The Marine Insurer. Issue 9. March 2022 by cannonevents

ISSUE 9

| MARCH 2022

The Marine Insurer N AV I G AT I N G N E W S & A N A LYS I S IN THE MARINE MARKETS

e c n a r u s n on n I do iti e in Lon l Ed r a ia M c e p S

London market set to stay on top

Vessel seizure How and why can vessels be seized l

Social inflation: The rising costs of personal injuries

Carrying coal: l Digitalisation l Superyachts: The challenges of a Technology advances A new approach to dangerous cargo bring increased risk risk management l

Americas

3 May 2022

Building on the success of the first Marine Insurance Americas event in 2021, we are excited to be back with an in-person event in New York for 2022. Marine Insurance Americas will bring together brokers, insurers, risk managers, claims experts and those who service the industry to discuss the latest issues affecting the Americas Marine Insurance market. Key Topics Include: Global Supply Chain Issues � Geopolitics � Skyrocketing Claims Costs Weather-Related Events � Making Insurtech Work � Alternative Fuels Maritime Law Developments � Challenges in the Cargo Market � Aging Fleets and Much More! Join us and your industry colleagues at this important event that will also afford you some excellent and long-overdue targeted networking opportunities. SPONSORS: New York | Houston | Miami | Athens | Cyprus

GLOBAL PARTNERS:

www.marineinsuranceamericas.com

CONTENTS | EDITORIAL

Comment

Highlights MARINE INSURANCE LONDON SPECIAL EDITION 14 Sanctions

The methods used to avoid detection of sanction-breaching are becoming more sophisticated

16 Seizure of vessels 04 The future is here

The London market response to the pandemic augurs well for the future

06 The rise and rise of the MGA How the MGA model has a bright future in the London marine insurance market

08 London still matters

The continued success of London depends on future investment in people and expertise

10 Beware of bargains

Why a marine policy issued by the London market is money well spent

Explaining the complex international law surrounding vessel seizure

19 Digital risk

A structured approach to cyber risk can enhance the benefits of digitalisation

22 The broker’s future

The acceleration of digitisation and its impact on the insurance brokers role

24 Innovation

Developing new cover for the Marine Autonomous Surface Ships (MASS) market and Offshore Wind sector

26 Decarbonisation

Maritime insurance: How we can help ensure a green future?

12 Mega vessels

Rapid growth in containership size has brought concerns for the industry

FE ATURES 28 Cargo transportation

The rise of the rational underwriter

30 Inland marine law

The important insurance implications of a complex series of allisions

44 Sustainability

Why sustainability is central to the future of the P&I and wider insurance and maritime sector

46 Superyachts

Success in the booming yacht and superyacht market has to be based 34 Cargo claims Supreme Court makes key decision in cargo on good risk management claims case

50 Turkish Straits

38 Offshore windfarms

A broad overview of offshore wind farms, their history, and main insurance products

When running into engine problems in the Turkish Straits immediate salvage assistance is not always the solution

41 Social inflation: fact or fiction 52 Safe carriage of coal Is social inflation is really driving claims trends?

How to safely transport coal in a marine context

Uncertain time ahead for the global marine market AS I sit down to write this, the situation in Ukraine is far from certain. The port of Mariupol has been under attack for days and now reports are coming in that Odesa is also facing Russian invasion. One Bangladeshi seaman has lost his life and three ships have been hit. All of this has happened so fast and after we asked our authors to pen their pieces for this issue of The Marine Insurer – a sign of how quickly the world can change. That is something that insurers are very used to. For hundreds of years, they and their clients have faced enormous pressure in the face of global shifts. London has been the centre of that since back in the days of the coffee house. In this issue, we explore the opportunities and the challenges facing the London market and how, at its heart, the promise to look after its clients has never changed. But now more than ever, that promise to be there when their clients need them most, is a cherished one. Clients need the certainty and peace of mind that insurance brings but they also need a flexible and evolving insurance market that will be ready to meet new challenges. As we explore in this issue, that adaptation ranges from embracing new technology, other innovation and also in delivering a steady and sustained service to clients. We report on offshore wind farms that may well transform demand for marine insurance in new markets and also take a look at the general state of the marine insurance sector. And, inevitably, we look at sustainability and how this will impact the marine insurance business going forward. Through the past two years of the Covid-9 pandemic, which sadly has yet to go away, and now with the Ukraine crisis, it has sometimes been hard to remember the other threats that threaten to engulf us all, with climate change at the very top of that list. But it is all part of the insurer’s job to keep these longterm risks at front of mind, not just internally but for their clients too, working with brokers and others in the support services to deliver the right insurance products to the right clients.

Liz Booth Editor, The Marine Insurer Editor Liz Booth liz@lizbooth.co.uk Assistant Editor Adrian Ladbury ladburya@gmail.com Art Editor Rob Crotty rob@greenlightpartners.co.uk

Commercial Director Daniel Creasey daniel@cannonevents.com tel: +44 07702 835831 Publishing Director Grant Attwell grant@cannonevents.com tel: +44 07905 933252

Published by Cannon Events and Publications © Cannon Events Limited 2022 Pictures: Adobe Stock

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The Marine Insurer | March 2022

LONDON MARINE | Opinion In association with Ed Broking

Patrick Jordan, Ed Broking, head of marine, says that the ability of the London market to respond to the huge personal and corporate challenges presented by the pandemic augurs well for the future of the historic hub of the international marine insurance market How many psychologists does it take to change a light bulb? Only one, but the light bulb’s REALLY got to want to change… Two years ago, we were all trotting merrily along doing our jobs in a fashion which was the product of 300 years of evolution. The dress code was largely original, and contracts were still bound using stamp, ink and scratch, meaning that they were using real live underwriting. The building that we used was iconic and considered central to the ability to transact. That said, there were indications that some ‘updating’ was occurring. On the small scale - ties in Lloyd’s had been made optional after one particularly hot summer, queues at boxes were longer as underwriting hours seemed to be more compressed, and one syndicate had shown thought leadership by putting a fridge stocked with soft drinks into the area where brokers waited. On the larger scale, - Lloyd’s was trying to enforce the uptake of electronic trading and was seeking to redefine what the underwriting process could encapsulate. Looking back, it has to be acknowledged that attention within the underwriting and broking community seemed sporadic at best. Then – in the form of a global pandemic – the very essence of our market was challenged. No longer could we see our clients face-to-face. Perhaps more importantly, no longer could we discuss the needs of our clients face-to-face.

SOOTHING OIL We couldn’t pour the soothing oil of a pleasant lunch or after work chat on the troubled waters of difficult negotiations. No social element remained, everything was distanced to handset, keyboard, mouse and screen. It appeared that the complicated in-person representations and negotiations which underpin the foundations of complex risk as it is placed in London would become so cumbersome that efficiency would depart, taking buyers along with it. Yet here we are, in 2022, still going. In an enhanced fashion. We’re blessed with an industry which requires no heavy manufacturing, has efficient electronic distribution lines, has been sufficiently regulated so as to ensure the product engenders trust within the general public and is still relevant to other businesses. Despite significant concerns to the contrary, the fact that The Marine Insurer | March 2022

The future is here we could no longer gather in crowds within rooms to perform our paid duties proved to be less essential than was always thought. Suddenly - almost overnight - the impact of advances in digital business practice since the turn of the century came into sharp focus. The ability to be mobile in work – indeed, to actually work consistently from home – was there for the majority of us. The systems in place to allow contract certainty meant the client could still obtain the same product via the same channels with the same confidence as before.

BEATING HEART

Systems. They are the beating heart and pulsing arteries of our existence in so many ways. Every industry and part of life has them and without them we all fall down. Our ability to continue to function properly owes so much to such things as electronic filing, data capture, digital clause libraries, password-protected sensitive information, slips and certificates templated and stored for ease of amendment and dispersion. Placing Platform Limited, TradEd, WhiteSpace, Cascade, Concur, PowerBI (and many other such names) are now all daily drivers. How fortunate we were not to have to start from scratch! How quickly we came to appreciate that some form of the future really had been seen by those who had devoted themselves to market digital interface structures. There’s another system which stood the test and made this world keep turning. I must add a personal thank you to each client, underwriter and colleague who answered when I called or responded when I emailed. The greater the complexity of any situation the more

LONDON MARINE | Opinion In association with Ed Broking

“We’re blessed with an industry which requires no heavy manufacturing, has efficient electronic distribution lines, has been sufficiently regulated so as to ensure the product engenders trust within the general public, and is still relevant to other businesses.’’ Patrick Jordan, Ed Broking communication is required and the personal relationship element of what we do cannot be underestimated and must not be underappreciated.

NOW WHAT?

And now what? The signs are that lockdowns and extended periods of working from home are no longer the basic experience. Most of us are back on trains and in offices (for most if not all of the traditional five days) and while we cannot say that other Covid variants won’t evolve or other viruses won’t emerge, we seem to have come to terms with life in this petri dish and are determined to press on. In amongst all that, we in the UK have undergone an exit from Europe which has thrown hurdles up with business transactions that were previously mundane. Confusion in the first quarter of 2021 was significant in some areas but pragmatism has generally won through and solutions have been found.

THE FUTURE IS HERE AND IT LOOKS BRIGHT

While there are many factors which have enabled us to reach this point in good health, the fact that every single industry participant was affected at the same time is what created the environment for everyone to engage with the same issues in united fashion. This is a very unusual situation (normally it requires war- like conflict, which perhaps this was), and we have seen how valuable it can be for the collective health when all parts of the body mutually react.

FORGED RELATIONSHIPS

We’ve learned that relationships forged in the fire of daily

commerce stand the test of time and distance. We’ve learned that colleagues support each other even when it’s impossible to meet for a chat in the kitchen area. We’ve learned that the systems which pump the oxygen around our industry can get the job done satisfactorily. We’ve seen that those at the beginnings of their careers within it can grasp the technology without demur and can use a phone to talk about business. We’ve seen that work doesn’t have to involve five days a week in the office and that there are times when it can be right to prioritise those closest to us over the latest email which just arrived. We’ve learned that a daily walk just for the pleasure of being outside can make a real difference to productivity. We’ve had it confirmed that this is an industry to have confidence in and that as the current custodians of it we have the responsibility to engage with how to shape it for the years ahead. This will involve further development of electronic trading. That is the colour and taste of what is ahead of us and we must grasp it and support those who will move it forward. Algorithmic engagement will grow and we must shape it to the best needs and purposes. Office environments will become more fluid and we must push along with the current. Organisational structures will adapt to environmental and societal changes and must wrap themselves around the new patterns to ensure the best outcomes. If we can carry forward with us the fortitude to endure difficult situations, along with the willingness to address them and the agility to adapt, survive and improve, then we will continue to serve our clients in just the same meaningful way. The Marine Insurer | March 2022

LONDON MARINE | The MGA model In association with Falvey Insurance Group

The rise and rise of the MGA

Megan Bell, Director of Marketing, London MGA Falvey Insurance Company describes how the company’s growth and success has shown that the MGA model works and has a bright future in the marine insurance market From the humble beginnings of Falvey Cargo Underwriting as a managing general agent (MGA) 25 plus years ago, to its evolution into Falvey Insurance Group as it stands today, we have witnessed the transformation in attitudes and perception of the MGA.

THEN…

In the early days, there were far less insurance binders in the marine insurance market. The opportunity was more common for general, property & casualty property risks. The way of conducting business was also much different. Business came to the Box, no one was marketing themselves – this was a new concept. The Marine Insurer | March 2022

There was nearly no mention of positioning oneself for growth and winning business. A Lloyd’s underwriter once told someone at Falvey, “You mean you actually go out and sell!?” MGAs were merely seen as an alternative distribution channel.

NOW…

The perception of MGAs has improved in time as a result of their ability to adapt to the ever-changing needs of customers and more importantly perform, for the betterment of capital providers. While insurance companies change their interest and strategies, MGAs offer stability to the market by their ability to interchange the insurance companies that back them. This allows the MGA to survive through various cycles of the insurance market. Additionally, MGAs are a great platform for developing digital processes and new technologies. These are particularly well received in today’s market of providing a winning customer experience. MGAs that invest in technology offer a solutions-focused advantage to some of the common challenges they face in cost, administration, and resources. Today, MGAs are developing, or are partnering with third parties, to offer solutions for claims management, self-service payment, customer service, and more.

LONDON MARINE | The MGA model In association with Falvey Insurance Group

THE FALVEY MODEL

details back to our supporting syndicates on the impact to the business. In the case of Falvey, our MGA Above all else, Falvey has upheld its established a significant Mission Statement to make a profit presence in a niche market. An MGA “MGAs are a great platform for for our underwriters. that is a specialist in its field knows the Falvey is an entity constantly ins and outs and is a valuable contact developing digital processes and new working towards improvement to that can be trusted to understand the ensure the best possible experience risks and set premiums accordingly. technologies. These are particularly well for our customers and valued This type of specialisation offers partners. Our underwriting service underwriters the opportunity to enter received in today’s market of providing and product innovation work a space without the need for significant together, positioning our MGA to be infrastructure. By already having a winning customer experience. MGAs the best in the market. experience, processes, systems licenses, and staff for a particular class that invest in technology offer a of business, they offer insurers the STABILITY ability to try different products in solutions-focused advantage to some Our underwriting results speak for different regions without taking on the themselves. Falvey has demonstrated investment themselves. underwriting stability, profit to our of the common challenges they face in Falvey has also made significant partners, and increased gross written investment in technology and innovapremium for the past 10 years – all cost, administration, and resources.’’ tion. Our proprietary technology has despite turbulent market conditions. afforded us a place in the forefront of Product innovation includes an Megan Bell, the market by delivering state-of-theoverhaul of Falvey Systems, that Falvey Insurance Group art systems that have vastly improved serves as the internal and external efficiency. interface for all underwriting data. Proprietary software automates every aspect of the quote, Last updated in 2016, the system is now much more robust, bind, issue, claims/recovery, invoicing, loss control phase. This efficient and intuitive. It also integrates with DOMO, is done all in real time, all in one system, with the ability to bringing valuable data insights to our staff and clients. share information on a hierarchal basis internally and Falvey Shippers Insurance, a division of FIG, offers transacexternally with brokers, carriers and reinsurers. This makes tional shippers interest insurance via API. The API allows for the business transparent to all parties involved, while a one-click to access a certificate of insurance for requiring less administrative help to process. high-volume shippers. This product has become the The system helps track portfolio profitability with industry-leading integrated, gateway, and batch reporting customizable reports and gives the ability to drill down to solution. In 2020, they will have handled more than 500,000 individual vessel type/commodity, brokerage firm/individual transactions. broker, line of business, or by individual underwriter. Claims intake innovation allows customers to file claims within minutes, by answering a short series of questions. The new process is the first of its kind in the cargo insurance FASTER PAYOUT market. Most recently, the online claims filing process was Moving into the new decade, FIG continues to deliver our overhauled. Customers can now file a claim in under 10 assureds, brokers, and security partners our promise of minutes by answering a series of guided questions. The new service and results. process reduces back and forth between Falvey and the customer and accesses more upfront information, which leads to quicker turnaround time and faster payout. LOOKING AHEAD The biggest innovation uses API technology to fully The perception of the MGA has evolved and will continue to integrate with our customers to get real-time information evolve to maintain growth. The most successful MGAs are from their systems and issue instant certificates for coverage. integrated and can provide a multitude of solutions Falvey has embarked on an amazing use of analytics relevant to underwriting. incorporating live information on the Covid-19 outbreak, There are other external factors that will affect the overlaying with underwriting data. This provides a “Covid evolvement of MGAs, especially considering the Risk Index” on all accounts which allows our underwriters to current conditions of the impacts of COVID-19, the “Great proactively reach out to accounts, and help the underwriter Resignation” and the ability to find and retain talent, the frequent make decisions. With this information, Falvey can report entrants of new InsurTech into the market and more. The Marine Insurer | March 2022

LONDON MARINE | London’s Future In association with Ince

London still matters Julian Clark, Global Senior Partner at Ince, and Tony McDonach, (below) of leading maritime insurance law firm Ince, explains why the London market remains the pre-eminent hub for the global maritime insurance market. To maintain that position the market needs to continue to invest in the people and expertise that have served it so well through the years There is a perception that London is facing increasing pressure from overseas maritime insurance markets including Singapore, Hong Kong and Dubai, as well as the more established markets of Scandinavia, Europe, and the US. However, the reality is that each of these alternatives are not completely separate markets. The London market maintains a strong presence in these international markets and operates as a true worldwide market with different outposts. While its competitors may argue they have a track record in some areas of coverage, London remains the real base of excellence for all lines of business, especially complex risks. The London market has already weathered a number of the hard decisions on regulation and the proper pricing of their products. Significant amount of capital is still flowing into London. Assurance confidence is high, returns on investment are good, and secure. Investors know that underwriting in London is going to be well-managed and provided on reasonable terms.

