The International Union of Marine Insurance (IUMI) provided an update on trends in marine risks and insurance over 2020, many of which relate to tankers.
Covid drove many changes in risk patterns over 2020. Most will be short term anomalies. The challenge is working out which of them may be permanent changes, said Phil Graham, chair of IUMI’s facts and figures committee, and head of marine with Chaucer, an insurance underwriting group.
In the cruise sector, Covid led to big changes in how vessels are operated, with vessels in lay-up having a very different loss and risk profile, he said.
In the tanker sector, many vessels saw a change in use from transporting oil to storing oil, through a combination of COVID, and changes in oil supply. This changes the risk patterns, he said.
The consequent low oil price caused changes in people’s navigation patterns. For example, in some cases it was more cost efficient for vessels to go around the Cape of Good Hope (South Africa), rather than go through the Suez Canal and pay canal fees. That changes the risk profile.
In 2020 there was huge volatility in tanker charter rates for various reasons, which had ramifications in the insurance industry, in particular on the valuations of vessels for insurance purposes. “Earnings sky rocketed, sank, skyrocketed, sank,” he said.
Another issue is the war insurance premiums, with piracy attacks and other war risks, particularly East Africa and the Middle East. “That has undoubtedly affected tanker operations,” he said. “There's been some noteworthy attacks, and responses from the insurance market in premiums.”
On the technology side, insurers are increasingly working with “relational data” and analytics about how vessels are being operated in order to assess risks, rather than just looking at the vessel’s physical characteristics. Two companies supplying such data to the insurance sector are Concirrus and Windward, he said.
Climate change
Marine insurers are increasingly looking at climate change, in terms of how it changes the risks of operating vessels.
We may already be seeing the impact of climate change in the number of containers which fall off ships, said Isobel Therrien, chairperson of IUMI’s cargo committee.
Typically 1400 containers are lost a year at sea, but in the first 6 weeks of 2021, already 2500 containers had been lost, Ms Therrien said.
It may be possible to fix the problem with a more robust method of attaching containers to ships. The current system, with “turn buckles” connecting one box to the box above, and “lashing rods” connecting a container to the deck of a ship, may not be strong enough for a tower of containers 10-12 high, she said.
“There's all sorts of forces that create a momentum on this stack of containers. That momentum can cause containers to fall overboard or collapse on themselves.”
Climate change is “already impacting on frequency and severity of claims,” she said, such as from wind storms and coastal flooding.
Climate change also affects risks in another way, because of low carbon fuels which companies are adopting, which bring different risks with them, she said. A move “to implement strict sustainability policies is likely to change the risk environment.”
“The marine insurance sector is , if anything, disproportionately affected by climate issues, wind storms, storm surge, tsunamis, rise in sea levels,” said Richard Turner, IUMI president.
Some individual insurance companies are also signing up to Environmental / Social / Governance (ESG) initiatives, perhaps with the encouragement of their own investors.
“The IUMI membership agreed IUMI should be more active and work to raise awareness of issues,” said Anneke Kooiman, an executive committee member with a focus on ESG issues.
Cybersecurity
Cybersecurity is “an enormous question” for marine insurers, said Philip Graham, chair of IUMI’s facts and figures committee.
The insurance market is “developing some bespoke solutions to marine cyber security,” he said.
Everybody is aware of the attacks on Maersk Line, and the hack on CMA CGM is also widely known, even though both these attacks were on information systems used for container bookings, which are very different and arguably far more business critical than the software used by tanker operators for managing vessels.
Lars Lange, secretary general of IUMI, notes that cybersecurity is a “moving target that is permanently developing.”
“We've seen in the past a number of exclusion classes,” he said. (An ‘exclusion’ is where the insurance policy states that it will not pay if a certain risk occurs).
“This may change once we have understood what this is about. We may see some insurance solutions.”
“It does impact on the claims side. And not necessarily every cyber claim is reported as a cyber claim to the insurance industry.”
IUMI was involved in putting together BIMCO’s “Guidelines on Cyber Security Onboard Ships”, as one of a number of core authors, with a particular involvement in a chapter on insurance.
There is perhaps still an open question of how big a concern cybersecurity actually is. IUMI issues a “Global Maritime Issues Monitor” every year, in collaboration with insurers Marsh and Global Maritime Forum, based on a survey of shipowners and shippers around the world, to ask what they perceive as the biggest risks.
In the 2020 report, cyber attacks were ranked by respondents as 9th in issues in terms of potential impact, and 5th in terms of the likelihood of it happening, Mr Graham said.
Companies are ranking it lower in impact and likelihood than issues like the global economic situation, environmental regulation, geopolitical tensions, and “things like AI”.
Ports
Less relevant to tanker insurance, but perhaps of peripheral relevance, is that the insurance sector is paying more attention to risks at ports and terminals.
There have been two major port explosions in recent years. There was a series of explosions at Port of Tianjin, China, in August 2015, where 173 people were killed and hundreds injured, at a container storage station. It was initially due to an overheated container of dry nitrocellulose. One explosion involved the detonation of about 800 tonnes of ammonium nitrate (approx. 256 tonnes TNT equivalent).
In August 2020, there was a big port explosion in Beirut, due to the ignition of ammonia nitrate which was being stored at the port. This caused 204 deaths and 7500 injuries.
The insurance industry is urging terminal operators to pay attention to how they manage storage of dangerous goods, Ms Therrien said.
Another trend in 2020 was the growth in the “social justice movement”, such as the Black Lives Matter protests, with civil unrest targeting some retail locations in cities. There are concerns this could extend to ports, she said.
Marine insurers arrange SRC (Safety, Rehabilitation and Compensation) Coverage, which can cover loss or damage by strikers, riots of various kinds. In the marine world, this can cover riots at ports.