Endorsement in cargo insurance policies since 2019 has created a significant coverage gap for cyber-related risks in maritime supply chains. This exclusion of malicious cyber events from traditional cargo policies has left shippers and logistics companies vulnerable to emerging threats. Recognizing this critical gap, forwardthinking insurers will develop innovative solutions.

As cyber threats escalate for supply chains increasingly dependent on technology, customers and insurers will also seek to clarify uncertainties and better understand what is specifically covered in their policies.

99% of risk managers believe cyber insurance is important. 68% report that their company has coverage.

What’s In?

Cyber Risk Coverage Expansion

To combat the rise in cyber threats to supply chains, insurers are likely to expand cyber risk coverage and develop solutions that enhance resilience. This will include more comprehensive policies to help prevent and recover from cyber incidents, such as coverage from downstream cyber disruptions from suppliers and coverage beyond physical damage. The hitch: this is likely to come with additional rate as price adequacy by insurers increasingly becomes a concern.

Stricter minimum requirements

To respond to challenges, insurers will likely demand more stringent security measures and require minimum prerequisites before binding coverage, including conducting risk assessments and prioritizing any vulnerabilities.

More collaboration across the board

There will also be increased collaboration between insurers, businesses, security experts and technology companies. Partnerships between these parties will allow insurers to better understand the risks at hand and identify opportunities for customers to implement better risk management practices.

Beyond the Hype: AI and Automation

What’s Out?

AI as a panacea

As the insurance industry continues to grasp the potential of AI throughout its operations, it will need to grapple with the prerequisite of data quality, structure and system integration. Until data and infrastructure can be updated, AI investments will be handicapped and likely favor lines outside of specialty before cargo and supply chain receive attention.

What’s In?

Increased Automation and Efficiency

The few insurers with high data quality and proper structures and system integrations will reap real rewards from AI. AI, automation and IoT will continue to streamline operations such as claims processing, risk assessment, policy issuing and quoting, improving overall efficiency and customer experience.

Have you met Chauncey?

Chauncey is Parsyl’s secure internal AI assistant, responsible for automating administrative tasks for Parsyl’s insurance operations and parsing data into our risk analytics tools, creating efficiencies for our expert underwriters and operations teams.

Chauncey never loses his cell phone or computer.

Chauncey’s data management ensures an exceptional level of security, surpassing that of a typical employee.

100% of submissions run through Chauncey.

Human in the loop: Submissions are always reviewed by Parsyl underwriters and our operations teams.

Chauncey programmatically gathers more data than a human would for each submission. This gives Parsyl underwriters a more holistic view of the risk and allows them to get quotes back to brokers more quickly.

Data-Driven Policies for Unique Business Needs

What’s Out?

Generic, One-Size-Fits-All Policies

Insurers using data to underwrite their policies will have an upper hand as businesses turn away from generic policies and risk rating methods that overlook their operational nuances and unique needs.

What’s In?

Data-Driven Customization of Policies

Insurers will move toward more personalized insurance solutions, using data to create dynamic pricing models, such as usage-based models, and tailor coverage to specific risks and business needs.

Benefits of data-driven, tailored policies:

• Improve risk assessment

• Reduce losses

• Improve customer satisfaction

• Foster innovation of new products and services

• Provide peace of mind

Parsyl’s partnership with Lineage

Parsyl customers who store with Lineage in the United States can see a discount on their Parsyl insurance policy. Their usage of Lineage provides a view into the risk that may be overlooked by other insurers.

Transitioning from Cost-Cutting to Collaboration

What’s Out?

Straight Risk Transfer and Cost-Reduction as the Primary Focus

With more MGAs entering the market and an increase in cargo capacity, prices will soften in 2025. However, low-cost policies will become less enticing as businesses look to their long-term sustainability. Businesses will instead partner with insurers that offer more comprehensive risk coverage and value-added services that support resilience in complex global supply chains.

What’s In?

Collaboration and Integrated Risk Management

Partnerships with technology providers and logistics companies will be key to insurers who need technology and quality data to get an accurate view of risk, both for underwriting and modeling. Through these partnerships, insurers will develop innovative risk management strategies that shift the focus from risk transfer to long-term, proactive risk mitigation and management.

Data can shine a light on the good - and the bad.

The reward: The insured’s good risk management practices are reflected in their pricing and coverage.

The incentive: The best insurers will share data-driven insights with their customers that show where improvements in their supply chain can be made to reduce risk. Customers who choose to remediate will be rewarded with better pricing and coverage.

A Parsyl customer’s cold chain monitoring data showed their fresh shipments had 66% less shelf life lost in transit, allowing Parsyl to offer the customer a discounted rate at renewal.

ESG for Long-Term Value and Resilience

What’s Out?

Surface-Level ESG Efforts & Greenwashing

Gone are the days when companies, including insurers, could appease consumers and stakeholders with surface-level ESG initiatives and greenwashing. ESG has now entered the realm of government regulation where efforts must be evidenced and documented, and non-compliance presents significant financial risk. While this is good for long-term sustainability, it introduces short-term risks that companies must take seriously.

What’s In?

Embracing Regulatory Compliance and ESG Impact

As ESG regulations become more prevalent, insurers will need to work more closely with insured customers to support compliance-related risks. This will involve more direct partnerships with supply chain assurance and risk management firms to integrate ESG and regulatory risk data into underwriting. With increased collaboration across multiple stakeholders, there will be more data sharing and new insurance product offerings designed to address supply chain risks tied to regulatory efforts.