GREAT MINDS

The lead underwriters on any risk need to be true leaders in their field, just like their broking, claims and loss adjusting counterparts. Customer’s claims experience remains extremely important and a key driver when assureds and their brokers are going through a selection process. The need to ensure that claims are fairly considered and speed of settlement are equally key factors in the decision making process. This is an area where the service provided by the London market The Marine Insurer | March 2022

has vastly improved. From top to bottom, everywhere in the process, London provides a number of the best insurance minds in the world. These professionals are the brains trust of the insurance world and the London market’s human capital. Very high levels of professionalism in all aspects of the market decrease the likelihood of disputes. But, if things do go wrong and the usual commercial processes fail, London has the additional advantage of a pre-eminent legal industry which has been closely aligned to the marine and insurance worlds for hundreds of years. It is of course also a trusted and efficient legal system which is why it remains the predominant venue for determination of disputes whether through the court system or arbitration where the LMAA (London Market Arbitrators Association) is an organisation synonymous with quality and excellence. The UK’s maritime tradition has also meant that all of the insurance-related industries have benefited from the flow of experts of all kinds moving from the shipping to the insurance industry. For example if you’re trying to insure a heavy lift vessel or specialist operation, assureds are given comfort from knowing that the people underwriting the subject matter and managing the claims process can actually comprehend and articulate the risks that the assured is facing. Having said all of the above it has to be acknowledged that the competing markets are not without their own strengths. The onestop shop approach adopted by some of the non-London providers can be highly attractive to potential buyers. For example, insurance is packaged and sold well in Scandinavia bringing convenience and in some cases reducing cost. But, the fact

LONDON MARINE | London’s Future In association with Ince

that the expertise is often maintained in-house arguably removes objectivity, independence, and transparency. Overall, with all the competing markets one might argue that there are gaps in the offering while the London market provides a product which is comprehensive.

MARKET RESILIENCE

Despite the disruption to in-person interaction, the London market has adapted well to the COVID-19 pandemic. This should not be a surprise. London has historically adapted well to crises. Following the decisions which led to a number of countries making it a mandatory requirement that locals insured with national companies London adapted its previous preeminence in direct insurance in order to expand into becoming an internationally recognised centre for reinsurance. Further examples of how the London market has been able to meet the challenge of change and innovation can be seen by the way in which it reacted to the rise of containerisation, and the then-new oil and gas market in the 1960s and 1970s by developing new insurance products. London has always been mindful of innovation. It has adapted and evolved, identifying the new directions the industries that it insures are taking and responding quickly to develop appropriate products. This is particularly relevant today where the development of technology and the challenges it brings, together with the focus on ESG (environment, social, governance) will create huge challenges and require innovative insurance solutions. The rising need for cyber protection is an obvious current example. Where once cover had to be purchased separately to other risks, such as business interruption or property damage, more sophisticated, comprehensive packages are now available to ensure that shipping companies meet their own unique needs as well as regulatory requirements. These far-ranging policies can include the costs of crisis and reputation management, forensics and extortion. The Allianz Risk Barometer 2022 lists cyber, business interruption and natural disasters as the top three business risks globally in 2022 and the London Market continues to meet demand by offering market leading cover for new and emerging risks – the market placement process playing to its strengths in this area as new trends emerge. The market has been pro-active here by its rapid adoption of technology and expansion of talent into the market from other expertise bases such as data scientists and engineers. The last decade of soft markets for hull and machinery has created a particular challenge for the sector. Too much capital led to a loss of underwriting discipline and ultimately an increase in expense ratios which significantly reduced underwriters’ profitability. However, Lloyd’s 2018 Decile 10 initiative has been effective at improving the overall performance of Lloyd’s syndicates, a sensible response to market conditions that is now hardening the market, and created a stable foundation for a sustainable future. We have moved away from just writing for capacity, and London has the necessary expertise to write these larger risks. The consequences for the market of the grounding of the Ever Given in the Suez Canal last year will no doubt test this capability. The ship, grounded for six days, blocked the passage of nearly 400

ships and prevented an estimated US$10bn in trade. As Fitch Ratings reported, the incident will reduce global reinsurers’ earnings, at a time when they have already taken hits from natural disasters and the pandemic. How do London’s underwriters deal with the challenges? In the same way that they always have, by recognising that they have been here before, have the experience and that this is all part of the cyclic nature of the marine insurance industry. London has survived and innovated before and will continue to do so.

FRAGILE FUTURE

Why then do some commentators say that London’s future is not assured? Well there are several reasons for making this statement. The market is just coming out of the hard medicine of Decile 10 and the regulators’ intervention. It also has had to move beyond a dwindling pool of domestic sea-going expertise and maintain that expertise by reaching out to the wider world. In our experience, the one past mistake that it should not repeat is to lose sight of one of its core strengths: the high quality of its people. It should avoid the periodic culls of senior people which takes knowledge out of the market and which can take five to ten years to catch back up after that. Ince is a firm whose heritage was built on the foundation of marine insurance. From the work of founding partner Francis Ince, to the greatly missed Donald O’May and his development of innovative insurance solutions and the creation of new insurance law when handing the Spanish Civil War prize cases, Ince always been a firm at the forefront of market challenges, working with the market to guide their passage through troubled water. Today, Ince continues with that strong tradition, future-proofing new technology and digital solutions while at the same time assisting both underwriters and brokers to address the issues identified above. As we said of the market as a whole, “We’ve been here before and understand the industry’s various cycles”. Similarly for us too our human capital is our biggest strength. We continue to attract the very best of legal talent as identified by the recent appointment of Jennette Newman as Global Head of Insurance. We remain committed to supporting the market in whatever way we can. Remember, London’s unique selling point is consistent quality. Let’s keep it that way.

“London has always been mindful of innovation. It has adapted and evolved, identifying the new directions the industries that it insures are taking and responding quickly to develop appropriate products.’’

The Marine Insurer | March 2022

LONDON MARINE | London’s Edge In association with Hiscox

Jenna Hales, Marine, Energy and Specialty Claims Manager at Hiscox London Market, explains why a marine policy issued by the London market is money well spent for shipowners

Beware of bargains Insurance is nothing more than a promise to pay, which is only tested when a problem occurs. That is when you find out what you’ve really bought. Even if your insurer has every intention of honouring its commitment, if it doesn’t have the resources – both in intellectual and financial capital – to do so quickly. Then the accumulated fees and delays incurred by a vessel’s operator could make the premium saving meaningless in the final outcome. There are no simple problems when you are dealing with something as complex as an offshore oil rig or an ocean-going vessel. The quality of the claims service provided by the London market is often taken for granted. But, when there is a problem, it can step in incredibly quickly, either taking control of the situation or offering the ship owner constant advice and assistance from the wings. Not every international insurer is as responsive or as flexible.

DELAYS CREATE COSTS

Take a fairly run of the mill incident, for example, like a collision between two vessels. The owners must put up The Marine Insurer | March 2022

collateral to release their ships, and obviously the sooner that is put up, the quicker the ship can be released and carry on with its voyage. A ship’s insurers will put up that collateral by way of financial security. But, what I have seen happen is that the London insurers that are on risk put up their share very quickly, whereas following insurers from emerging-markets countries often take longer to deliver their portion. In London, all insurers are rated as financially very strong, and the system we work within is set up to move money within the blink of an eye. Outside of London, certain other insurers are not only slower to respond, but, they also do not enjoy the same financial rating and must be measured separately by guarantors that put up the security on our behalf. Meanwhile the ship is idle, often racking up fees and legal costs in the process. When a problem arises that will take time to resolve, such as if the ship needs to be repaired before it can sail again, then a speedy response is again vital. As soon as it is established that the issue is covered under our policy, London market insurers will often swiftly offer the shipowner a payment on account. We’ll even make that to the shipyard directly to speed up the repair process, if necessary. Other markets do not always have that same autonomy or authority. While London market insurers have been able to quickly put hundreds of thousands, even millions of dollars up on account without the claim having been finalised, others must go through a painful process of going through their longer and slower chain of command to get the green light.

LONDON MARINE | London’s Edge In association with Hiscox

“While London Market insurers have been able to quickly put hundreds of thousands, even millions of dollars up on account without the claim having been finalised, others must go through a painful process of going through their longer and slower chain of command The Square Mile houses a cluster of some of the finest insurance minds, both underwriters and brokers as well as the best maritime lawyers, surveyors and claims adjusters, creating a centre of excellence in London that is the envy of the world.

That creates issues that are incredibly frustrating for shipowners, who just want their vessel to be back in operation as quickly as possible so that the interruption to their business is kept to a minimum.

UNIQUE MARINE ECOSYSTEM

In a business as fast moving and complex as global shipping, it is important to be ahead of the curve. The tech world has coined a phrase for the confluence of brains, money, skills, and support that makes places like San Francisco such a global centre for the industry – ecosystem. London has a unique marine ecosystem and it is one that has developed through more than 300 years. The Square Mile houses a cluster of some of the finest insurance minds, both underwriters and brokers as well as the best maritime lawyers, surveyors and claims adjusters, creating a centre of excellence in London that is the envy of the world. Then there is the Lloyd’s agency network, that comprises hundreds of agents in ports and commercial centres around the world, offering round-the-clock independent marine surveying and claims adjusting to clients. The agents are the market’s eyes and ears across the globe. They feed information on trends and problems back to London, where it is analysed and discussed by the market’s various claims and underwriting committees, along with hot topics and any issues that arise over wordings. All in all, London is a unique hub of marine knowledge within which information is constantly being shared and processed, so that shipowners are guaranteed the best possible service. If a vessel owner has a problem, no matter

to get the green light.’’ Jenna Hales, Hiscox how challenging it may seem, someone, somewhere within London will be able to come up with an answer.

WATCHDOGS WITH TEETH

The London market insurers must also show their watchdogs, from Lloyd’s up to the Prudential Regulation Authority, that they are upholding the highest standards and always treating their customers fairly. And, if a dispute were to arise, shipowners have the reassurance that it will be dealt with in the British courts, where again there’s a wealth of specialist maritime judges, solicitors, barristers, and arbitrators. They know justice will be done and that can’t be overstated enough these days. That is not to say the London Market is resting on its laurels. The cost of doing business here is more than in certain other markets around the world. There is work to be done, but there is both a will and a way to do that. It is introducing new technology and operations, so it works better, faster, and cheaper. In January 2022, Lloyd’s issued its Blueprint Two, the second roadmap on its journey to becoming a truly digital marketplace. So, what are you getting for your premium in London? A policy that has been devised by the world’s best brokers and underwriters, which comes with a best-in-class claims settlement service as well as access to a global network of technical experts. That policy is backed by top-rated financial security, policed by world-class regulators and where any disagreements are ultimately resolved in a transparent, independent legal system which is well versed in maritime disputes. That sounds like a good deal to me.

The Marine Insurer | March 2022

MARINE | Mega Container Vessels In association with AIG

Rapid growth in containership size has brought industry concerns over the accumulation of value on mega container vessels (those with capacity of more than 10,000 Transport Equivalent Units or TEU), the concentration of value flowing through a limited number of ports and along just a few routes, and the potential for major losses impacting multiple lines of business. Dr Nick Chapman, Marine Loss Control Manager UK at AIG, looks at whether these concerns are supported by existing data and what the future direction of mega container vessel growth might mean for the London marine insurance market The first containership, the Ideal X, held just 58 containers. Today’s largest mega container vessel has a capacity of 23,992 TEU and much of that growth is recent. According to the 2021 UNCTAD Review of Maritime Transport within the last ten years the number of mega container vessels grew from around 60 to more than 600, of which over 500 were 10,000-19,990 TEU. Within the last five years, 74 new ships were 20,000 TEU and above. Bigger vessels are due for delivery this year and at least another 3.9 million TEU is scheduled for delivery in 2023-24.

MORE MAJOR LOSSES?

Lloyds List Intelligence Data and IUMI Statistics for 2021 indicate that large loss frequency is down and total losses were halved in the past ten years. In addition, the number of groundings has decreased since 2010. Two separate studies spanning 2000 to 2019 found that mega container vessels had far fewer fire losses than smaller container vessels. And until recently, World Shipping Council data showed that the average number of containers lost at sea each year had been on a downward trend. Despite this encouraging picture, recent high-profile incidents have demonstrated that mega container vessels are still incurring major losses for the London market. The Ever Given grounding in the Suez Canal highlighted the fine margins for mega vessel navigation at choke points on major shipping routes, as well as the vulnerability of global supply chains to such an event. And a closer look at the above fire study data reveals that the frequency of containership fires drastically increased since 2010, with an upward trend for those occurring on mega vessels, as was seen on the Maersk Honam. In addition, in the last couple of years there have been several container-stow stack collapse incidents on mega vessels, such as the One Apus. This has contributed to a 7-year spike in the number of containers lost overboard, with 4,000 containers lost from January 2020 to April 2021 reported by Bloomberg, The Marine Insurer | March 2022

Is bigger always better? compared to an annual average of around 1,382 according to the World Shipping Council. So, are the mega containership concerns starting to be substantiated or are these recent major losses driven by something other than size? There are various narratives and theories being put forward, but the reality is to answer accurately we need better data.

THE DATA GAPS?

Efforts were made in 2018 through Lloyd’s and the Cambridge Centre for Risk Studies to adjust the modelling of marine exposure for mega vessel losses and the industry must now update its expected loss scenarios. In the last two years, there has been unprecedented supply chain disruption, leading to congestion and long delays at anchorage or in port. Consequently, a navigational incident (eg grounding) or natural catastrophe (eg typhoon) at a key port on the Asia-US trade lane today, affecting two mega container vessels at full capacity with a significant cargo value on board and in port, could now be a $5bn incident that the London market needs to better understand. Mis-declared dangerous goods (DG) containers have been identified as causal in several recent containership fires. As many as 57% of DG containers inspected in a US study by the National Cargo Bureau were found to have been incorrectly secured, labelled or declared. Not all of these deficiencies would necessarily give rise to a serious fire or explosion incident, but many will be at increased risk of doing so. This is especially true for the 6.5% of mis-declared DG cargoes which could be incorrectly treated as normal ‘safe’ cargo by the port or vessel. Simply having larger numbers of containers aggregated on a single mega vessel, or stored within a port awaiting such a vessel, could therefore increase the likelihood of one or more of those mis-declared containers being present and thus also a

MARINE | Mega Container Vessels In association with AIG

fire or explosion developing that puts the surrounding accumulated value at risk. So far industry efforts to tackle the issue of containership fires have largely addressed improving vessel firefighting capability, but this is increasingly difficult when it comes to the scale and size of today’s mega container vessels. The industry additionally needs focused efforts on the cargo, specifically improved understanding of the frequency and volume of mis-declared DG containers and their geographical distribution among the few ports servicing mega containerships.

follow, and new shipping routes through the Arctic are opening up. If an over-supply of capacity drives down freight rates, or if infrastructure cannot keep pace, then we could see the current economies of scale level off. And in terms of disruptors, the current shipping green revolution has the potential to impact mega container vessel performance. Focussing efforts on better understanding the tipping points for economies of scale and the likely impact of alternative fuels would both assist with more accurate emerging risk horizon scanning.

LOST OVERBOARD

FILLING THE DATA GAPS

In terms of the spike in containers lost overboard, more data is needed to answer the ‘why’ question. Bad weather, winter deep sea crossings, augmented trading pressures during substantial supply chain disruption, decreased time in port and hierarchical procedures on routing decisions, may all have played a role, but robust data is lacking. Similarly, there is also a great deal more understanding required on the role of mega vessel design and performance in different sea conditions, particularly stack heights, lashing arrangements and the effect of different types of rolling under heavy laden conditions. Of course, mega containership risks are continually changing. Mega-vessels are getting bigger, ports and infrastructure will likely

“Efforts were made in 2018 through Lloyd’s and the Cambridge Centre for Risk Studies to adjust the modelling of marine exposure for mega vessel losses, and the industry must now update its expected loss scenarios.’’

The London market is strongly placed to bring together the expertise and technology to better understand the exposures, as well as improving the ability to monitor and mitigate that exposure in real-time. Significant efforts may be needed to address all of the above gaps, but for now the industry could yield greater insight by bringing together existing data, such as: > Port navigational limit data; > Port NatCat exposure; > Real-time severe weather warnings; > AIS locations of mega container vessels; > Mega container vessel length, breadth and draft data; > Port-specific mis-declared DG container data; > Bill of lading data; and > Policy certificate system data for insured value on board ‘at risk’ vessels.

THE WAY AHEAD

Current practice suggests that bigger is better for mega container vessels, although this could change in the future if economies of scale begin to level off. Either way, a data-led approach will drive improved understanding, monitoring and mitigation of mega container vessel risks. The Marine Insurer | March 2022

LONDON MARINE | Sanctions In association with Lloyd’s List Intelligence

New tools in the fight against sanctions evasion The methods used to avoid detection of sanctions-breaching activity continue to become more sophisticated. But as these tactics evolve – and the risks of fines and reputational damage increase – so too does the technology helping marine insurers identify risks, explains Sebastian Villyn, Head of Risk & Compliance, Lloyd’s List Intelligence Know your customer. The vetting of existing and prospective customers and their vessels is becoming increasingly complex. This is a challenge faced not just by insurers but everyone transacting with maritime trade entities, throughout the complex web of shippers, cargo owners, charterers and shipowners, through to trade finance, classification societies, flag states, P&I clubs and underwriters. Marine insurance companies have fared relatively well sailing under the radar of sanction watchdogs. That said, in 2015 one US P&I club was fined a six-figure sum for providing P&I cover to North Korean vessels. In 2017 a large international insurer was fined for insuring maritime shipments destined for, or that had transited through Iran, Sudan and Cuba. These cases served as a warning to the industry. In terms of regulatory scrutiny, however, much has changed since 2017. Today, there are increased sanction programmes, more agile sanctions evaders, but also improved monitoring capabilities.

