The Marine Insurer. Issue 12. January 2023

The Marine Insurer

NAVIGATING NEWS & ANALYSIS IN THE MARINE MARKETS

Sustainability: Surveyresultsfrom themarket

An increasingly uncertain (marine) world

l Cargo: Resolving accumulation risk needs market trust

l Engine room fires: Tackling the blaze before it starts

l Coopetition: Working together for everyone’s benefit

l Talent: Challenges in attracting and retaining employees

l Suez Canal: A case in point as climate change takes effect

As a leading global marine insurer we know the risks businesses face. Our global solutions and expertise help our clients to face them with confidence.

AIG’s marine team has decades of experience in underwriting, loss prevention and claims handling across the globe. We put our experience and expertise to work every day for our clients, assisting them to protect their assets, maintain business continuity and retain their customers’ loyalty. To let us help you to face your risks with confidence visit aig.com

Insurance and services provided by member companies of American International Group, Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language. For additional information, please visit our website at www.aig.co.uk

Comment Highlights

Roomforoptimism?

LAST YEAR seems to have been full of doom and gloom, from the moment Russia invaded Ukraine.

08

Sustainability

Finnish marine insurer Alandia explains how the company is leading the way in sustainable insurance 10 Corporate responsibility

Shipowners’ P&I Club on the Club’s corporate responsibility learning journey

Salvage contracts Challenging claims ahead for insurers and the salvage sector

NorthStandard merger

The merger of North P&I Club and Standard Club triggers the arrival of a new force in global marine insurance 18 Climate change

Climate change demands a rethink on and investment in key global waterways such as the Suez Canal 22 Future of the Nordics

28 Future risk

How the global maritime sector is reaching out for the potential benefits of embracing technology

32 Data sharing

The global cargo industry needs to take a leap of faith and embrace a new era of data sharing

36 Coopetition

Collaboration with your competitors can deliver good results if organised and managed well

38 Fire risk

The consequences of an engine room fire can be devastating.There is a significant risk to the environment as well

The immediate impact of that was felt keenly across the marine world and, sadly, cost of the life of a Bangladeshi seafarer who was doing nothing more than his day job far from home. Since then the marine world has seen a huge amount of upheaval as Europe and the US reacted with stringent sanctions – some only imposed within the last month.

And every time it seemed things were settling into a routine something else has come along from new lockdowns in China to a rapidly developing global energy crisis.

By the time 2022 had ended we are hearing little other than dire warnings about the risk of global recession. For the marine world which has seen huge price rises since the supply chain bottlenecks following the Covid-19 pandemic, it may not seem a major concern.

However, those across the marine world know full well that a recession in the global markets will likely result in a sudden and rapid demand for goods, with a subsequent fall in demand for shipping services.

At the same time, for marine insurers the year has been equally topsy-turvy. The true cost of the Ukraine invasion has yet to emerge but estimates say the insurance cost of vessels trapped by the conflict could amount to US$1 billion and is expected to hit the insurance market in February 2023.

Market developments from a claims perspective in the Nordics region 26

Subrogation immunity

The significant implications of the Herculito Maritime Ltd v Gunvor International BV due in the Supreme Court in 2023

SURVEY

42 Protection gap Why the industry work much harder to find solutions for insurance buyers rather than simply adding exclusions for challenging emerging risks 44 Talent shortage The pandemic has left the marine industry facing a new talent shortage gap. What the industry needs to do now to solve the problem 04 Sustainability principles and plannimg

Sustainability is now firmly front and centre of the maritime industry’s agenda. Marittima reports on the result of a survey of industry professionals

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

While well placed to meet those claims, the market is also facing an inexorable rise in other claims costs from fires on board vessels to natural disasters and the rapidly rising social inflation.

But there is room for optimism and the market is set to enter 2023 in a healthier place than in previous years, with some rates rising and a return to some pricing stability. The marine insurance market is the oldest insurance market in the world and has seen upsets before.

It is a resilient market and while some changes may seem to take the time of a slow turning tanker to adopt, the market does adapt.

New opportunities will come with the changing times – the switch to renewable energies will require changes from the marine insurance market, while it will also have to consider its approach to new fuels for vessels and possibly new trading patterns in a much-changed world.

They say you can’t teach an old dog new tricks, but the marine insurance market looks set to prove that saying wrong.

Here’s to a happy and healthy 2023!