Technology and data will transform the way the industry manages risks .

Enhanced Risk Predictions

As insurers build advanced AI and machine learning algorithms, the more data they can consume and understand, the better. Technology integrations, ranging from traditional catastrophe models to usage-based IoT and beyond, will help insurers build tools that process vast amounts of data to uncover patterns and predict risks more accurately. Insurers leading the way will shift from reactive to predictive models, allowing them to help customers mitigate risks before they escalate.

Real-Time Risk Monitoring

Cargo insurers tapping into more real-time data will lead the space as getting an ongoing view into exposure (e.g., telematics, stock values, etc.) provides access to cargo conditions, vendor and equipment performance and risk exposures. Although immediate intervention may not always be feasible, these data insights will enhance claims handling and customer support, and inform future prevention and risk management strategies.

• Parsyl’s Data Partner Program

The program allows customers to seamlessly integrate their supply chain tracking and monitoring data with Parsyl to realize immediate insurance benefits. Our program is constantly evolving with new data sources and data partners. Reach out to learn more.

Parsyl uses this data to better understand risk, reward customers who expand their use of IoT monitoring products and identify additional potential discounts upon renewal of a Parsyl insurance policy.

Bridging the Gap Between Risk and Exposure

In a world of new risks and global uncertainty, it may be tempting for insurers to pull back. Yet, these challenges present unique opportunities for insurers to fulfill their purpose: helping companies navigate change with resilience and confidence. Achieving this requires embracing new ways of working, diverse data sources and innovative partnerships— traditional methods alone will no longer suffice.

Parsyl today and our vision for 2025 and beyond

2024 was a transformative year for Parsyl.

Parsyl’s Essential Consortium doubled capacity to $55m.

We launched the Data Partner Program with leading supply chain monitoring providers.

We rebranded and expanded our mission to reflect our growth and future vision.

We welcomed new underwriting, claims and leadership talent to Parsyl, with more talent announcements to come in 2025 as Parsyl continues its growth and expansion. We expanded our risk appetite to include non-perishable commodities such as raw materials, packaged and finished goods, and technology components and equipment.

2025: A year of growth and innovation

As we near the new year, we renew our commitment to creating value for the world by understanding and reducing risk.

Technology and AI

We’ll continue building innovative technology solutions and AI models that allow our teams to quickly deliver tailored quotes and accurately settle claims.

Impact Underwriting

We will underwrite for impact, developing new products that extend to emerging perils and offer customers more comprehensive data-driven coverage for their supply chain.

The Data Partner Program

Because data is essential to our underwriting operations, we will continue enhancing our Data Partner Program through new integrations and incentives that allow for frictionless application of existing data for insurance benefits.

As the risk landscape evolves in 2025, Parsyl will continue to innovate and adapt in order to support our clients with the best solutions to navigate their complex supply chains.

¹NOAA National Centers for Environmental Information (NCEI) U.S. Billion-Dollar Weather and Climate Disasters (2024). https://www.ncei.noaa.gov/access/billions/

²MunichRe. Severe thunderstorms and flooding drive natural disaster losses in the first half of 2024 (July 31, 2024). https://www.munichre.com/en/company/media-relations/media-information-and-corporate-news/ media-information/2024/natural-disaster-figures-first-half-2024.html#:~:text=In%20the%20first%20six%20 months,US$%204.1bn%2C%20respectively

³Aon. Q3 Global Catastrophe Recap (October 2024). https://assets.aon.com/-/media/files/aon/reports/2024/ aon-q3-2024-global-catastrophe-recap.pdf

⁴Insurance Insider. Marine war market remains strained as detainment losses loom (October 29, 2024).

U.S. Food and Drug Administration. FSMA Final Rule on Requirements for Additional Traceability Records for Certain Foods (September 12, 2024). https://www.fda.gov/food/food-safety-modernization-act-fsma/fsmafinal-rule-requirements-additional-traceability-records-certain-foods

Reuters. EU Parliament approves ban of products made with forced labour (April 23, 2024). https://www. reuters.com/world/europe/eu-parliament-approves-ban-products-made-with-forced-labour-2024-04-23/

McMillan. Canada Proposes European Commission. Carbon Border Adjustment Mechanism (November 4, 2024). https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en Stricter Supply Chain Requirements to Tackle Forced and Child Labour (October 30, 2024). https://mcmillan.ca/insights/canadaproposes-stricter-supply-chain-requirements-to-tackle-forced-and-child-labour/

Fortune. CrowdStrike outage will cost Fortune 500 companies $5.4 billion in damages (August 3, 2024). https:// fortune.com/2024/08/03/crowdstrike-outage-fortune-500-companies-5-4-billion-damages-uninsuredlosses/

Nationwide. AI Cyberattacks Fuel Growing Concerns, but 32% of Corporations Still Lack Insurance (October 23, 2024). https://news.nationwide.com/ai-cyberattacks-growing-concerns-corporations-lackinsurance/#:~:text=Risk%20managers%20identified%20their%20biggest,it%20recommended%20by%20their%20broker.

Insurance Journal. The Wholesale Insurance Evolution: From Consolidation to Innovation (September 16, 2024). https://www.insurancejournal.com/magazines/mag-features/2024/09/16/792477.htm