RISK-BASED APPROACH

It is not sufficient to simply look up whether a vessel or a company is sanctioned. Everyone interacting with a vessel, vessel cargo, vessel owner or charterer has been asked to adopt a riskbased approach to compliance checks. There is a need for marine insurers to interpret this guidance and quickly obtain a view of the fleet and operators The Marine Insurer | March 2022

they underwrite, to monitor high-risk area callings, sanctions and potential sanction breaches. However, don’t just take my word for it. In May 2020, the US Department of the Treasury’s Office of Foreign Assets Control (Ofac), US Department of State and the US Coast Guard issued a Sanctions Advisory for the Maritime Industry and Related Communities entitled: Guidance to Address Illicit Shipping and Sanctions Evasion Practices. Within this 35-page document, the first industry group to be given specific guidance and a call for action is marine insurance companies. Ofac’s equivalent in the UK, the Office of Financial Sanctions Implementation (Ofsi), issued corresponding guidance in December 2020 directed at the UK maritime industry. It referenced the UK marine insurance market’s large global market share and the important role the (marine) insurance industry has to play in responding to, and reporting, illicit shipping practices. While much of the advice to the maritime industry is consistent across the documents, including monitoring of ship-to-ship (STS) transfers, AIS disablement, ownership and control, and cargo falsification, it signals that insurers and others will be under scrutiny from at least four distinct regulatory bodies in the US, the UK, the European Union and the UN, and any other independent sanction regimes.

INACTION NO OPTION

Sanction and anti-money laundering (AML)-related compliance checks are not going away anytime soon. They have moved from being considered optional to a requirement, whether you are in underwriting, claims or loss prevention. The risk of contravention can lead to significant fines and reputational risks. The post-Brexit UK brings forth another unilateral sanction regime that is likely to diverge from its EU and US counterparts. The UK maintains its Sanctions and Money Laundering Act 2018, which sets the framework for unilateral sanctions, thus adding to those from the US, and from the EU bloc and the UN. The fact that the marine insurance market is dominated by companies incorporated in or operating from the UK and the US, home to the most active sanction regulators, means more insurers in these regions are expected to be held to a higher standard. Apart from the geographical market share, the pressure on the insurance market to detect and monitor sanctions-evading practices is no surprise.

LONDON MARINE | Sanctions In association with Lloyd’s List Intelligence

“It is not sufficient to simply look up whether a vessel or a company is sanctioned. Everyone interacting with a vessel, vessel cargo, vessel owner or charterer has been asked to adopt a risk-based approach to compliance checks.’’

The concern of the regulators – and rightly so – is that a vessel with an active P&I club, particularly from the International Group of P&I Clubs or other reputable insurer (much like a vessel sailing under an IACS class), is perceived as already having undergone increased scrutiny and thereby subjected to less-stringent checks by other counterparts. This is not always the case. When it comes to sanctions-evading practices, even shipping companies or operators with a strong track record for marine safety might have been involved in activity or actions that contravene the sanctions guidance, whether wittingly or unwittingly. Document forgery is also widespread and detected regularly by trade finance institutions.

NEW CAPABILITIES

Despite KYC and monitoring now taking up more time, there are several opportunities to be better prepared. Those seeking to slip under the radar by conducting illicit activity have become shrewder at covering their tracks as part of deceptive shipping practices, through means of AIS disablement, STS transfers in undesignated places, and manipulating information. However, those of us monitoring these practices have become shrewder too. There are several red flags that can be monitored, as well as ways of running checks that can save rather than add time. AIS, for instance, is a requirement of the International Convention for the Safety of Life at Sea (Solas) and, while an operator can justify some AIS disablement, AIS gaps and periods of disruption, threemonth gaps with recorded draught changes, destination changes

and no port calls are clear red-flag identifiers.

REDUCING THE NOISE Critical to effective screening is reducing the noise and removing false positives, especially for specific guidance such as monitoring AIS manipulation, STS, verifying documents like the Bill of Lading, or similarly determining ultimate beneficial ownership. Our data shows that, for every sanctioned vessel that continues to commit probable dark port callings and dark shipto-ship transfers, there could be three more vessels not on any sanctions list that are actively taking part in the same type of probable illicit activity. Thankfully, our Seasearcher Advanced Risk and Compliance solution, which uses machine learning and predictive analysis coupled with an extensive terrestrial and satellite AIS network, means these practices can be detected. The patterns of behaviour it can identify include suspicious AIS gaps and probable loitering, which could evolve into the more serious possibility of dark port callings and dark STS transfers that require further attention from compliance risk professionals. Insurers can use it to maintain watchlists or be alerted to vessel behaviour that warrants checks and could be in breach of cover on the insured fleet and operators. This makes it easier for colleagues to perform first-line screening or deeper compliance investigations and renders it increasingly difficult for potentially illicit actors to hide. The Marine Insurer | March 2022

MARINE | Seizure of vessels In association with Skuld

Seizure: A sovereign right? Ruby Hassan, Assistant Vice President, Claims at Norwegian marine insurer Skuld explains the complex international law surrounding the seizure of vessels The Marine Insurer | March 2022

The Togo flagged tanker, Noor One, was found to be smuggling more than two tonnes of heroin into Greece. The ship was detained and all 11 crew members were arrested. Photo courtesy Hellenic Coast Guard.

An extensive regime of laws applies in relation to activities which take place in, over and under the sea. The way in which jurisdiction is bordered at sea is by designating certain maritime zones in which coastal states have certain rights and by retaining the concept of sovereign jurisdiction of vessels in the form of flag state jurisdiction. Some are universal and apply to all states. Some are regionally applied by geographic region and some are bilaterally applied to two states which have agreed to the laws. While there are the state’s own laws, the United Nations Convention on the Law of the Sea 1982 (UNCLOS) has been sufficiently accepted to be considered customary international law and therefore binding even on states which are not signatories. Although states also have some jurisdiction beyond the territorial sea, there are caveats to be applied. UNCLOS

MARINE | Seizure of vessels In association with Skuld

outlines three maritime zones in which coastal states exercise full sovereignty: 1. Internal waters: All waters on the landward side of the coastal state’s baselines, including areas or ports or roadsteads; 2. Territorial seas: All waters measured seaward from the baselines out to a maximum of 12 nm; and, 3. Archipelagic waters: All waters inside the special set of baselines drawn to connect the outer islands of an archipelagic state.

MARITIME LAW ENFORCEMENT

Freedom of navigation is considered a vital principle of international law. UNCLOS provides that ships of all states enjoy the right of innocent passage through the territorial sea, or transit passage through a strait used for international navigation. Seizure of a vessel which is enjoying these rights would be unlawful as a matter of international law. Whether coastal or landlocked, states can be affected by the impact of threats posed at sea or international waters such as piracy and armed robbery, terrorism, drug trafficking and trafficking in nuclear materials and firearms, human trafficking and migrant smuggling, waste trafficking and illegal activities in the fisheries sector. Successful prosecution of illegal conduct in the maritime domain can only take place when the prosecuting state can factually establish the location of such conduct within a given zone to ensure that the prosecuting state can legally exercise its domestic jurisdiction over the conduct in question.

any interference with the freedom of navigation on the high seas, this right is limited, and applies only to clearly marked warships in the service of the government of a state.

SMUGGLING ILLEGAL NARCOTICS

Article 108 of UNCLOS places an obligation on all states to cooperate in the suppression of illicit traffic in narcotic drugs and psychotropic substances by sea. Several other multilateral treaties, such as the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988, also contain provisions relating to illicit traffic in drugs by sea. However, the obligation does not permit the boarding of vessels of a foreign-flag, even on suspicion of drug trafficking, without flag state consent. Essentially, the flag state has preferential jurisdiction over any relevant offence committed on board its vessel. If, however, the suspect vessel enters national waters of the coastal state, action can be enforced based on the coastal state’s own territorial jurisdiction. One exception to this requirement for requesting flag state consent is where the vessel appears to be stateless or unflagged. Thereafter, it shall be for that state to assert jurisdiction and determine what actions are appropriate over any relevant offences which may have been committed by any persons on board the vessel if such action is authorised in that state party’s national law. Where the intervening state has reasonable grounds to

CRIME OF PIRACY

Piracy is any illegal act of violence or detention on the high seas (ie outside the 12nm limit) committed for private ends robbery occurring within the 12nm limit is treated as a crime of robbery under the laws of the coastal state. The maritime crime of piracy exists independently in customary international law, essentially empowering all states regardless of whether they have ratified UNCLOS. Article 105 of UNCLOS specifies that every state may seize a pirate ship or aircraft, or a ship or aircraft taken by piracy and under the control of pirates and arrest the persons and seize the property on board, whether the incident took place on the high seas, or in any other place outside the jurisdiction of any state. The courts of the state that carried out the seizure may also decide upon the penalties to be imposed, and to determine the action to be taken. The prohibitions on the crimes of piracy attained jus cogens status, establishing a duty on all states to cooperate towards their eradication. Given this status, international law permits the seizure by any state of any ship on the high seas reasonably suspected of being a pirate, or of engaging in the crime of piracy. Like

“Freedom of navigation is considered a vital principle of international law. UNCLOS provides that ships of all states enjoy the right of innocent passage through the territorial sea, or transit passage through a strait used for international navigation.” Ruby Hassan, Skuld

The Marine Insurer | March 2022

MARINE | Seizure of vessels In association with Skuld

suspect that a vessel, which is flying the flag or displaying the marks of registry of another state, or bears any other indications of nationality, is engaged in or being used for the commission of a relevant offence, the intervening state may request the authorization of the flag state to stop and board the vessel in waters beyond the territorial sea of any state. It may also take some or all of the other actions specified in the Agreement on Illicit Traffic by Sea. If the flag state grants the request, such authorization may be subject to conditions or limitations, which may require that the flag state’s express authorization be given before any specified steps are taken by the intervening state.

THE OBSCURE REALITY

Since July 2019, a record number of ships have been detained upon arrival in Mexican ports (in particular, Altamira and Ensenada ports), with the ports of departure usually from Ecuador, Colombia or Panama, and where illegal narcotics have been found on board. In addition to the detention of ships, some crew were also arrested. Article 194, Fraction II of the Mexican Federal Code of Criminal procedure dictates that wherever anyone is accused of a drug related offense, they must remain in prison for the duration of the investigations, pre-trial and trial detention, even if innocent. In Mexico, one of the most common instruments implemented against the assets of crime is asset forfeiture. The legal concept developed in Mexico is “extinction of domain”, which was incorporated into the constitutional reform of Article 22, as well as the Federal Law on Extinction of Domain enacted in May 2009, with the aim of hitting crime “where it hurts the most—their money”. It is a legal hybrid between civil assets forfeiture and criminal assets forfeiture because it has been interpreted by the Federal Courts as a civil procedure against an asset involved in a crime but requires a criminal proceeding against the owner. However, for the extinction of domain to proceed, even when a legal proceeding against the owner is required, it is only necessary to prove that the asset was linked to the crime. There is no onus to prove the owner’s guilt or obtain a criminal sentence. Furthermore, the burden of proof rests on the owner to demonstrate the legal status or “innocence” of the asset. In 2014, the Togo flagged tanker, Noor One, was found to be smuggling more than two tonnes of heroin into Greece. The ship was detained in the port of Eleusis, and all 11 crew members were arrested. The heroin was found by the Greek authorities in two hiding places. The Noor One had received the drugs at sea between Oman and Pakistan. The ship was later confiscated by the state and three auction attempts were made with a starting price of €60,000, all of which were unsuccessful. In a surprise twist ending, the vessel was later returned The Marine Insurer | March 2022

Article 105 of UNCLOS specifies that every state may seize a pirate ship or aircraft, or a ship or aircraft taken by piracy and under the control of pirates and arrest the persons and seize the property on board, whether the incident took place on the high seas, or in any other place outside the jurisdiction of any state.

to its owners. In 2007, the Cayman Islands flagged B Atlantic was used in an unsuccessful attempt to export 132 kg of cocaine from Venezuela, which had been strapped ten metres below the waterline. The crew was arrested immediately, and the ship was confiscated by the Venezuelan authorities under the strict Venezuelan Anti-Drug Laws. Eventually, the master and second officer were sentenced to nine years in prison for complicity in drug trafficking and the ship was detained by the Venezuelan courts. The ship was subject to a provision in the Venezuelan Anti-Drug laws, that the property, including ships employed to commit the investigated offence, will in all cases be seized as a preventative measure and that when there is a final and definitive judgment, an order will be made to confiscate the property.

MARINE | Digital Risk In association with Marsh Specialty

Ports and terminals: Technology advances bring increased risk

George Jones, (left) Global Marine Sales Leader, Marsh Specialty and Brian Warszona, (right) UK Cyber Deputy Practice Leader, Marsh Specialty explain how a structured approach to cyber risk can help ensure the benefits of digitalisation outweigh the risks Today’s smart ports and terminals are adopting new technologies — remote operations, autonomous systems, as well as integrated information and communications platforms — to better track and monitor ships and expedite deliveries, warehousing, and customs. The goal is to increase productivity and enhance the client experience. The quest to increase speed, decrease delays, encourage visibility into supply chain operations, and enable more efficient turnarounds means that ports and terminals have deepened their reliance on technology. Although the opportunity to take advantage of higher freight volumes and improved throughput outweigh the associated risks, if managed correctly, increased reliance on technology comes with increased exposure to cyber risk. The isolated adjustments and investments in technologies, typically made across many years, have led to a non-homogenous legacy technology structure that is more susceptible to cyber threats. Further, greater data capabilities and connected

technologies — both internally and with external stakeholders — introduce new access points and vulnerabilities that could provide today’s advanced threat actors an entry point into a network.

INCREASED VULNERABILITIES

As happens in any industry, the new technologies being adopted by ports and terminals come with vulnerabilities that are readily accessed by threat actors through public, online databases. New technologies and their increased touchpoints lead to an expanded attack surface — the aggregate of all known, unknown and potential vulnerabilities and weaknesses across all people, hardware, software and network components that may present cyber criminals an entry point. A major cyber incident could potentially bring a port or terminal to a standstill for hours, days, or even weeks. And because ports and terminals are critical infrastructure, disruptions can ripple through global supply chains, causing significant delays and other issues. In addition, cyberattacks can potentially lead to physical The Marine Insurer | March 2022

MARINE | Digital Risk In association with Marsh Specialty

damage that threatens not only operations, but the safety and security of workers and others. Threat actors, for example, could manipulate a port’s sensors and thermostats, leading to a fire with the potential to threaten docked ships, especially those carrying fuels and flammable chemicals. Such risks underscore how important it is for ports and terminals to invest in a smart digitalisation strategy that identifies and addresses vulnerabilities and creates a resilient organisation that is able to withstand and recover from a cyberattack. Cyber threats are not limited to malicious software (malware) that can spread to or from suppliers and customers, but can also include: (see graphic 1 bottom right) The increase in cyber threats has spurred some agencies, including the European Union Agency for Cybersecurity (ENISA), to publish guidance aimed at improving cybersecurity. ENISA’s Cyber Risk Management for Ports report, published in December 2020, aims to introduce a specific approach to cybersecurity risk assessment in ports. In 2017, the International Maritime Organisation (IMO), responsible for regulating shipping, and the Maritime Safety Committee (MSC), published a series of recommendations to help maritime companies, including ports and terminals, manage their intensifying cyber risk. Both acknowledged the pressing need to raise awareness about cyber threats and vulnerabilities.

EVALUATING THE THREAT LANDSCAPE

To protect their operations from an increasingly challenging threat, it is recommended that ports and terminals embed effective cybersecurity controls within their systems and processes. Together with more effective and agile engineering protections, the right controls can help organisations protect assets from unauthorized access, damage, theft and loss. Actions that every port and terminal can consider to enhance cybersecurity include: Cyber risk assessment: A critical first step towards improving cybersecurity is to carry out an in-depth cyber assessment with third-party stakeholders focused on the identification of key IT and OT assets and the port services they support. By reviewing the overall cyber environment and attack surface, ports and terminals can better understand their overall cybersecurity profile. These tools — built on cybersecurity best practices — can help evaluate the maturity of a cybersecurity program. For example, a selfassessment may uncover that a logistics partner has unnecessary privileged access into a port’s network. Insights can be critical in allowing organisations to identify and proactively address gaps that may lead to dangerous vulnerabilities. Scenario planning: An integral part of a cyber risk management strategy, scenario planning allows your organisation to understand the impact of potential attacks and rehearse your response to them. Cybersecurity professionals, working with your organisation, can identify vulnerabilities The Marine Insurer | March 2022

and recommend actions to improve your defenses. Quantification: Understanding the actual costs of various scenarios will help inform where to invest limited resources strategically. For example, how much would it cost a port if operations are completely or partially paralyzed for a few hours or a few days? And what would be the financial and other repercussions if a complete system shutdown was to lead to a major accident? Analyzing and quantifying a variety of scenarios — together with your expected response — should provide a clearer picture of the potential financial impacts of cyber events. This, in turn, will help with decisions regarding cybersecurity investments, including the purchasing of sufficient cyber insurance. As digitalisation introduces new vulnerabilities, ports and terminals can consider integrating the five steps outlined by the National Institute of Standards and Technology’s (NIST) cybersecurity framework within their self-assessment: (see graphic 2 on page 27)

CYBERSECURITY CONTROLS

The prospect of increased efficiencies in the future will see ports and terminals continue to adopt smart technologies. However, as their attack surface expands, so will their potential financial, regulatory, and reputational challenges. Having cyber hygiene controls in place is critical to reduce cyber risk. Further, many cyber insurers are carefully scrutinising an organisation’s cyber controls, with companies that fall short of expectations potentially facing the prospect of non-renewal or not being able to secure their preferred coverage or pricing. Although cyber hygiene controls have been established best practices for many years, not all companies have ingrained them into day-to-day processes. While there are 12 main controls that should be adopted, organisations can start by focusing on:(see graphic 3 on page 27)

GRAPHIC 1 : POSSIBLE CYBER THREATS

MARINE | Digital Risk In association with Marsh Specialty

GRAPHIC 2: FIVE ACTIONS TO MANAGE CYBER EXPOSURES

WHERE TO START?

include requirements to protect an organisation in contracts. Frequent communication with stakeholders is critical to understand any changes in cybersecurity. Also, it is recommended that organisations consider revoking unnecessary access that third-party vendors have to their IT systems. Address system weaknesses. Many ports and terminals are operating legacy assets — including operational technology systems, IT networks, end-user devices, and communication components — that are outdated and/or have not received needed security updates. The integration of new technology with legacy systems could also cause security challenges. Cybersecurity specialists with visibility across an organisation can help identify system weaknesses that could increase cyber exposures and recommend actions to address these challenges. Keep up with regulatory changes. Cybersecurity regulations are being written by jurisdictions across the world, creating a complex and ever-shifting regulatory environment. The IMO and their Maritime Safety Committee have provided recommendations on maritime cyber risk management, while different domiciles have their own requirements and penalties for non-compliance. Port groups may operate under more than one regulatory regime, requiring diligence to ensure their operations meet all requirements. The regulatory environment is likely to remain complex, and maritime companies will need to dedicate resources to remain compliant. Addressing today’s challenges and moving towards cyber resilience requires a shift in mindset. While ports and terminals have many years of experience in protecting their assets from physical attacks and accidents, they need to apply the same focus to protecting operations from cyberattacks and cyber events through a robust cybersecurity strategy that includes training and improved cyber controls. Where the risks of cyber events are correctly understood, quantified, and managed, the opportunities of digitalisation outweigh them and are far reaching.