Liz Booth Editor, The Marine Insurer

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Sustainability principles and marine spatial planning tools for casualty management

There can be no doubt that sustainability is now firmly front and centre of the maritime industry’s agenda. The widening adoption of voluntary sustainability reporting initiatives, as well as ongoing regulatory developments such as the EU’s recent adoption of the Corporate Sustainability Reporting Directive (CSRD)

For decades, prevention, preparedness and response to marine incidents has been regulated by a suite of IMO instruments. These have been effective in reducing the frequency of maritime casualties and driving development of advanced insurance mechanisms to pay when these situations occur

As a result, considerable multisectoral experience, partnerships and knowledge to respond to salvage, pollution and wreck removal situations have been built. In light of this, it is important to understand whether developments in sustainability science could apply to casualty management and result in better outcomes for people and environment.

SETTING THE SCENE

Planned marine development projects, driven by regulatory requirements have long had environmental and socio-cultural risk and impact management processes embedded into their design. Systematic frameworks and data driven tools identify and reduce the impacts of such projects or seek to implement compensatory mitigation measures if required. The growing importance of corporate accountability where environmental, social and governance (ESG) factors has enhanced the importance of this.

Do the mounting expectations of corporate ESG performance and well established environmental and sociocultural management processes offer any opportunities and lessons when it comes to the management of casualties?

My own observations from salvage, pollution incidents and wreck removals suggest there may be a case for this.

In many of these cases however, a less costly approach would have likely resulted in an overall reduction of impact or net benefit but currently, there is no systematic framework or process against which to evaluate and measure the ESG costs and benefits. Without this, it is not possible to effectively evaluate whether all risk factors have been considered and therefore difficult to forecast overall costs.

It is interesting to note the most recent Allianz Shipping Safety Review which stated that “the ESG effect on casualties is beginning to have a serious impact on claims,” according to Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “In the past, a wreck might be left in-situ if it posed no danger to navigation. Now, authorities want to see wrecks removed and the marine environment restored, irrespective of the cost. The environmental responsibilities for owners and insurers will push up the cost of these events exponentially.”

What is not covered by this article is whether ever more

demonstrate this. But does this transition in corporate governance have any implications for how we respond to and manage maritime casualties and should it? Nicky Cariglia , Environmental Consultant, Marittima reports on the result of a survey of industry professionals to discuss these important questions

complex wreck removal plans or pollution responses (at much greater expense), undertaken with an aim to reduce ESG related impacts actually achieve these aims. Or does a more complex response result in the use of ever more resources with more waste to be managed, a bigger physical footprint and longer time frame without achieving any net benefits?

The answer to this will vary on a case-by-case basis and are nuanced. But developing a technical framework to identify and manage ESG factors to complement financial related decision-making is surely warranted.

Against this backdrop, the growing momentum behind ESG related discussions in casualty management and the wider marine insurance sector, it is important to understand the opinions of the wider industry on this. What follows are the outputs of a recent survey and an attempt to contextualise these findings.

THE SURVEY

Delegates at the Marine Claims International conference held in Dublin, September 2022 were provided with a link to a questionnaire composed of 12 questions. These were a combination of multiple choice and scaled response. Questions were selected based on personal experience attending salvage, pollution and wreck removal cases, as well as discussions with colleagues and articles in industry publications.

In all, 50 respondents participated from a wide spectrum of the industry (Figure 1).

Of these respondents, 90% had direct experience of casualty management. (Figure 2) 84% considered that ESG related factors were only part of a number of factors in driving up the costs and uncertainties associated with casualty management and 12% considered ESG issues to be the main driver. This warrants further investigation of the factors considered by respondents to be at play.

DRIVERS OF ESG RELATED COSTS

Historically, the legislative framework applicable in the response to casualties, pollution events and wreck removals was relatively simple – with specific instruments to address liability and criteria for admissible response and claims that could be applied globally. As public expectations have heightened, environmental and socioeconomic concerns have also become more complex.

Marine casualties have also become technically more complex in terms of potential pollutants on board, the carriage of containerised cargo and wastes associated with fires. Simultaneously, a greater number of environmental protection instruments governing all types of routine industrial activities have been adopted. This has resulted in a rise in applicability of a patchwork of other international, regional or national environmental protection legisltation when it comes to managing a casualty.

Requirements under MARPOL, the Basel Convention,

EU Ship Recycling Regulations and the Water Framework Directive may all come into play, despite the fact these instruments were designed to manage long term, planned activities rather than unplanned, short-term events.