Although cyber risk cannot be completely eliminated, the appropriate risk management strategy, together with a robust cyber insurance program, can help mitigate risk and recover faster from an event. Ports and terminals can take action to become more cyber resilient, starting with these five steps: Improve training and education. Many employees at all levels within the maritime industry have not received the appropriate technology and digital training to prepare for their role in managing the cybersecurity risks faced by an increasingly digitalised industry. People’s actions are a significant challenge for organisations seeking to become more resilient, and reducing human error is crucial to keeping ports and terminals safe. It’s important to recognize that workers tend to have different levels of cyber awareness based on differing experiences and capabilities. Proper training and education of your workforce is crucial to shore up cyber resiliency. Invest in specialized cybersecurity personnel. Across-the-board training is essential to reduce human error that could lead to cyber breaches. But considering the potential risks associated with increased digitalisation, ports and terminals should also consider investing in personnel with a solid background in cybersecurity processes to lead the effort. This team GRAPHIC 3: CYBERSECURITY CONTROLS should include specialists suitable for the size and complexity of your business; for larger organisations, the team should be led by a CISO reporting to the board. Understand third-party risks. Ports and terminals operate within a complex ecosystem of suppliers, users and customers. A port, for example, can have hundreds of stakeholders providing services, each with various cybersecurity strengths and weaknesses. Mapping out the touchpoints and how operations connect will help in the understanding of how each player contributes to cybersecurity vulnerabilities. It’s important to map out and assess vendor risk and

The Marine Insurer | March 2022

LONDON MARINE | The broker’s future In association with Noria

Brokers need to focus on advisory in digital world The acceleration of digitisation means there is no longer any question that the insurance broker’s role will transform from transactional to advisory. The only question is when it will happen. Ronny Reppe, Chief Executive Officer of Norway-based insurance platform provider Noria, discuss how brokers can seize this opportunity to reshape their relevancy in an increasingly automated environment For a glimpse of the future, the insurance industry should look at what happened to stockbrokers approximately 15 years ago. As transactions became digitised and automated, it seemed for a moment that the role of the stockbroker would become obsolete. Yet customers still possessed a strong, ongoing need for advisory services and stockbrokers were able to evolve into this role. Today, their job is not to push the transaction through, but to use their knowledge and experience to help the customer choose the right stock. This is precisely what we can expect to happen within the next five years in marine insurance as the process becomes digitised and brokers will need to find other ways to create value. Although the transaction itself will be self-service, customers will still seek to know what to buy, who to buy it from, and advice on what kind of contract they are getting with the insurer. Sceptics are saying this will never happen because the industry is too complex, but in my opinion it’s just a question of it happening a little later.

BUILDING THE PLATFORMS

One key question is: who will build the automated transaction platforms? The media loves a David vs Goliath story about insurtech start-ups taking on established incumbents. But in the race to The Marine Insurer | March 2022

create the platform for transaction execution, it is unclear whether the brokers, insurance market incumbents, or third parties (including start-ups and big tech) will succeed first. For me, the favourite is the big brokers because they have the budget to invest heavily in scalable IT and make these changes happen. We’ve seen other industries being digitisedand it’s the large incumbents that have succeeded. Some of the biggest brokers are already making moves towards taking the strongest position in the market. When it comes to the future of transactional brokers, I believe they will still be around in five years from now, but there will be fewer brokers in the market with stronger market-share. My advice to brokers is not to invest millions in building execution platforms. Focus on the advisory side of your role and depend on the major players’ white-label platforms for transaction execution.

SETTING UP FOR SUCCESS

What technology support is needed to make this digitised future happen? Brokers must invest in digital customer journey tools within which the end-customer can perform self-service data maintenance. Customer experience (CX) must be central to any tool. Salesforce’s The state of connected customer report found that 84% of customers say the experience a company provides is as important as its products or services. IBM’s Elevating the insurance customer experience report found “85% of insurers are deploying CX initiatives

LONDON MARINE | The broker’s future In association with Noria

Personalised policies and platform experience are another key factor. Through the power of customer data, insurers can create personalised insurance policies and experiences on the platform. This creates a trust loop through which the customer recognises the value gained from sharing their data and will be more willing to share additional data in the future.

STANDARDISED DATA

“The more data, the better the advisory service. Brokers need to enter more data into the system. Details to include are customer information, assets being insured, historical loss data, any data from IoT assets, the calculated risk, and related information such as GPS data and weather data.’’ Ronny Reppe, Noria Software

throughout the customer journey, while 90% employ a chief CX or chief customer officer (CCO)”. Reduced manual data transfer is critical in this process. Importantly, changes inputted by customers in the self-service system should go straight through to the core system without the need for brokers to transfer or re-input that data. Not only will this reduce or eliminate manual input, but it will help ensure the data is as real-time as possible.

Brokers also need a cloud-platform environment where they and insurers interact to negotiate and exchange data. To make this happen, the client, the broker, and the insurer will need to use standardised data formats to minimise manual input in the data chain. Parties should be able to import the data directly into their systems without manual intervention. Advanced analytics is another core requirement for this transformation. This level of digitisation will enable advanced data analytics. Brokers will be able to provide superior advice by reusing the customer-centric data analytics in the platform, combining in-house data with any available open data to analyse patterns, predict risk, generate insights and provide the best pricing. The more data, the better the advisory service. Brokers need to enter more data into the system. Details to include are customer information, assets being insured, historical loss data, any data from IoT assets, the calculated risk, and related information such as GPS data and weather data. Customers should be surveyed at key decision points in the digital customer journey to create a continuous improvement loop. This is a technical change, but also an operational change to the process that will ultimately improve the quality of broker advice.

DIGITAL ADVICE

The provision of advice can be digital, too. Although customers are willing to embrace a self-service model and manage their insurance online, a gap still exists where customers seeking advice still need to pick up the phone or attend a face-to-face meeting. By using an omni-channel approach to meet the customer on their platform of choice, brokers can move their advisory services online as well. Capgemini and Efma’s World Insurance Report 2021 highlighted this issue when it found that only 32% of insurers believe digital channels are effective in securing sales because “they lack personalised advice capabilities … [with an] inability to provide in-depth, personalised advice to customers seeking complex products.” The report predicts this gap will be filled through the rise of “digi-intermediation”, where agents are digitally empowered and virtual channels are humanised. For brokers still relying on a transactional model, now is the time to begin the IT investment required to automate this part of the business, create a seamless digital customer journey, leverage the power of customer data and shift your service offering to advisory. The Marine Insurer | March 2022

MARINE | Innovation In association with Shipowners

Britt Pickering (left) and Alex McCooke (below) explain how Shipowners’ Club has developed new cover for the fast-growing Marine Autonomous Surface Ships (MASS) market and Offshore Wind as the historic P&I sector rises to the challenges and opportunities presented by the ongoing technological revolution The Shipowners’ Club has come a long way since launch in 1855. The Club started life modestly with 221 vessels at 58,228 GT; this figure has grown substantiallyin the last 167 years to 33,986 vessels and 27.9 million GT. So much has changed over this period, but, the Club has retained its core principles of mutuality: that of sharing risk, insurance at cost and control by its members. Another thing that has not changed is the Club’s willingness to embrace change and support members as technology transforms their industries or opens up new industries. No Club can survive without being able to react to the changing demands and needs of members. For this reason, in the last decade the Club has developed a range of bespoke policies to tailor or add to its cover for specific members’ needs. Fishing boats, yachts and dive boats can all benefit from cover adapted specifically for their unique requirements, whilst vessels engaged in offshore work have a choice of multiple packages of cover, catering for the full range of contractual and operational situations required.

AUTONOMOUS CRAFT

One of the most recent additions Shipowners’ suite of specialist covers is its marine autonomous vessel liability Insurance Policy. Marine autonomous surface ships (MASS) form a small but rapidly growing vessel sector in the marine insurance market, currently calculated to be worth more than US$1.5bn. This is quite remarkable considering the relative infancy of the systems technology and the operational constraints under which many of these vessels operate. The relative value of this sector is also surprising when you consider that it is developing in a small and specialised niche and is therefore moving, at least for now, against the traditional marine market trend of ever-increasing vessel size. The sector presents novel challenges for insurers when assessing risk. For MASS there is an almost complete lack of The Marine Insurer | March 2022

The future is still so much bigger than the past historical claims data to inform underwriters in relation to the risk both in terms of frequency and quantum. Further, when underwriting a traditional risk considerable comfort is gained from a vessel’s classification with a class society. Although it is very encouraging to see class societies embracing MASS with specific guidance, it does not always remain appropriate to class these small, specialised and regionally trading vessels. Fortunately, the Maritime Autonomous Surface Ships – UK Code of Practice (first introduced in 2017 and now in its 4th iteration has provided guidance focused on design, construction, and operation of MASS as well as skills, training and vessel registration. In addition, even though its primary focus is on smaller

MARINE | Innovation In association with Shipowners

“Today the Club covers the full suite of vessels working in the sector, from survey vessels to specially designed installation vessels laying monopile foundations, the vessels carrying project cargo to site and cable layers conducting maintenance.’’

vessels, we also refer to the MCA Workboat code for general guidance. It is particularly rewarding to note that this latter code will shortly encompass survey examination and certification specific to MASS.

RISK COMPLEXITY

The diversity of vessels within this new sector certainly adds to the complexity of risk assessment. Assessing the risks and providing cover for a 3 GT MASS operating on inland waterways collecting plastic pollutants is very different when compared with a 21 GT size MASS collecting seismic data and conducting subsurface imaging in offshore environments or indeed a 5,000 tonne 300 TEU electric powered containership with autonomous capability. It is therefore vital to fully engage with members in this sector to understand the uniqueness of the technology, the vessels and their operations. Through this approach, we can continue to learn and more importantly support our members by providing the exact cover they need. While the MASS sector may be moving against the traditional maritime trend towards larger vessels, it is already completely aligned with the green agenda and shift towards alternative fuel sources. This will inevitably accelerate the pace of their development as governments commit to lowering carbon emissions globally.

OFFSHORE WIND

Another area in which the Club is proud to experience rapid growth is the offshore wind industry. Shipowners’ has been supporting members working on wind farm construction and servicing since European windfarms were in their nascency

in the 1990s. Today the Club covers the full suite of vessels working in the sector, from survey vessels to specially designed installation vessels laying monopile foundations, the vessels carrying project cargo to site and cable layers conducting installation, repair and maintenance. Whether it’s an accommodation vessel providing walkto-work facilities, or a guard vessel engaged in daily support tasks, the Club’s extensive experience in dealing with their contractual and practical issues allows it to step in when needed to advise and assist its members. Vessels working on commissioning, building and providing services to windfarms operate under special environmental, statutory and legal requirements, and face unique risks. Their design and contracts are specially adapted for these purposes and the growth in the market has allowed them to become increasingly so. In the early 1990s the world could only boast a handful of windfarms in Denmark. Thirty years later, there are more than 200 operating offshore wind energy projects globally, with China, the Netherlands, UK, Belgium and Germany leading the market. As we look forward to the remainder of 2022 and beyond, the Club is convinced that industries like offshore wind and autonomous craft will go from strength to strength. The lower environmental footprints of solar and greener vessels, and the use of renewables both by the vessels and their customers, are perfectly aligned with the initiatives being driven at state and corporate levels across the world. This was demonstrated this year by the applause these and similar industries received at the UN Climate Change Conference (COP 26), where many advocated these technology-driven approaches as a means of reaching climate targets globally. Despite the rapid pace of change seen and accommodated for in the last few decades, there is no doubt that technology and operational practices will continue to evolve apace for the Club’s members in various sectors. The inventor of the World Wide Web, Tim Berners-Lee, said in 2009, when asked about the growth of the internet – “the future is still so much bigger than the past”. As we talk with members about the opportunities and threats presented by developing technologies such as smart ships, artificial intelligence, augmented reality, and blockchain, our first thought will continue to be about what we can do to lend support. The Marine Insurer | March 2022

MARINE | Decarbonsation In association with IGI

Maritime insurance: How we can help ensure a green future? Marine insurance may be the oldest form of insurance in the world, but the sector is going through seismic changes as it transitions to an energy efficient economy. Mark Trevitt, Class Underwriter, Marine, at International General Insurance (IGI), explains that the insurance industry can do more than sit on the sidelines Instead, it can actively support green initiatives From the Poseidon Principles for marine insurance, to directives made by the insurance industry at COP26 and pledges from Lloyd’s of London to become greener, the marine insurance industry will have to embark on some of the most fundamental changes it has seen in three centuries to meet these environmentally friendly criteria. Risk managers, insurers, reinsurers and investors can and will all play a vital role in shaping how shipping, ports and cargo embark on the difficult journey to a net zero world. The insurance market needs to not just look at historical data to assess risk, but also use new technologies such as artificial intelligence (AI), the internet of things and big data to assess the current and future carbon emissions of everything from vessels to ports as well as gaging decarbonisation and measuring renewable energy sources.

TAKING THIS SERIOUSLY

The bottom line is that the insurance industry is taking this seriously. The Poseidon Principles for Marine Insurance (PPMI), voluntarily driven by leading players in the international marine insurance market and based on the IMO’s guidance, will establish a pioneering framework to quantitatively assess and disclose the climate alignment of marine insurers’ underwriting portfolios. Some marine insurers have already signed up to this initiative which is designed to bring more transparency and urgency to the industry’s decarbonisation efforts. The Marine Insurer | March 2022

PPMI makes marine insurance the first line of business to establish a sector-specific methodology to support the ambition of the Net-Zero Insurance Alliance (NZIA). NZIA members commit to transitioning their underwriting portfolios to net-zero GHG emissions by 2050, to contribute to the implementation of the COP21 Paris Agreement. There have been various initiatives aimed at reducing the damaging emissions from using carbon and fossil fuels. Until recently, the focus within the transportation sector has been on shipping, as vessels are seen to be the main contributor to toxic emissions. This has led to a search for alternative propulsion systems for vessels, including Liquefied Natural Gas (LNG), hydrogen, wind and solar power.

GREENING PORTS

Now the spotlight has fallen on ports, with green initiatives being implemented to address interaction with vessels calling at port facilities, and their own contribution to the efforts to reduce the number of pollutants they create. However, it should be remembered that ports are commercial enterprises, and this may mean these businesses may need to be either incentivised or forced to implement change. A port can act as both a landlord – the initiator and applier of regulatory controls (for example, creating incentives relating to port tariffs or penalties for non-compliance) and terminal operator – and this can create a conflict of interest. The Clydebank Declaration, announced last November during COP26, is an ambitious global initiative led by the UK Department for Transport, which will establish ‘green maritime corridors’. The aim is to maximise the use of optimum speeds

MARINE | Decarbonisation In association with IGI

between port calls, resulting in increased fuel efficiency of vessels, and a reduction in emission levels. The immediate effect of this will be to promote the further investment in so-called “mega” ports – defined by the cargo volume it handles, the economic value it represents and the land and water surface it uses. To make ports smarter and greener requires considerable planning, both at the quayside, and also in terms of the quality of the infrastructure provided by the port to allow efficient interaction with the entire logistics chain – for example rail freight connectivity directly into and out of the port.

RENEWABLE ENERGY PROMOTION

The search and implementation of alternative propulsion systems is not restricted to vessels alone. Many ports are already well-advanced in their drive to deploy “cleaner” means of operating handling equipment, and many are using electric power. Electric-powered trucks are increasingly being introduced into the vehicle population, though there are recognised issues with range and charging – the same problems found in domestic vehicles. Looking at the bigger picture, there will a greater focus on the ability of ports to supply new types of power sources to all their logistics partners during their stay at the port. Different vessel types will require different power loads whilst alongside. Imagine the different needs of a dry bulk carrier and a large cruise vessel. Whether we are talking about so-called “cold ironing” – the process of providing shoreside electrical power to a ship at berth

while its main and auxiliary engines are turned off - or other green energy, the amount of renewable energy generated and capable of being accessed by the port needs to be considered. Port planning of the future will have to consider the generation of power within the port estate, whether that be wind, solar or any other form of renewable energy.

MARITIME INSURANCE IMPACT

The potential impact of weather-related events has already started to change the nature of insured assets. According to the Organisation for Economic Co-operation and Development (OECD), global asset values in major cities in 2005 were estimated to be $3bn. By 2070, that figure is expected to rise to around $35bn. Meanwhile, extreme weather events in 2021 have caused more than $112bn in global insured losses – the fourth highest since records began, according to Swiss Re Institute’s Sigma 2021 estimates. Of this figure, $105bn was the result of natural catastrophes. In the US alone, the lag in investment in critical and ageing infrastructure stands at $500bn on average, year-on-year, through to 2040. If these issues are to be meaningfully addressed, insurers need to support their clients. This means actively incentivising those that do invest heavily in maritime decarbonisation and this can be done as simply as by recognising their efforts when rating the risk. Specifically, within the port insurance sector, rating a risk is generally based on historical performance data. However, the introduction of smart technologies (AI, big data analysis and internet of things) on vessels is increasingly being recognised by the insurance industry as a pathway that will help the maritime world transition to green energy. Underwriters will, however, need to feel confident that these technologies work as measures to reduce the carbon footprint to be included in their rating models. As new legislation is rolled out, insurers will need to know any restrictions they will have on operations and what fines and penalties could be imposed on their clients as they form part of the cover within a port insurance policy. In short, the industry must be prepared to assess new risks and potential safety concerns. Marine insurers can now act as facilitators for decarbonisation by providing guidance and advice to their insured. Our common goal is an accelerated move towards a decarbonized industry. The movement to address maritime decarbonisation in all of its guises can offer no greater incentive for insurers to stand with their clients as they embark on their journey to a greener future. The Marine Insurer | March 2022

MARINE | Uuderwriting evolution In association with Cargocorp Underwriters

Antonia Martínez, Head of Operations at leading Latin American marine insurance MGA Cargocorp Underwriters, explains how the rise of new technologies and data is enabling a shift from gut based underwriting to a more accurate basis that will support further growth and innovation

After 24 years in the industry, Cargocorp Underwriters has been able to observe the relationship between information and a successful portfolio. It is easy to see that the insurance industry has come a long way and increased worldwide support to industries and clients. While it now heavily relies on real time data and complementing information, that has not always been the case. Back in the mid to late 1990’s, Cargo transportation risks, were accepted based on unsupported reputations. This would lead goods to be classified by personal experiences and testimonies without the proper backing to justify the information being spread. One large loss for an insurance entity could easily deem a certain good as non-preferred risks. The opposite can be true for risks that performed well.

HIGH VALUE CLAIMS

For example, if there were to be three large losses in Colombia during the transport of packaged snacks, such as potato chips, and these losses resulted in high valued claims there would possibly be a rise in premiums for these risks. The information of the claim value would be enough for the surrounding and regional insurers to act, compromising the market value of these transports. This would prove to be detrimental for the clients that would now face industry-wide increased deductibles as well as high premiums, often opting to go uninsured now leaving the insurers without premiums as well. Even without the proper cause of loss or the acknowledgment of possible risk mitigation, the market would be affected. Through time, it became obvious the industry needed a new objective, to find the factual information to prove or disprove the circulating communications. Various companies took the opportunity of emerging technologies to begin further analyzing risk.

INTEGRATED INFORMATION SYSTEMS

Cargocorp was one of those companies striving to integrate information systems to the marine insurance market. Using The Marine Insurer | March 2022

The rise of the rational underwriter

MARINE | Uuderwriting evolution In association with Cargocorp Underwriters

“Geographical factors in the Latin American region can prove to be one of the most substantial points of analysis. It is a large and important marine market with volatile combined ratios that seem to rise and fall in union.’’

smuggled good in Latin America. A seemingly safe product to transport for many parts of the world, in Latin America, it was a difficult risk to undertake. This was because of high black-market prices for this product specifically.

INCORRECT UNDERWRITING

Back in the mid to late 1990’s, Cargo transportation risks, were accepted based on unsupported reputations. This would lead goods to be classified by personal experiences and testimonies without the proper backing to justify the information being spread.

actuarial science and weighing individual factors to properly rate risks becoming an integral part of the business. The different factors that Cargocorp found necessary to analyze were: > Terms of insurance such as deductibles, wording, and limits per conveyance amongst other terms; > The client’s operation: who the client is, what they do, how they do it, what do they produce and how to they commercialize and distribute it; > Geography: where is this taking place, where was the origin and the destination. Geographical factors in the Latin American region can prove to be one of the most substantial points of analysis. It is a large and important marine market with volatile combined ratios that seem to rise and fall in union. The demographic information continuously plays a part on insurance and their losses. For example, in the early 2000’s fax toner was a highly

Once an analysis of the situation was carried out, it was not difficult to see that many of the problems in the region stemmed from incorrect underwriting and pricing. Using all this information, it becomes easier to observe these supply chains, from production to transport, to storage and then distribution. Finding all the weak links within this process and expressing it to the insuring agencies and the clients. The distribution of information is helpful to the client, the insuring and reinsuring entities. With the proper implementation of solutions, the client could save their product and underwriters from claims, using data and facts. With the new flow of information, the next natural step in the technological aspects in the market would be to transform this information to reusable data. This data could include anything from ports and warehouses inspections, loss reports, logistics, carriers and dealer information. All of this with the right skill can become visible trends and tools easier to understand. Using all of this and combining it with the increasing global databases that display climate change, civil unrest and catastrophic events, underwriters now have the ability to make sound justifiable decisions. Using the traditional way of underwriting that included a “gut feeling,” personal reputations and the information displayed on a slip is no longer responsible underwriting. While the business turns its focus from premiums to performance it is necessary for technology to continue to revolutionize the industry. With the many insurtechs that are emerging globally, it is time for information and the right use of the big data and underwriting to form a solid alliance. The industry has an opportunity to educate, give support to new economies and industries and to grow. It is time to take it. The Marine Insurer | March 2022

MARINE | Inland Marine Law In association with Galloway

What could possibly go wrong? Frederick William “Billy” Swaim, (left) Director, and Brendan Hughes, (below) Attorney, of New Orleans based specialist marine law firm Galloway discuss the important insurance implications of complex series of allisions as three vessels attempted to pass each other on the Mississippi Upriver of New Orleans at a community known as Norco are situated a cluster of petrochemical plants with associated marine terminals and moorings. This stretch of the Mississippi River sees a high-volume of inland traffic and features a near-90˚westward (upriver) bend known as the Hahnville Bar. On the evening of January 31, 2016, three vessels were approaching this bend at the same time: the towboats Elizabeth and Loretta on downriver courses and the bulk carrier M/V Aris T on an upriver course. Although conditions were fair, a light surface fog was developing, and the river was running high with strong currents of four-to-five knots. As the Elizabeth was preparing to stop and back into a barge fleet mooring facility, the Loretta sought to overtake the Elizabeth starboard-toport and the two captains confirmed their overtaking agreement. Thus, the Loretta maneuvered into the middle of the channel. In making their overtaking agreement, the captains of the Elizabeth and the Loretta failed to acknowledge a preceding The Marine Insurer | March 2022

The Aris T anchored post accident on the Mississippi River at Grand View Reach Anchorage, mm 147.0, near Gramercy, Louisiana. (Photo by US Coast Guard)

radio announcement by the pilot of the Aris T announcing her position. As such, they assumed no traffic was approaching them from downriver. It was not until the Loretta was already overtaking the Elizabeth that the captain of the Elizabeth contacted the pilot of the Aris T, whereby they organized a port-to-port passing. This meant that the three vessels agreed to pass each other with the Elizabeth on the west moving downriver, the Aris T on the east moving upriver, and the Loretta in between them moving downriver, overtaking the Elizabeth. What could possibly go wrong? As the Loretta attempted to pass, again, while moving downriver, instead of moving closer to the riverbank the Elizabeth remained in the middle of the river and continuously slid east during the passing, pushed by the strong current. Therefore, there was insufficient space for the three vessels to be alongside one another simultaneously. To avoid a collision with the Loretta, the pilot of the Aris T instead enacted an evasive maneuver that resulted in a series of allisions with vessels and dockage infrastructure at both the Valero and Shell/Motiva Norco facilities.

MARINE | Inland Marine Law In association with Galloway

“In making their overtaking agreement, the LIABILITY DENIED

In the ensuing litigation the US District Court for the Eastern District of Louisiana assigned fault to the Elizabeth and the Loretta (with a small assignment of fault to the Aris T), denied limitation of liability to both towboats, and dismissed a personal injury claim of an employee of Shell/ Motiva who witnessed the allision from a separate berth from a distance of more than 300 meters. The appeals challenging these findings were consolidatedand the US Court of Appeals for the Fifth Circuit affirmed the judgment of the district court in all respects on January 24, 2022. In allision cases, often the focus is on whether or not the (moving) vessel was at fault. However, in this case, neither of the towboats denied they were liable. Rather, they contested the percentage of fault that had been assigned to them. When multiple vessels are at fault in an allision or collision, liability is allocated proportionately to the comparative degree of each vessel’s fault. The trial court thus made its determination of apportionment based on

captains of the Elizabeth and the Loretta failed to acknowledge a preceding radio announcement by the pilot of the Aris T announcing her position. As such, they assumed no traffic was approaching them from downriver.’’

the number and quality of faults per vessel, relying on the Inland Navigation Rules and the role each of these faults per vessel played in causing the allision. See 33 C.F.R. § 83.01 et seq. The Elizabeth and Loretta were each found to have violated rules (2) prudent seamanship; (5) lookout; (7) risk of collision; (8) action to avoid collision; and, (9) keeping to the outer limit of the channel that lies on the vessel’s The Marine Insurer | March 2022

MARINE | Inland Marine Law In association with Galloway

starboard side as is safe and practicable (Elizabeth)/failure to propose manner of passing in narrow channel (Loretta). The Elizabeth was also found to have violated rule (17) action by stand-on vessel. The Loretta was also found to have violated rules (13) overtaking; (14) failure to propose manner of passing in meeting situation; (16) action by giveway vessel; and, (34(d)) danger signal. The Aris T was found to have violated rules (2) and (7) as above, as well as (6) safe speed and (9) failure to hold up to allow a safe passing. The Elizabeth and the Loretta were each allocated 45% of the fault, and the Aris T was allocated 10% of the fault all based on the trial court’s evaluation of the Inland Navigation Rules. The “In allision cases, often the focus is on whether or appellate court confirmed its standard for reviewing maritime collisions/ not the (moving) vessel was at fault. However, in this allisions is simply to determine whether or not the trial court had case, neither of the towboats denied they were liable. made a clear error in the apportionments of relative fault. Rather, they contested the percentage of fault that The appellate court concluded that the district court did not clearly err in had been assigned to them.” allocating the liability as to the three vessels. The appellate court did not regard that the district court had not evaluated whether or not the Aris T had committed additional violations of the Inland Rules (specifically, 8, 14, and known about. The district court found that the owners of the Elizabeth 16) to be clearly erroneous. and the Loretta could not limit their liability because they In making this determination, the appellate court noted were each negligent. Accordingly, the appellate court there was conflicting evidence on what the Aris T could have evaluated whether the district court was in error in making done under the circumstances, which subsequently left little these determinations. room for legal error. The appellate court held that the owners of the Elizabeth had privity or knowledge of the conditions that contributed CAUSE OF LOSS to the allision because, first, the owners failed to provide her An owner may limit its liability to the value of the vessel captain with training on the navigation system which was in and its freight by one of two distinct ways. First, under the use at the time of the allision (Rose Point navigation), which Limitation of Liability Act, the owner is entitled to limitation subsequently resulted in the captain not using all available only if they are “without privity or knowledge” of the cause means to maintain a proper lookout. of the loss. See 46 C.F.R. §§ 30501, et seq. Furthermore, if the Second, the owner of the Elizabeth approved the vessel’s negligence or unseaworthiness was the proximate downstream maneuver to back into the fleeting service dock cause of the incident, then the owner must prove it had without a tugboat assist and it was during this unassisted no privity or knowledge of the unseaworthy conditions or maneuver that the allision sequence occurred. negligent acts. Second, the vessel is only liable in rem (thus Although moot based on these confirmed findings of not also in personam) if a compulsory pilot alone is at fault. negligence, a potential third finding of negligence by the As such, an owner’s ability to limit its liability under the owner in hiring an incompetent master without doing a Act turns on whether the crew was incompetent, which the proper background check was found to be in err by the owner should have known, or whether the crew made mere appellate court. Specifically, because the coast guard did not mistakes of navigation, which the owner could not have The Marine Insurer | March 2022

MARINE | Inland Marine Law In association with Galloway

cite the captain, because the captain had no relevant history of incompetence, and because his errors leading to the allision were mere mistakes of navigation that the owner could not have known of, the district court erred in finding the captain incompetent. The owner of the Loretta could not limit its liability because it was negligent in (1) sending her out with an inadequate face-wire system, and (2) not enforcing its cellphone policy. Specifically, the court found that the Loretta was not in good working order because her towboat/barge wiring system failed. The appellate court confirmed it was proper to have accepted expert testimony, which attested to this wiring system failure and disregarded the captain’s testimony which had attempted to claim it did not fail. Furthermore, the coast guard had cited the captain for being on his cell phone during the incident. The appellate court also confirmed that it was proper for the district court to have found that this was a distraction and a cause of the allision. Because the ARIS T’s negligence was attributable solely to the compulsory pilot, the court affirmed her owner was only liable in rem, effectively limiting the owners’ liability to the value of the vessel and her freight. If a vessel is being captained by a compulsory pilot, and if a maritime collision/allision is caused by the fault of the compulsory pilot, absent gross negligence, then the vessel is only liable in rem. However, if it becomes manifest that the pilot is steering the vessel into danger, then the master is negligent if he does not timely intervene.

“The appellate court found no clear error in the dismissal of the Shell/Motiva’s employee’s personal injury claim. The court noted that under maritime law, causation requires that negligence of the vessel must be a substantial factor in the injury, meaning that but for the negligence, the harm would not have resulted.’’

employee did not have either of these ailments. The employee had the burden of proving the alliding vessel both owed a duty to him and was the proximate cause of his injuries. The district court determined the employee could not establish this duty or cause. Rather, the district court found the cause of his injuries was his own carelessness and inattention. Regarding the claim of PTSD, the employee could not recover for emotional injuries because he was not in the zone of danger. The appellate court found no clear error in the dismissal of the Shell/Motiva’s employee’s personal injury claim. The court noted that under maritime law, causation requires that negligence of the vessel must be a substantial factor in COMPULSORY PILOT DEFENCE the injury, meaning that but for the negligence, the harm The appellate court confirmed that, because the captain would not have resulted. Foreseeability is also relevant to was monitoring the situation and because the Aris T was the proximate-cause determination. Accordingly, the adequately equipped with the same navigation system as the appellate court agreed that the employee’s panicking was other vessels involved, her“Mobile owners could avail themselves of systems became the new holy grail of deepwaunreasonable and unforeseeable. the compulsory pilot defence. Put another The court buttressed this by noting that the terfinding exploration starting in the early 1960s with Shellway, Oilthe Aris T striking a separate berth was not a substantial factor in the employee’s fall. Regarding the compulsory pilot had adequate knowledge of the Inland claim forOffshore PTSD, the appellate court noted that it has Rules of Navigation, and emphasized that the point of Company recognizing the advantage of Mobile repeatedly declined to adopt preclude the zone of danger having compulsory pilots for areas with specific navigational theoryof forMexico general maritime law. In any event, the court rules is to compensate for Drilling the crew’s lack of knowledge in for fields in the Gulf Units (MODUs) posited that the employee would have had to have that area. demonstrated he was (i) objectively within the zone of The appellate court found no clear errorits in the dismissal with deeper waters and harsh weather.’’ danger, (ii) feared for his life at the time of the incident, and of the Shell/Motiva’s employee’s personal injury claim. (iii) his emotional injuries were a reasonably foreseeable This employee, who was working on a berth more than consequence of the vessel’s alleged negligence. 1,000 feet away from the other berth that was struck by the The court agreed the PTSD claim was without merit Aris T, was warned by another employee that an accident because the employee had ample time to leave the berth and had occurred. The litigant employee panicked, lost his thus was not in any danger of being hurt. Further appellate footing, and fell; but he was able to get up and walk review of this case is uncertain at the time of writing. immediately. He then remained at work for the rest of his shift and did not report any symptoms to his coworkers or supervisor(s). Later, he saw a series of doctors, the third of which diagnosed him with traumatic brain injury and n SCF Waxler Marine, L.L.C. v. Aris T M/V, No. 20-30019, post-traumatic stress disorder (PTSD). An independent 2022 WL 202311, at *1 (5th Cir. Jan. 24, 2022) doctor who evaluated the employee testified that the The Marine Insurer | March 2022