Although exceptions exist in the event of emergencies under some of these instruments, once the emergency phase is terminated, in many jurisdictions where a regulator may not have the experience or confidence to apply discretion regarding exceptions, the response will be driven to comply with their provisions. This can limit options in what is

usually an entirely unique circumstance. Excluding creative problem-solving towards finding waste management solutions or potentially the dismantling of a wreck due to provisions not designed to accommodate unplanned events, costs, time and the overall negative impact on people and environment is increased. Attempting to tease out the most important drivers is important as this provides information on where the industry can focus any attention to ESGrelated changes we adopt in how casualties are managed.

Survey respondents reported that the least important issue driving up ESG related costs were rising technical complexity and associated delays. The driver with the highest overall score was higher public expectations followed by costs of environmental claims and an ever evolving complexity of environmental legislation. The latter was given the highest rating (5) the most often (Figure 3).

BEST PRACTICE FRAMEWORK

In consideration of ESG factors in marine casualties, it will be significant to consider these two phases or aspects separately:

1.Emergency response: salvage operations or at-sea response/immediate recovery of bulk oil and pollution from a coastline.

2.Project phase: tendering and wreck removal or secondary/enhanced response to pollution

During emergency response, particularly in salvage, decision-making is frequently timebound where no option available is particularly desirable. Nonetheless, experienced personnel involved will still have to make critical decisions based on the need to protect lives, the environment and minimise disruption to local communities.

Regarding wreck removals, or the more advanced stages of response to a pollution incident, there is usually a pause while information is compiled, authorities are engaged and a tendering and bidding process takes place. The inherently different nature of these phases will require distinct approaches when considering the integration of ESG factors into management best practice.

When asked whether it was necessary for the industry

to develop a bespoke best practice framework with regards to managing ESG risks and impacts, 100% of respondents answered yes or not sure (88% and 12% respectively). (Figure 4)

This suggests that the wider industry considers a need for this but the how remains to be decided. A best practice framework could outline general principles but also underpin the requirements of any methods and tools to manage ESG factors relating to marine casualties.

Development of a guiding principles or best practice framework would ideally be based on industry-wide collaboration and consensus, potentially driven by a central industry body.

DECISION-MAKING AND MANAGEMENT TOOLS

Environmental and social risk management and impact mitigation processes and methods are well defined in the planned marine development sector. Similarly, in corporate governance, frameworks such as the Global Reporting Initiative (GRI) standards have been around since 1997 and offer a well-defined process to identify, map, document and measure an organisation’s performance with regards to its ESG material risks.

More recently, life cycle assessments methods have improved the understanding of the broader impact of a project or product on people and environment and are used in identifying where resource use efficiencies and impact mitigation strategies can be implemented.

The survey found that 76% of respondents considered that the industry should define its own methodology for

managing ESG risks in casualty management, whereas 18% were unsure (the remainder did not consider this necessary). Borrowing from established practices in other sectors provides the opportunity to develop scientifically robust, but scalable tools to facilitate decision-making and dissemination of relevant and pertinent facts.

Tools and methods that could be better embedded into casualty management include:

>Emergency phase: development of a rapid risk assessment (RRA) tool to document ESG risk factors and concerns, and the rationale when difficult decisions are required. A rapid tool to document the potential impacts when having to choose between a bad option and a worse option. RRA tools are already widely used in other sectors of disaster management and public health.

>Project phase:

oModelled on marine spatial planning embed a standard process into casualty management for the identification, description, management and mitigation of relevant ESG risk factors. Factors include components that have the potential to impact the progress or costs of the project, but also those which the project may have an impact upon (either negative or positive). There may be scope in future to develop a quantitative risk assessment (QRA) process and management plans, much like is already done for oil and gas and renewables projects. Indeed, the survey found that (Figure 5) 25% of respondents considered that their organisation already systematically considered and included ESG factors when managing wreck removal projects so sharing these approaches could provide valuable information to the wider industry. Some 53% responded that

they did but that this could improve whereas 21% did not yet consider ESG issues in the tender phase of a wreck removal. It should be noted that in a separate question, only 20% of respondents were familiar with environmental and social risk management and assessment methodologies.

oEvaluation of wreck removal/pollution clean-up project footprint developing a modified approach life-cycle assessment. This can help better understand the overall net benefit of one methodology versus another or indeed assess the justification for the need to remove a wreck or undertake further clean-up. As an example, in cases where a deep wreck does not contain any pollutants and does not meet removal criteria under the Nairobi Convention, would funds be better used elsewhere on projects aligned with a state’s blue economy initiatives?