MARINE | Cargo Claims In association with Quadrant Chambers

Supreme Court makes key decision in cargo claims In November, the Supreme Court handed down judgment in The CMA CGM Libra [2021] UKSC 51, its much-awaited analysis of seaworthiness and the due diligence obligation under the Hague and Hague-Visby Rules. The Court dismissed the appeal, upholding the decisions of Mr Justice Teare and the Court of Appeal. John Russell QC (above) and Benjamin Coffer (below), barristers at Quadrant Chambers in London, appeared for the successful respondents, instructed by Jai Sharma, John Reed and Jessica Cook of Clyde & Co LLP. Here they analyse the implications of this important ruling for cargo claims In rejecting the appeal in The CMA CGM Libra [2021] UKSC 51, the UK’s Supreme Court took the opportunity to conduct a wide-ranging review of the authorities on Article III.1 and to resolve a number of long-standing controversies in this area of law. The judgment is essential reading for practitioners who have any dealings with cargo claims, and should now be the starting point in any case concerning seaworthiness under the Rules or ‘fitness’ in a charterparty. The appeal arose out of the grounding of the container ship CMA CGM Libra while leaving the port of Xiamen, The Marine Insurer | March 2022

China in May 2011. The owners claimed general average contributions from the cargo interests. At first instance, Teare J held that the passage plan was defective because it failed to record a warning that depths shown on the chart outside the fairway were unreliable and waters were shallower than recorded on the chart. On that basis, Teare J held that the vessel was unseaworthy at the commencement of the voyage: the defects in the vessel’s passage plan and the relevant working chart rendered the vessel unseaworthy. The defects were causative, because if the warning had been on the chart, the master would not have left the fairway. A strong Court of Appeal comprising three experienced shipping judges (Haddon-Cave, Flaux and Males LLJ) upheld his judgment in robust terms. The owners appealed to the Supreme Court. The owners’ primary argument was that passage planning could not render a vessel unseaworthy because it involved no more than the recording of a navigational decision. The owners argued that a ship could only be unseaworthy if there was a defect affecting an “attribute” of the ship. The owners accepted that the attribute would not need to be physical, so for example, inadequate systems could

MARINE | Cargo Claims In association with Quadrant Chambers

“Given the “essential importance” of passage planning for safe navigation, Lord Hamblen pointed out that a vessel is likely to be unseaworthy applying the prudent owner test if she begins her voyage without a passage plan or if she does so with a defective passage plan which endangers the safety of the vessel.’’

unseaworthiness or is itself the unseaworthiness. The Court agreed with the respondent, and the tentative view expressed by Flaux LJ in the Court of Appeal, that the concept of unseaworthiness is not subject to an “attribute” threshold requiring there to be an “attribute” of the vessel which threatens the safety of the vessel or her cargo. In most cases, the relevant question will simply be whether a prudent owner would have sent the ship to sea with the relevant defect without requiring it to be remedied, had he known of it – the so-called ‘prudent owner’ test.

constitute one of the ship’s attributes. However, they argued that the passage plan and working chart were not attributes of the vessel but merely records of navigational decisions taken by the crew. Although it was incumbent on the owner to have on board everything necessary for the crew to carry out proper passage planning, such as a competent crew, up to date charts and proper systems and instructions, the crew’s use of that equipment was a matter of navigation or seamanship.

NO RELEVANT FAILURE

The owners also argued that even if the ship was unseaworthy, there was no relevant failure to exercise due diligence. Relying on the references in cases such as The Happy Ranger [2006] 1 Lloyd’s Rep 649 to the carrier’s “orbit” of responsibility, the owners argued that navigation was outside their “orbit” because it was a matter solely for the Master and crew. Giving the leading judgment, Lord Hamblen confirmed that the exceptions in Article IV.2 cannot be relied on in relation to a causative breach of Article III.1. If a vessel is unseaworthy, it therefore makes no difference whether negligent navigation or management is the cause of the

DANGEROUS CARGO TEST

By that conclusion, the Court settled the long-standing controversy as to whether dangerous cargo can make a ship unseaworthy. The Court accepted that the presence of dangerous cargo can cause or constitute unseaworthiness, so that the carrier may be liable where it cannot show that it exercised due diligence (preferring the approach taken by the Court of Appeal in The Kapitan Sakharov [2000] 2 Lloyd’s Rep.255 to the inconsistent decision of the same Court in The Apostolis [1997] 2 Lloyd’s Rep 241). Given the “essential importance” of passage planning for safe navigation, Lord Hamblen pointed out that a vessel is likely to be unseaworthy applying the prudent owner test if she begins her voyage without a passage plan or if she does so with a defective passage plan which endangers the safety of the vessel. The Court rejected the suggestion, which appears in several of the leading commentaries, that remediable defects cannot make a ship unseaworthy. Whether or not the defect renders the vessel unseaworthy will simply depend on whether the prudent owner would reasonably expect it to be put right before the beginning of the voyage. The Marine Insurer | March 2022

MARINE | Cargo Claims In association with Quadrant Chambers

It was therefore irrelevant that the passage plan recorded a navigational decision which was (in the owners’ words) “ephemeral” or transitory. A prudent owner would have required a proper passage plan before the ship put to sea. The owners’ arguments on due diligence also failed. The Court reaffirmed the non-delegable nature of the carrier’s obligation under Article III.1. The obligation on the carrier to exercise due diligence to make the vessel seaworthy requires that due diligence be exercised in the work of making the vessel seaworthy, regardless of who is engaged to carry out that task. It makes no difference that the task may have a navigational element “The facts of the LIBRA case were unusual, in that to it. The carrier may not be liable for lack there was effectively an admission in evidence by the of due diligence which occurs before he has responsibility for the vessel or Master as to the causative potency of the defect in the for lack of due diligence which occurs before he has responsibility for the working chart. In many cases, even if cargo claimants cargo. Though the carrier may, nevertheless be liable if the defect or are able to establish defects in a passage plan, there danger would be reasonably discoverable by the exercise of due diligence may be considerably difficulty in proving causation.” once the vessel or cargo has come within his control. However, the Court rejected the owners’ attempt to extend defects in a passage plan, there may be considerably diffithat principle to navigational acts or omissions of the master culty in proving causation. or crew. Secondly, while the Court has ruled that remediable defects in the passage plan may constitute unseaworthiness, LIABILITY FOR DUE DILIGENCE it does not follow that they always will do so. The defects The carrier is therefore liable for a failure to exercise due will have to be sufficiently serious to satisfy the prudent diligence by the master and deck officers of his vessel in the owner test. Again, the facts of the LIRBA were unusual, in preparation of a passage plan for the vessel’s voyage. that the missing warning was so critical to the safety of the The fact that navigation is the responsibility of the master vessel. and involves the exercise by the master and deck officers of Finally, the decision recognises that there may be their specialist skill and judgment makes no difference. The “exceptional cases at the boundaries of seaworthiness” carrier’s obligation requires the carrier to ensure that a where the prudent owner test does not apply because the proper passage plan is prepared; not merely to provide a defect does not affect the safety of the ship. proper system to enable the crew to carry out the required In such cases “it may be necessary to address a prior planning exercise. question of whether the defect or state of affairs relied Obviously, the Supreme Court decision will be warmly on sufficiently affects the fitness of the vessel to carry welcomed by cargo interests and their insurers. But, is the the goods safely on the contractual voyage as to engage decision all bad news for shipowners, and their lawyers? Not the doctrine of seaworthiness”. How to tell when one is necessarily. approaching the boundaries of unseaworthiness is not First, the facts of the Libra case were unusual, in that there spelled out in the judgment, and we anticipate that the was effectively an admission in evidence by the Master as proviso will therefore prove a fecund source of to the causative potency of the defect in the working chart. disagreement in the future. In many cases, even if cargo claimants are able to establish The Marine Insurer | March 2022

Americas

2 May 2022

Building on the success of our hugely popular Energy Insurance London event, we are excited to announce Energy Insurance Americas, which will be a face-to-face event in New York on May 2nd. Energy is a key topic for many at the moment with the current global events playing out, and it is therefore a pivotal time for the energy insurance market itself. Bringing together brokers, insurers, risk managers, claims experts and those who service the industry, delegates will hear our leading experts discuss key topics including: Geopolitics and the Impact of the Ukraine Crisis � Net Zero – What Does it All Mean? � US Offshore Wind � Fast-Evolving Technologies Oil & Gas Overview � US Solar – Understanding the Risks � Carbon Capture and Much More! Join us and your industry colleagues at this important event that will also afford you some excellent and long-overdue targeted networking opportunities. SPONSORS:

GLOBAL PARTNERS:

www.energyinsuranceamericas.com

MARINE | Offshore wind In association with SCOR

The global offshore wind industry is growing at an extraordinary rate, playing a major role in the world’s net zero objectives. Dr GuangQuan Xu, Offshore Renewable Energy Underwriter at SCOR in the UK, gives a broad overview of offshore wind farms, looking at their history, the main components and main insurance products

Insurance market ready to support exponential growth in offshore wind Since the first offshore wind farm was inaugurated in 1991, 2.5km off the Danish coast at Vindeby, and after three decades of rapid growth, offshore wind farms have become a major source of affordable renewable energy, helping to decarbonize economies and tackle global warming worldwide. According to The Economist, almost of half of the 54GW of offshore wind farm capacity installed globally is in China. (Figure 1). A typical offshore wind farm is located in an offshore area with relatively shallow water, not too far from the coastline and naturally with a good wind resource. It comprises a number of wind turbine generators (WTGs), supported by different types of foundations, which are fastened to the seabed. Turbines generate electricity from the wind energy, which is then transmitted to an offshore The Marine Insurer | March 2022

substation via subsea cables, called inter-array cables. At the offshore substation, the electricity is converted to a higher voltage current, which is then transported to an onshore substation via different subsea cables (export cables) before being integrated into the grid system and distributed to customers (Figure 2). The following sections give a brief introduction to the main components of offshore wind farms: > > > >

Wind Turbine Generators (WTG) Foundations Cables – Inter-array and export cables Substations – Offshore and onshore substations

WIND TURBINE GENERATOR – BIGGER AND BETTER The turbine is an essential part of a wind farm. It comprises a nacelle where the generator is housed, blades (modern

MARINE | Offshore wind In association with SCOR

FIGURE 1: GLOBAL INSTALLED OFFSHORE WIND CAPACITY

turbines generally have three), a hub/rotor which attaches the blades to the nacelle, and a tower (steel tubes that attach the nacelle to the foundation.) There are two main types of wind turbine: gearbox and direct drive (Figure 2): The gearbox is a more traditional technology for wind turbines, through which a lower rotational speed by the blades is increased significantly by a gearbox to produce electricity. It is relatively cheap to manufacture, however as there are many moving parts inside a gearbox. This means that this type of turbine is usually more vulnerable. In the case of the direct-drive, the rotor is directly connected to the generator without a gearbox. Direct-drive turbines have fewer rotating components and a more efficient generator, but, they are traditionally more expensive to manufacture and heavier in weight. In the past decade, the capacity of WTG has increased significantly, from an average of 3 MW to 8-9 MW, and up to 12-14 MW on the latest projects under construction. Offshore wind pioneer and father of the modern wind turbine, Henrik Stiesdal, recently predicted that by 2030, the next generation of offshore wind turbines will probably be around 27 MW, with a rotor diameter of 275m.

FIGURE 2: GEARBOX VS. DIRECT-DRIVE TURBINE

FOUNDATIONS – FROM FIXED TO FLOATING

The selection of a suitable foundation type is based on several factors, but, the two main ones are water depth and seabed soil condition at the site. Typical foundation types are summarized in the table below, together with their pros and cons (Table 1). To date, the most installed foundation types are monopiles, however other types of foundation are being developed as offshore wind farms advance into deeper waters.

SUBSEA CABLES – STRATEGIC AND FRAGILE

The main function of cable systems in an offshore wind farm is to transmit the electricity produced by wind turbines to the grid. There are two types of cables used in a typical offshore wind farm. These are: > Inter-array cable: Typically, 7-10 turbines are connected in one string of inter-array cable, which transmits the medium-voltage electricity generated by the turbines to an offshore substation, where it is stepped up to high voltage, e.g. 130 kV to 220 kV; and, > Export cable: An export cable is then used to transmit the high-voltage electricity from the offshore substation to an onshore substation. Because they are usually only a short

AN OFFSHORE WINDFARM

The Marine Insurer | March 2022

MARINE | Offshore wind In association with SCOR

TABLE 1: WIND TURBINE GENERATOR FOUNDATION TYPE

to 43% and 7% of total costs respectively). Offshore wind costs have declined steeply over the past few years. According to the latest report published by the UK Department for Business, Energy and Industrial Strategy (BEIS), the forecast Levelized Cost of Energy (LCOE) for projects commissioning in 2025 will range from £51/MWh up to £63/MWh, reduced from £99 - £175/ MWh in 2018.

ROLE OF INSURANCE

distance from shore, the majority of early offshore wind farms do not include an offshore substation, and electricity generated from the turbines is directly transmitted to the onshore substation. Cables remain the “Achilles heel” of the offshore wind industry because of their complicated manufacture and installation processes that can result in many losses and insurance claims.

SUBSTATIONS – THE HEART AND THE BRAIN

Two types of substations are usually constructed as part of an offshore wind farm, one offshore and one onshore. A typical offshore substation consists of a topside, where several different systems and equipment are housed, sitting on a steel jacket, which is fixed onto the seabed with steel piles. In general, an onshore substation not only includes a transformer and other electrical systems, but, also a control system. This is the “brain” of the wind farm, through which the project team can monitor each turbine’s performance in real-time, to analyse the state of its health using advanced machine learning and big data technology, and to plan maintenance activities accordingly.

OFFSHORE WIND ECONOMICS

Figure 4 shows the cost breakdown for a typical 500 MW offshore wind farm in Europe. With upcoming projects located further away from shore in deeper water areas, the costs of operation and decommissioning are increasing significantly (up

TABLE 2: TYPICAL INSURANCE REQUIREMENTS

The Marine Insurer | March 2022

Insurance plays a key role in offshore wind farm development, by providing financial security to project owners and investors. The extent of insurance cover differs depending on the category of the insured. For large construction projects, the main insured is usually the owner/ developer (Principal) who prefers to control the insurance for the project, especially where Delay in Start Up cover (DSU) is involved. Typical cover requirements are presented below: There are standard policies for operation and construction (WindOP and WindCAR). But, there are also tailor-made key clauses to consider project specific requirements and risk appetite of the developers. In conclusion, the energy transition is a pathway toward the transformation of the global energy sector, with ambitious targets by the second half of this century. At SCOR we are committed to implementing new initiatives to protect the climate and promote the energy transition.

FIGURE 4: COST COMPONENTS

MARINE | Claims trends In association with American P&I Club

Social Inflation: Fact or Fiction?

Molly McCafferty, Senior Vice President, Regional Claims Director (Americas), Shipowners Claims Bureau, Inc., Managers American P&I Club, asks whether social inflation is really driving claims trends. She concludes that it is and that the insurance sector needs to better understand the underlying causes and seek effective solutions to this worrying phenomenon Social inflation has become a trendy term in the insurance industry used to explain the rising cost of insurance claims, particularly personal injury claims. According to a recent study by the Geneva Association on the topic, the Insurance Information Institute (III) considers the term “social inflation” to broadly “refer to all ways in which insurers’ claims costs rise over and above general economic inflation.” A focused approach taken from the same study suggests that “social inflation refers to legislative and litigation

developments which impact insurers’ legal liabilities and claims costs.” It is a catch all phrase that includes everything from the impact of social media, societal shifts like politics, interpretation of law, legal precedent, public sentiment and victimization to science and technology breakthroughs as they apply to medical treatment.

ESCALATING COSTS

In the last year, industry colleagues have raised the caution flag on the escalating cost of personal injury claims in the The Marine Insurer | March 2022

MARINE | Claims trends In association with American P&I Club

United States. Conferences, panel discussions and publications highlight the rising cost and discuss potential causes. The once rare settlement or jury award exceeding $1m has become ubiquitous. The more insurers fear large uncertain jury awards and increased litigation expenses the more likely they are to consider larger settlement amounts resulting in increased settlement floors. The more these cases settle for inflated values, the more plaintiff’s counsel will push the envelope, continuing to raise the settlement floor. As we try to understand the increasing verdicts, and settlements, we continue to second guess the result. Are these one- off “nuclear” verdicts or settlements that can be easily explained?

FACT OR FICTION?

While the American Club is smaller in tonnage than most of the other International Group P&I Clubs, its presence in the US market provides a representative sample that in scale will likely mirror other Clubs’ and insurers’ experience. A review of the available data of the American Club for the ten-year period, 2011- 2021, revealed that the American Club reported 5,069 global personal injury (including the US) files with an average per incident cost of $40,494.30. For the same period and within the global total, US claims represent approximately 20% of the total number of claims. The average cost per claim (CPC) of the US claim in this 10-year period is $72,970.05; approximately 80% more than the global average cost per claim. A closer look at some of the data demonstrates the meteoric rise in values for US claims. In 2011, the US average CPC was $45,757.57, whereas the world average cost per claim was $36,047.38 (a 26.85% difference). By 2018, the US average CPC rose to $124,025.18, whereas the average CPC for the world was $54,779.10 (a difference of 126.41%). The US Labor Department publishes an annual rate of inflation based on the Consumer Price Index created by the US Bureau of Labor Statistics, which is widely used. The cumulative rate of inflation from 2011 through 2018 is 11.6%. Using the Labor Department “Inflation Calculator,” the average US CPC of $45,757.57 would be worth $51,080.72 in 2018. The actual CPC in 2018 for US claims is $124,025.18, an 143% increase above the cumulative rate of inflation for the same period. How does the 143% CPC increase compare to personal injury claims in the rest of the world? In 2011, the average CPC of $36,047.38 would be worth $40,240.91 in 2018 using the same cumulative inflation rate of 11.6%. The actual CPC for the world claims is $54,779.10. This is a 51% increase; above the cumulative rate of inflation but well below the US rate of increase. The starting point for the hypothesis is a basic The Marine Insurer | March 2022

PERSONAL INJURY CLAIMS 2011-2021

Total claims Rest of the world (RoW) pie chart

Total claims United States US

Avg CPC - US

Avg CPC -RoW

understanding of injury claims, US litigation including jury trials, and the high cost of medical treatment in the US, particularly as compared to the rest of the world. The focus of this article is to explore whether social inflation has impacted US crew personal injury claims beyond rising costs of medical care and general inflation. In addition, the article is geared toward a better understanding of whether costs are affected by the location of the claim, the community and current events and the media’s portrayal of the events, while recognizing that many variables impact claim values.

DRIVING FACTORS

The data supports the proposition that inflation is not the primary reason for escalating values in personal injury claims. What factors are driving the increase? Most, if not all, personal injury claims in the US are ordered to mediation or are required to hold a settlement conference before trial.

PERSONAL INJURY-AVERAGE COST PER CLAIM (CPC)

MARINE | Claims trends In association with American P&I Club

A recent settlement conference highlights the extent social inflation has hijacked the judicial system. A federal magistrate judge was acting as the mediator, as is typical practice in federal court. After the claimant crew member provided an opening statement with an inflated demand, and without consideration of liability, the magistrate advised the owner that the demand was “reasonable” and should be considered, if not accepted. He further added a comment to the effect that the local jury pool would have no problem awarding the crew member more than the demand, irrespective of liability or comparative fault. There was no recognition for the owner’s compassionate treatment of the crew member. The claim ultimately settled at a level below the opening demand, but the experience left a sour taste in the owner’s mouth. The owner felt bullied into a settlement at a level it may not have been obligated to pay. Unfortunately, this is not an uncommon experience for owners defending claims in US courts. The suggestion of the jury pool mindset corroborates societal factors impacting the claim value. With mediations and settlement conferences taking place across the country in both federal and state courts, how can an owner (and in turn, the insurers) trust the judicial system under these circumstances? What steps can and should an owner/employer take to protect themselves?

PROACTIVE STEPS

While there are no simple or definitive solutions for social inflation, there are some pro-active steps both owners and the industry can promote. Owner/employers need to continue to be diligent and thoughtful with their safety protocols. A generation of employees has been given trophies for participation and now must discover the benefit and rewards of hard work and a strong work ethic. Accidents will happen. Owners must respond with compassion, transparency, and authenticity. Most importantly, they must engage their employees early and often after any accident or injury. Our experience supports the proposition that company culture and an empathetic response will determine or direct an employee’s post injury propensity to seek counsel and “revenge” through litigation. Post injury arbitration agreements have also met with some success to limit the owner’s exposure and circumvent the potential impact of social inflation. Owners, insurers and P&I Clubs can learn from the plaintiff bar’s success. Defence counsel prepared to meet the strategies and tactics of claimant’s counsel should be sought out and retained.

“The more insurers fear large uncertain jury awards and increased litigation expenses the more likely they are to consider larger settlement amounts resulting in increased settlement floors.’’ Molly McCafferty, American P&I Club

NEW REALITY

Defence counsel must appreciate the new reality and provide candid and realistic evaluations early in the discovery process. In favourable jurisdictions with appropriate facts, cases must be litigated. The insurance industry and owners/ operators must challenge the rapidly developing strategies of plaintiff’s counsel and not shy away from similar tactics and trying cases. The proliferation of jury consultants and mock trials can benefit owners and insurers and their skills must be used. Higher risk cases (via injury, location, counsel etc.) should be identified and early resolution, if possible, should be accomplished before litigation ensues. Another solution to the impact of social inflation is tort reform, though likely the most difficult to succeed within the current political environment. Some minor success in tort reform has recently been achieved under state legislative schemes, particularly in southern states, and particularly with medical malpractice and trucking claims. The industry must continue to promote change and educate people, potential jurors, state and federal government officials, and the judiciary. Without a legislative or judicial re-balance, insurers will continue to increase premiums, which consumers will be forced to absorb (which feeds directly into some consumer groups’ proclamation that social inflation is a term invented by the insurance industry to let them drive up premiums).

CONCLUSION

The data provided by The American Club supports the assumption that personal injury claims are rising at a significantly higher rate than annual inflation. The Marine Insurer | March 2022

MARINE | Sustainability In association with North

Walking the walk Mark Church, Director (FD&D) and Head of Sustainability at North, explains that sustainability is central to the future of the P&I and wider insurance and maritime sector. But sharper definitions and a broader common understanding of what it really means is needed As reflected in the January 2022 edition of The Marine Insurer, sustainability is at the top of the maritime agenda as we move through 2022. Indeed, the focus on sustainability is inevitably only going to increase as shipowners and operators look to navigate through the upcoming patchwork of legislative measures and initiatives designed to aid the decarbonisation of shipping. There is a danger, however, of using the terms “sustainability” and “decarbonisation” interchangeably when evaluating the challenges that face insurers.

WORKING DEFINITION

Without a properly working definition of sustainability there is a risk that the focus becomes too narrow, and that both the The Marine Insurer | March 2022

positive work already undertaken by P&I Clubs and the challenges that we face are underestimated.

WHAT DOES SUSTAINABILITY MEAN?

Sustainability of course is the concept of ensuring a rich natural environment and strong society for future generations. Both a rich natural environment and a strong society are critical to the ability of North, all P&I Clubs and the entire maritime sector to thrive. It is therefore business critical for us to try to address the environmental and societal risks that threaten our success. The principal environmental risk is undoubtedly climate change and we are already seeing the impact of extreme weather events on claims type and quantum. If the world is 2C warmer by 2050, is that a world to which the mutual P&I system could adapt? Hopefully that will remain a question to which we never need find out the answer. Putting sustainability at the heart of P&I is not, however, only about climate change and the consequential need to decarbonise. It is also about meeting head on other critical environmental and societal challenges such as pollution, development, health and wellbeing and diversity. Defining sustainability broadly also helps to emphasize that much of the core work of a P&I Club is inherently supportive of a sustainability agenda – preventing and responding to maritime incidents, managing pollution, damage and loss of life.

RANGE OF IMPACTS

A more explicit focus on sustainability helps us understand the range of impacts we are having and how we can improve our impacts by embedding sustainability even more deeply

MARINE | Sustainability In association with North

It is also in P&I Clubs interests, and obviously of critical importance in and of itself, to do more to support seafarer physical and mental health and wellbeing.

into our everyday activities. Progress will be accelerated only when sustainability is integrated sufficiently within an organisation and everyone is engaged in trying to improve performance. A broad approach to sustainability also means appreciating the dual role that insurers can play. Firstly, we can take steps to improve our own internal performance by reducing our carbon footprint and doing more in the communities in which we are based. For example, North’s headline target in respect of carbon emissions is to reach ‘net zero’ by 2030. Secondly, we can use our in-house expertise to act as a facilitator of sustainability more generally. P&I clubs can guide their members and clients through their decarbonisation journeys while also getting the benefit of their clients’ knowledge of developing technologies and alternative fuels; helping insurers to understand the risks that they will be asked to cover. It is also in P&I Clubs interests, and obviously of critical importance in and of itself, to do more to support seafarer physical and mental health and wellbeing.

POTENTIAL CONFLICTS

Taking a broad approach to sustainability also helps to highlight some of the potential conflicts that insurers will need to consider and address. Environmental and societal interests are not always neatly aligned. Carbon intensive industries with a poor environmental impact may also be those which are driving societal progress in emerging markets. It is important to be honest about these trade-offs and also consider the negative impacts of actions that are taken under a sustainability remit.

As insurers increase their focus on sustainability and seek to demonstrate the value of the work they are doing, a challenge for clients will be to identify those insurers whose actions back up their public statements on the importance of sustainability. While some P&I clubs such as North are now publishing annual sustainability or impact reports, the lack of any industry standard reporting reduces the ability of clients to make a qualitative judgment on the efforts of insurers. However, the spectre of ESG scoring and ranking does not only loom for shipowners but also for insurers themselves. Until, and unless, a common reporting framework emerges ultimately it will be for each member and client to decide whether an insurer is walking the walk, as well as talking the talk.

“Progress will be accelerated only when sustainability is integrated sufficiently within an organisation and everyone is engaged in trying to improve performance.’’ Mark Church, North of England P&I Association

The Marine Insurer | March 2022

MARINE | Yacht Insurance In association with MS Amlin

Smooth sailing: A new approach to risk management for Superyachts

Matt Halpin, Lead Class Underwriter – Yacht at MS Amlin, says that success in the booming yacht and superyacht market has to be based on good risk management and better sharing of data for the benefit of all Staying afloat in the yacht market has been no mean feat for insurers in recent years. However, with the global yacht insurance premium per annum currently sitting at around $500-600m, it remains a class of significant opportunity. As with any challenging market, it is important to remain focused on underwriting discipline with rates, but it is just as critical that we implement practical and holistic services for our clients. While many people associate yachts, and indeed superyachts, with glamorous designs, vessels of jaw-dropping size and cutting-edge architecture, world-class safety is a fundamental requirement which we in the insurance market can vouch for. At Lead Yacht, we have honed in on the delivery of this key ingredient, offering a new and differentiated approach to risk management. Partnerships with other market players have been integral to the success of this service and we see such collaboration as a crucial pathway to the growth and development of the market more broadly.

A BUOYANT MARKET

Since Lead Yacht was founded in 1995 as the world’s first superyacht MGA, the market landscape has shifted dramatically. The Marine Insurer | March 2022

A period of challenging results between 2015 and 2017 left the market navigating choppy waters because of a variety of factors, including significant hurricane losses. Equally as important was the softening of the market in all areas. With more than $1.5bn of capacity available, the market severely suffered from over-saturation, leading to premiums at all-time lows. The level of coverage provided widened, resulting in lower-valued vessels being given the same coverage as much higher-valued vessels. Deductibles were also at unsustainable levels. In the last few years the class has undergone significant positive remediation and correction in rating levels. We are now seeing a light at the end of the tunnel and the consensus is that the London market should stabilise in the next year or two. As the market finds itself back on an even footing, growth opportunities are simultaneously increasing. Last year was the strongest year on record for the yacht market in terms of transactions and total money spent. One of the main drivers for the increased demand for yachts is the sustained creation of wealth, with the number of billionaires rising sharply during the pandemic. We have also seen the impact of low interest rates providing access to cheap capital, and an ever-growing demand for the privacy and private isolation that yachts, and to an even greater degree Superyachts, can deliver.

SAFETY FIRST

At Lead Yacht, we write approximately 50% of the world’s 100 largest superyachts by length. In our 25 years of experience, we continue to see accidents occurring despite

MARINE | Yacht Insurance In association with MS Amlin

“In the last few years the class has undergone significant positive remediation and correction in rating levels. We are now seeing a light at the end of the tunnel, and the consensus is that the London market should stabilise in the next year or two.’’ Matt Halpin, MS Amlin

IMPROVING COLLABORATION

tremendous efforts by captains and crews of superyachts. Time and time again, human error is the main cause of incidents, many of which are easily preventable. This is clearly an issue that needs addressing to protect owners, captains and crews, as well as the insurers that are providing coverage. The finest solutions often arise from bringing together market-leading experts from different areas. Lead Yacht teamed up with specialist marine surveyors Maritime Services International (MSI) to provide risk management reviews for all of the Superyachts that we insure. MSI has carried out reviews on more than 850+ Superyachts on our behalf to date. This collaboration aims to bring together best practices from different operational areas to introduce processes and controls to help reduce the likelihood of incidents occurring or mitigating the effects if an incident has already occurred. The ultimate goal of the risk management review is to assist the captains and crews to operate yachts to the highest possible standards rather than simply complying with regulation which is the lowest standard to be achieved. These reviews are critical in passing on correct procedures and supporting owners, captains and crews to prepare should an incident occur. We offer this as a complementary service, as in our experience, it always ends up paying for itself in time. Approaching underwriting with a long-term lens has provided us with a clear differentiator in the market and a truly sustainable business model that is aligned with the needs of our clients.

Having witnessed the benefits of collaboration in action through the success of our risk management reviews, the value is clear. However, despite the yacht market being relatively small, partnerships and collaboration have not historically been the sector’s strong point. An additional key area that would reap almost instant benefits from collaboration is the sharing of data. Without a holistic view of the market, it is difficult to have a comprehensive assessment of loss trends and the broader drivers for losses. There have been a number of attempts in the past few years to try and get a working panel together and we should continue to prioritise such efforts in the coming years.

LOOKING AHEAD

Zooming out and taking a view of the year ahead, it is clear that the London market is well-positioned for growth. Much work has been done in recent years in terms of underwriting discipline, leading to writing and placing levels being at the highest points in a long while, although we will continue to keep one eye on the ongoing competition from European and US domestic markets. The concerns over supply and demand of yachts in the market is likely to be resolved over the course of this year. We saw a slight reduction in the number of new yachts being delivered in 2021 because of global supply chain issues. Lockdowns and social distancing also led to a less efficient workforce. However, the unprecedented demand for new yachts has led to increased supply, with most shipyards now reporting full-order books. In addition, the second-hand yacht market is booming, all the way from small motor cruisers up to the largest superyachts. As the market continues its upwards trajectory, we are ultimately at an exciting inflection point. We must continue to fine-tune our offerings to capitalise on the demand, working collaboratively wherever possible to provide best-in-class services to our clients. The Marine Insurer | March 2022

PROFILE:

Alandia posts healthy 2021 result despite higher claims Swedish Marine insurer Alandia has reported strong growth in premium for 2021 compared with 2020 with premium up from €85m to €93m The group said that a large part of the increase of 10% in premium income came from hull and machinery, P&I and Cargo insurance. Claims were higher than expected leading to a loss ratio of 80.4% against 72.6% the year before. The combined ratio was 104.6% in 2021 compared with 94.3% in 2020 leading to an underwriting loss of €3.7m last year compared with a profit of €3.4m the year before. The group, however, posted a strong investment result of €27.4m compared with €15.9m the year before. The result from remaining operations was therefore €18.4m in 2021 compared with €16.4m the year before. The group equity stood at a strong €161.9m compared with €168.4m. Alandia CEO Tony Karlström said: “In 2021 the increase in premiums has been good with 10 % higher earnings compared to the previous year. Claims costs were higher than expected resulting in a negative result for the insurance operations. The result of the investment operations was very good with a result that mainly derived from investments in stocks while the return of the fixed income portfolio was slightly negative.” Karlström also explained that on 1 December 2021, Alandia signed a letter of intent with Finnish mutual insurance group LokalTapiola regarding the selling of its statutory accident- and patient insurance portfolio, including customer relations to LokalTapiola. The Marine Insurer | March 2022

“The transaction does not involve any changes to the insurance coverage of the customers concerned and the customers do not need to take any measures. For the transaction to be completed, approval is required from FIN-FSA Financial Supervisory Advisory and both parties’ general meetings. The transaction is intended to take place on 1 July 2022,” explained Karlström. In more detail Alandia explained that a large part of the 10% increase in premium income came from hull and machinery, P&I and cargo insurance. The €65.6m claims cost compared with €58.8m the year before was covered by reinsurance of €1.8m. Reinsurers share of the premiums amounted to €9.2m. Operating expenses amounted to €19.4m compared with €16.5m in 2020

KPI’S

and the expense ratio was 24.3% up from 22.7% the year before. The group said that the increase was mainly from increased broker commissions because of a larger part of the premiums underwritten through brokers. The return-on-investment portfolios was 9.3% against 5.4% in 2020. “The return was relatively evenly spread across the year. All asset classes apart from fixed income contributed to the positive result,” said the insurer. The solvency ratio remains very healthy at 247%. Looking forward Alandia said that premium income in 2022 is expected to end at the same level or slightly above the 2021 outcome. l

“In 2021 the increase in premiums has been good with 10% higher earnings compared to the previous year. ’ Tony Karlström, Alandia CEO

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MARINE | Turkish Straits In association with Cavus & Coskunsu

Beware engine problems in the Turkish Straits Caglar Coskunsu, Partner, Cavus & Coskunsu Law Firm, warns masters and owners to take care when running into engine problems in the Turkish Straits. Immediate salvage assistance is not always the right answer

The Turkish Straits is a unique system of waterways consisting of Istanbul and the Çanakkale Straits and the Marmara Sea connecting the Black Sea to the Mediterranean Sea. The most challenging parts of the Turkish Straits for navigation are the Bosporus and the Dardanelles where there are many sharp turns requiring a change of course at large angles and the domestic sea traffic is busy. In addition, the currents sometimes make the passage of the Dardanelles and the Bosporus more difficult, particularly when the weather conditions increase the currents’ speed and cause variations in the directions of the currents in some risky parts of Bosporus and Dardanelles. A state-owned organization, Kiyi Eminiyeti Genel Mudurlugu (The Directorate General of Coastal Safety), has monopoly rights for salvage services in the Turkish Straits including Izmit Bay and also some areas in close proximity to the entrances of both the Bosporus and the Dardanelles. The Directorate is, however, not just a salvage company but The Marine Insurer | March 2022

also a large company operating pilotage and vessel traffic services (VTS) in the Turkish Straits with extensive resources. This includes many tugs stationed in the Turkish Straits, stations, personnel, different types of boats, land vehicles and equipment in addition to the salvage services, they operate.