> Entire casualty life cycle: oThroughout a response, those involved already adhere to multiple statutory instruments and best practice frameworks. The extent of this is rarely captured and could be - in a format that aligns with and feeds up into, corporate sustainabiltiy reporting templates and indicators (eg GRI).

Part and parcel of many responses is the recycling of material, responding to the need to benefit communities affected by an incident (beyond compensation) as well as environmental monitoring, restoration and other measures that go above and beyond the admissible criteria under the international regime. These measures often are in direct alignment with an insurer or shipowner’s stated sustainability strategy and a better tool for documenting ESG considerations also document the degree of recycling or reuse of materials, environmental and community initiatives related to a casualty.

PUTTING IT ALL TOGETHER

Some recommendations and longer term objectives:

1.A fundamentals training course to ensure a common understanding of the basics.

2.Central entity to drive and house related activities and progress and commence engagement with ESG standard setters, intergovernmental agencies, NGOs and Coastal States.

3.Development of a consensus-based best practice framework. Consultation process with broad cross-section of industry,

4. Development and use of technically robust management tools.

To be meaningful, further progress in this area would require dedicated effort and be based on multi-sectoral buy-in. The results of this survey have highlighted that in theory, the will to take work forward is there.

Alandia sustainabletaking insurance seriously

Alandia is a Finnish insurance company with a focus on marine, cargo and boat insurance. With more than 80 years of experience the insurer aims to provide superior marine insurance expertise and claims service to its customers by creating long-term relationships in a committed and accountable way.

Headquartered in Aland islands and with offices in Helsinki, Stockholm and Gothenburg Alandia employs approximately 120 professionals.

In spring 2021, Alandia joined the UNEP FI Principles for Sustainable Insurance (PSI) as the second Finnish insurance company.

Launched at the 2012 UN Conference on Sustainable Development, the UNEP FI Principles for Sustainable Insurance (PSI) serve as a global framework for the insurance industry to address environmental, social and governance risks and opportunities. The PSI initiative is the largest collaborative initiative between the UN and the insurance industry.

Pioneering work by the PSI initiative includes the Net-Zero Insurance Alliance, the Sustainable Insurance Facility of the Vulnerable Twenty Group of Finance Ministers (V20), research on nature-positive insurance, development of environmental, social

and governance (ESG) guides for insurers.

Thers is also work work supporting the implementation of the recommendations of the Task Force on Climaterelated Financial Disclosures (TCFD) and relevant to emerging frameworks such as the Task Force on Naturerelated Financial Disclosures (TNFD).

WHAT IS SUSTAINABLE INSURANCE?

Sustainable insurance is a strategic approach where all activities in the insurance value chain, including interactions with stakeholders, are done in a responsible and forward-looking way.

This is done by identifying, assessing, managing and monitoring risks and opportunities associated with ESG issues. Sustainable insurance aims to reduce risk, develop innovative solutions, improve business performance and contribute to environmental, social and economic sustainability.

THE FOUR PSI PRINCIPLES

As member of the PSI Alandia has committed to implementing the four PSI Principles. These are designed to embed in the company’s decision-making environmental, social and governance issues relevant to the insurance business, work together with clients and business partners to raise awareness of ESG issues, manage risk and develop solutions and work with governments, regulators and other key stakeholders to promote widespread action across society on ESG matters.

It is also designed to demonstrate accountability and transparency by regularly publicly disclosing Alandia’s progress in implementing the Principles.

As a path to implementing the principles, Alandia selected the UN’s sustainability goals that are relevant to

Marina Stenfors , Director Communications at Finnish marine insurer Alandia, explains how the company is leading the way in sustainable insurance through its adoption of the UNEP FI Principles for Sustainable Insurance

Alandia’s operations. The Alandia management team also carried out a materiality assesment of previously identified ESG issues.

MATERIALITY ANALYSIS

The materiality assesment was carried out from a financial and impact materiality point of view. Alandia assessed what level of impact the issue has on its business success (financial materiality, x-axis) and what level of impact the issue has on ESGissues (impact materiality, y-axis) and prioritized accordingly.

During early 2022 the management team started preparing a new company strategy and the work started on implementing the ESG approach based on the materiality assessment. The management team then decided on actions, measurable goals, KPI’s, responsible functions and responsible persons and a follow-up process for the identified ESG issues relevant for Alandia’s business.

THE WAY FORWARD

In June 2022 Alandia published its first UN PSI sustainability report and will continue to do so annually.