PROS AND CONS

The existence of a state-owned salvage company in a narrow channel with busy traffic has both its pros and cons. The advantage for the ship masters, owners and insurers is that the mobilization time of the tugs owned by the Directorate is extremely good for salvage service as there are many escort tugs operating continuously. Tugs are also stationed in both the Bosporus and the Dardanelles. In one recent case, a tug intervened with a vessel that was exposed to imminent danger in less than 10 minutes. This is a better attendance time than a normal fire and rescue service in the city of Istanbul in rush hour of traffic.

MARINE | Turkish Straits In association with Cavus & Coskunsu

“In the case of an engine problem in the Turkish Straits, any recommendation of the pilot and the VTS to accept help from the tugs should be approached with caution.’’ Caglar Coskunsu, Cavus & Coskunsu Therefore, when it is really needed, the salvage assistance will be available within very short period of time in the Bosporus and the Dardanelles. However, the short response time of the Directorate for a salvage assistance sometimes works against the ship and the property owners when there is an engine problem which could be resolved without causing danger to the vessel and property on board. Particularly, when there is a pilot on board, it becomes more complicated. In many cases, the ship masters do not realize that the Directorate also operates pilotage and the VTS in the Turkish Straits. Giving lines to tugs of the Directorate General of Coastal Safety in cases of engine problems without realizing that it would lead to a salvage case because both the VTS and the pilot encourage it can be a conflicting situation. As soon as there is an engine problem, the pilot on board reports it to the VTS station which mobilizes tugs for a salvage service in minutes. Even in situations when the engine problems would be resolved shortly or where there would be an option to drop anchor, the masters face extreme pressure from the pilot and the VTS to take line from the tug(s).

UNNECESSARY SALVAGE CLAIM

All of the above may make it seem like the master would find it impossible situation to avoid an unnecessary salvage claim. But there are remedies. First of all, good preparation of the engine is needed before entering the Turkish Straits. In the case of an engine problem in the Turkish Straits, any recommendation of the pilot and the VTS to accept help from the tugs should be approached with caution. The master must make his or her own assessment. The master should assess whether the vessel is in danger or not. If there is no danger, no assistance from the tugs should be accepted. There is no obligation for accepting the assistance from the tugs.

Even in situations where the engine power cannot be restored quickly, if the vessel can steer or can drop anchor safely, the master should opt to drop anchor. The master will be pressed by the pilot and the VTS not to drop anchor and the master will say that it has been prohibited to drop anchor in the case of engine problems or low speed. However, if the surrounding circumstances do not cause any danger by dropping anchor, the master may proceed. The consequences will only be an administrative fine that represents an insignificant amount compared with a salvage claim. The dropping of the anchor in the Turkish Straits or refusing assistance from the tug is not a crime. The masters should therefore not be afraid of prosecution. The master should always keep the VDR records in mind and if the master thinks there is no danger it should be stated to the pilot or the VTS to make sure that it is recorded and can be used as evidence to help challenge a salvage claim, if it is made without any reasonable ground. The VTS also records all VHF communications by which the master shall be required to confirm salvage assistance. The Directorate General of Coastal Safety is a state-owned organization which does not have the authority to intervene with a vessel. Therefore, the masters should not verbally accept any salvage assistance over the VHF promptly if there is no real imminent danger or it is unclear whether salvage assistance is justifiable or not.

ROUGH CONDITIONS

If the manoeuvring speed of the vessel is low, the masters whose vessels will pass from south to north should be careful, particularly when the weather conditions are rough in the west of Black Sea around the northern entrance of the Bosporus. This is because the force of currents dramatically increase and produce rough seas in the Black Sea that can reach up to 4-5 knots in some cases in the riskier areas of the Bosporus. More importantly, ship masters should be alerted to potential salvage risks in case of slow speeds in the Turkish Straits. Unless there is absolute necessity because of imminent danger, the ship master may not opt to take lines from tugs because it is possible to drop anchor at a safe place or to continue if the vessel steers at a low speed. Normally, dropping anchor is prohibited in the Turkish Straits. But, if it has to take place for safety reasons, it can be done and the worst outcome would be an administrative fine which is a very low amount compared with a salvage claim based on the values of the ship and the property on board. Slow speed issues and engine breakdowns in the Turkish Straits are becoming more costly for owners and insurers. There have recently been four cases within a week. Therefore, given that the risks are real, good passage planning considering all operational aspects of the ship engine should be made in the Turkish Straits. The Marine Insurer | March 2022

MARINE | Safe carriage of coal In association with Hawkins Group

Gas monitoring and ventilation key in coal transport

Paul Willis, fire and explosion investigator at Hawkins Group, the UK-based forensic investigations company, explains how to safely carry coal in a marine context When transported or stored in bulk, coal can be hazardous because it can: > Create a flammable atmosphere; > Self-heat; > Deplete the oxygen concentration; and, > Corrode steel structures. All of these properties are especially hazardous in a marine context and as such the International Maritime Organisation (IMO) Solid Bulk Cargos (IMSBC) Code provides specific guidance for ship owners and masters on the safe carriage of coal. Central to the code and the safe carriage of coal is regular and reliable monitoring of the gas within the cargo holds and surrounding spaces. The IMSBC code requires that vessels transporting bulk coal should carry appropriate instruments for remotely measuring the methane, oxygen and carbon monoxide concentrations within a cargo space, i.e. without requiring entry into the cargo space. The code The Marine Insurer | March 2022

also requires the ship to carry equipment to measure the ph of cargo space bilge samples.

GAS DETECTING EQUIPMENT

At Hawkins, we use a range of detection and monitoring equipment, the most popular and modern of which is the Draeger X-AM 8000. However, it is expensive both to purchase and maintain. Therefore, the devices commonly used on most coal carrying ships are the less expensive handheld gas detectors, similar to the BW Gas Alert Max XT II, (picturedon page 00.) The sensors employed by these gas detectors are fitted into the body of the device and the gases are sampled either by diffusion or through a flexible tube and a length of spark-proof metal tubing fitted with a collar. The metal tubing is to make inserting the tube into the gas sample port as easy as possible. The collar is to seal the port opening against the tube to reduce the risk of erroneous readings. Often a damp rag is used rather than the collar to seal the tube into the sample port. Correct insertion of the tube is important to enable a representative sample to be obtained from the cargo hold. Ideally, the gas detector and/or the tube should incorporate an in-line particle and water contamination filter to prevent damage to the sensors. In accordance with the IMSBC Code, the gas detector used when transporting coal must be fitted with at least oxygen (O2), flammable gas (LEL), and carbon monoxide (CO) sensors. Most of the modern handheld devices will also include a hydrogen

MARINE | Safe carriage of coal In association with Hawkins Group

poisoning and saturation. Poisoning occurs when a non-target gas or vapour attacks the wet chemicals inside the sensor cell and alters the cell chemistry. Once poisoned, the effected sensors will often need to be replaced. Each sensor will have a specified ‘range of detection.’ This indicates the lower limit of detection of the target gas and also the maximum concentration of the target gas the sensor should be exposed to. Over-exposure can cause sensor cells to become saturated. A saturated cell might ‘clear’ in fresh air, or after re-calibration, but that is not always the case, as over-saturation can damage a cell to the extent that it would need to be replaced. LEL sensors used to detect hydrocarbon gasses can use two different types of sensor technology. The most common and cheapest is the catalytic type, which uses a pellistor in an electrical measurement circuit known as a Wheatstone Bridge. (See schematic on page 00:) The working elements of a pellistor comprise two ceramic beads, both of which encase platinum wire coils. The sensor heats both platinum coils to a known temperature and then constantly measures the resistance of the coils. One of the beads (the ‘active’ bead) is treated with a catalyst, which lowers the temperature at which the hydrocarbon gas close to the surface of the bead reacts. The additional heating of the active bead because of the reaction of the hydrocarbon gasses is detected by the electronic measuring circuit as a change in the resistance of that platinum wire coil relative to that encased in an inactive bead of plain ceramic. The change in resistance is translated to a read out on the display, normally in % LEL (Lower Explosive Limit of methane). Pellistor sensors have been used widely and safely for many years, they are intrinsically safe so can be used in a flammable atmosphere, and they can also detect hydrogen. However, there are several limitations to be aware of, which are outlined below: > A pellistor LEL sensor will only operate correctly and produce reliable results if there is sufficient oxygen present (>10%). In a depleted oxygen environment, LEL readings will become inaccurate;

Left: the BW Gas Alert Max XT II Right: the Draeger X-AM 8000

DIAGRAM OF GAS SAMPLING POINT

sulphide (H2S) sensor. The O2, CO and H2S sensors are “wet” electrochemical cells, which utilise a chemical reaction inside the cell between the target gas and chemicals (reagents) contained in the cell. Electronics in the cell detect changes in the chemistry as the reaction of the wet reagents with the target chemical occurs. That signal is then translated into a digital display, typically displayed in parts per million (ppm) or percentage volume (%.vol)) on the screen.

Each sensor will have a specified ‘range of detection.’ This indicates the lower limit of detection of the target gas and also the maximum concentration of

FALSE READING

Chemical sensors that are marketed as being for a particular gas, are often not actually target-gas specific and can react to the presence of other gasses or vapours and as a result display a false reading. Therefore, it is important for a user to be aware of the possible cross sensitivities of their detector’s sensors to avoid relying on such false readings. This information should be detailed in the instruction manual provided with the gas detector. Chemical sensors are prone to damage caused by both The Marine Insurer | March 2022

MARINE | Safe carriage of coal In association with Hawkins Group

SCHEMATIC OF AN IR LEL SENSOR

> Pellistor LEL sensors are not able to discriminate between combustible gases and will only provide an indication of the presence of a flammable gas (or vapours), be it hydrogen, carbon monoxide, methane, ethane, gasoline or diesel fumes etc. They have different sensitivities for each flammable gas, and as such, even if the detector indicates a flammable atmosphere is present, it might not always necessarily be the case; > LEL sensors are usually calibrated using methane, and if another flammable gas is present, then the reading given by the instrument will often be incorrect (either erroneously high or low). This is why it is important to know what gases are being evolved by a cargo; > Pellistors are prone to damage from poisoning from compounds containing silicone, lead, sulphur and phosphates which could be found in some unexpected places on a ship. For example, cleaning products such as furniture polish will often contain silicones. Therefore, users should exercise caution when dealing with these compounds, and perform regular checks to see whether the sensors have become unreliable; and, > A pellistor can also be damaged by saturation, i.e. exposure to high concentrations of hydrocarbons. Therefore, when using a pellistor LEL sensor, the gas detector will need to be calibrated regularly so that any damaged sensors can be replaced. An alternative LEL sensor technology utilises the infra-red (IR) absorption properties of hydrocarbons. These sensors are typically more expensive than pellistor sensors, but they are not prone to either poisoning or saturation. (See schematic belowright:) The IR LEL sensors will operate reliably in a depleted oxygen environment, as they are not reliant on heat from a combustion reaction as the detection method. But they will not detect hydrogen or acetylene as these gases do not absorb IR at the frequency used by the sensors. The Marine Insurer | March 2022

The following is a list of core action to ensure a safe gas monitoring technique. 1. If safe to do so, ensure the cargo hold to be monitored is not ventilated for 4 hours prior to sampling. 2. Ensure that the sampling tube is clean and free from condensation, that the metal portion of the tube is spark proof, and that it is detached from the gas detector. Check the inline filter (if fitted) is clean and dry. 3. Switch on the gas detector in clean air (e.g. in the ship’s office) and let the unit run for about five minutes before going outside to take measurements. 4. Ensure that your gas detector has been calibrated recently (i.e. it is “in date”) and that all of the sensors pass the unit’s self-test function, which runs when the unit is switched on. 5. Open the cargo hold sampling port on the leeward side. Insert the spark proof metal tube so that the tube is inside the cargo hold and seal the sample port with the tube collar or a damp rag. 6. Re-attach the sampling tube to the gas detector and draw a sample of the cargo hold atmosphere through the tube, using the aspirator, until steady readings are obtained. This could take several minutes. 7. Log the results on a suitable form and records cargo space, date and time for each measurement. 8. Detach the sampling tube from the gas detector, remove the tube from the sample port and let any condensation drain out by holding the tube vertically (i.e. uncoiled). 9. Put the sealing cap back on the sampling port. 10. Repeat steps 5 to 9 for each hold to be monitored.

CARING FOR YOUR GAS DETECTOR

A gas detector is an expensive scientific instrument. Please read the manufacturer’s instructions regarding its use, and care. In general, the gas detector should be kept clean and treated with care. Clean the outer casing with a damp cloth. Never use any cleaning chemicals, detergents or solvents to clean it as they can adversely affect/poison the sensors. Detach the sampling tube when not in use and hang it vertically to let any

A SCHEMATIC DIAGRAM OF A PELLISTOR LEL SENSOR

MARINE | Safe carriage of coal In association with Hawkins Group

condensation drain out. Keep the gas detector charged. Store it in a secure location where it will not be tampered with or exposed to chemicals or fumes. If your gas detector allows, you have the equipment, and your situation allows (i.e. you don’t have to travel with the kit by air), carry out a “bump test” calibration in accordance with the manufacturer’s instructions at regular intervals. A bump test, or function check, with a proprietary mixed gas-test cylinder is the only way to ensure the gas detector is working properly. It is performed by exposing the sensors in the detector to a gas mixture that contains gases at concentrations that exceed the lower alarm set points of the detector. Ultimately, it is used to confirm that the sensors respond to the target gas. It also verifies that the display reacts and the audible alarm sounds. Bump tests are qualitative in nature. They do not provide information on the accuracy of the device’s measurements, and therefore they do not act as a method for calibrating the gas detector.

VENTILATION OF A COAL CARGO

Common problems associated with the transportation of coal in bulk include self-heating and generation of flammable gas (i.e. methane). Self-heating normally occurs in localised hot-spots within a bulk cargo, so temperature measurements of the atmosphere above the cargo (i.e. taken through the gas sampling ports) are unlikely to identify problems. However, when coal self-heats it produces carbon monoxide (CO), so measuring the concentration of CO in the cargo hold is the most effective method of identifying a self-heating cargo. The atmosphere in each cargo hold should be monitored, at least daily, not only for carbon monoxide (CO), but also hydrogen sulphide (H2S), oxygen (O2) and flammable gas (LEL - methane). If the holds are being ventilated, then if safe to do so, ventilation should be stopped at least four hours prior to gas measurements being taken.

WHEN TO VENTILATE

The International Maritime Solid Bulk Cargoes (IMSBC) Code requires that the holds are ventilated for 24-hours after loading. However, unless expressly instructed to the contrary, coal cargoes should not be ventilated following this 24-hours period, as unnecessary ventilation can cause the coal to begin to selfheat. Once a self-heating reaction has started, further ventilation will provide oxygen, which will worsen the self-heating and could lead to ignition of the cargo. Only if the LEL levels begin to rise, should ventilation be considered, and only for the minimum period necessary to remove any accumulated methane. As detailed in the IMSBC Code, if LEL levels reach 20% or more, then the ventilation should be maintained continuously (except, where safe to do so, for the purpose of gas monitoring). If the LEL level continues to rise after ventilation has been carried out continuously for a period of 24 hours, or if CO

Common problems associated with the transportation of coal in bulk include self-heating and generation of flammable gas (i.e. methane).

levels begin to rise, then expert advice should be sought as a matter of urgency. If there is a fire or high levels of CO, the Vessel should: Close hatches and cease all ventilation to the holds. Seal the holds by closing the ventilation covers and using RAM-NEK tape (or similar bitumen-mastic tape) around the hatch openings and ventilation covers to provide an airtight seal; > Ensure all spaces adjacent to the holds are gas checked prior to entry and that no-one enters confined spaces without confirming that it is safe to do so by testing the atmosphere inside; > Consider boundary cooling of the affected holds and locate the nearest ports of refuge; > Notify owners and the P&I Club without delay; and, > Provide owners and the P&I Club with all temperature and gas monitoring records for the voyage. The IMSBC Code provides mandatory requirements for the loading and carriage of coal. Of particular note are the following: 1. The cargo declaration should state whether the cargo has a history of self-heating and whether it has a tendency to emit methane (self-heating is almost always encountered when Indonesian coals are carried). 2. Coal should not be loaded if its temperature exceeds 55°C. This is especially important for self-heating coal as a temperature above 55˚°C is indicative that the coal is already at an advanced stage of self-heating. Although not required by the IMSBC Code, an infrared thermometer can greatly assist the crew in checking the surface temperature of the cargo prior to and during loading. Despite the risks associated with the transportation of coal cargoes, the majority of vessels carry coal without incident. Adhering to the requirements and recommendations in the IMSBC Code greatly reduces the risk of fire. Hawkins has many years of experience in assisting owners and P&I Clubs to prevent an incident from becoming a major casualty. If the master only allows cargo below 55˚°C to be loaded, and regularly checks it during passage, then problems can be identified at an early stage and prevented from escalating to the point where the ship and her crew are potentially in danger. The Marine Insurer | March 2022

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The Marine Insurer. Issue 9. March 2022

Articles inside

Safe carriage of coal

Turkish Straits

Superyachts

Sustainability

Cargo claims

Decarbonisation

Cargo transportation

Innovation

Social inflation: fact or fiction

Offshore windfarms

Inland marine law

The broker’s future

Sanctions

Beware of bargains

The rise and rise of the MGA

London still matters

Digital risk

Seizure of vessels

Mega vessels

The future is here