The ESG priorities have been communicated as part of the communication of strategy to the personnel and further

ALANDIA ESG APPROACH

1.Proactive loss prevention approach 2.Claims management in a sustainable way

development 4.Sustainable business conduct in own operations 5.Integrating ESG-issues into risk selection 6.Integrating ESG-issues into responsible investment 7.Selection of reinsurers and intermediates with high ESG reputation 8.Responsible sales, marketing and communications practices 9.Supporting climate change mitigation and environmental initiatives relevant for the marine industry

ESG TOPICS CONTRIBUTING TO ALANDIA’S BUSINESS STRATEGY

LOSS PREVENTION:

•Number of customers with active customer projects per year and claims frequency and costs with these customers (BtB)

•Number of Loss prevention actions (nbr of reached customer/action) (BtC)

CLAIMS MANAGEMENT

•Proactive actions in handling claims, correct choices, securing assets, choosing correct suppliers/3rd party partners

PRODUCT

DEVELOPMENT

•Sustainable insurance product and product development

•Invest time and efforts in learning new technologies

OWN OPERATIONS:

•eNPS

RISK SELECTION

•Including ESG considerations in risk appetite

SALES, MARKETING AND COMMUNICATIONS PRACTICES:

•NPS (claims, sales)

•Brand survey result

ACTIONS RELATED TO THE PSI PRINCIPLES

ESG APPROACH <> PSI PRINCIPLES

1.Proactive loss prevention approach 2.Claims management in a sustainable way 3.Product development 4. Sustainable business conduct in own operations 5.Integrating ESG-issues into risk selection 6. Integrating ESG-issues into responsible investment 7.Selection of reinsurers and intermediates with high ESG reputation 8. Responsible sales, marketing and communications practices 9.Supporting climate change mitigation and environmental initiatives relevant for the marine industry

1.We will embed in our decisionmaking ESG issues relevant to our insurance business.

2. We will work together with our clients and business partners to raise awareness of ESG issues, manage risk and develop solutions

3. We will work together with governments, regulators and other key stakeholders to promote widespread action across society on ESG issues.

4. We will demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles.

developed in the business planning process this autumn in all functions.

During the business planning process, the responsible persons and functions defined for implementing the ESG priorities start their work implementing the defined ESG priorities with plans that span three years forward.

The ESG priorities will next be realized and communicated externally to Alandia’s customers, partners, brokers and ship-owners.

Corporate Responsibility -Our Learning Journey to Date

Club’s business model rather than destabilising it; and > Was of benefit/value to the Club’s membership.

It was decided that we would refer to our strategy as corporate responsibility – an all-encompassing approach to sustainability and ESG principles.

It was in 2019 when the Shipowners’ Club first began discussions internally around sustainability and how environmental, social and governance (ESG) factors related to our business model as a service provider.

Fast forward three years and we have issued our first Corporate Responsibility (CR) Annual Report (October 2022).

Some may question ‘why did it take so long’ and ‘what have you learnt along the way’? This article goes some way to address these questions, but I invite the reader to look at the Club’s Report to gain the full picture of our journey so far.

Addressing the first question, it was important to ensure that the Club developed a robust strategy that was in line with its mutual ethos.

To ensure this was the case, and to maintain this focus, principles were developed for all CR related work to abide by, as follows:

> To be transparent to all stakeholders;

> Proportionate, fit for purpose and complemented the

Given our ambition to consider the full scope of factors that fell underneath the CR umbrella, it was essential that we engaged with industry experts to ensure our proposed plans were both effective and meaningful.

It quickly became apparent to us that a successful CR strategy is dependent on learning from each other and sharing experiences. Ensuring a sustainable future for the maritime industry will not be possible if we undertake the journey alone.

COLLECTIVE RESPONSE

This is a situation that affects the industry as a whole and therefore requires collaboration and information sharing to facilitate a collective response.

It was with this collaborative stance in mind that the Club chose to be guided by experts, including the University of Birmingham, Biggar Economics and Our Carbon.

As we have progressed on our CR journey we have also benefitted from discussions with our members on CR-related topics and within the numerous associations we are proud to be members of: and we are sure these will carry on as we continue this journey.

In addition, as a mutual insurer and a member of

Louise Hall , Director - Loss Prevention/Corporate Responsibility of Shipowners’ P&I Club, explains the Club’s corporate responsibility learning journey to date

the International Group of P&I Clubs, we were pleased to acknowledge that many of our business activities and internal operations already fell into the remit of CR.

One of our first tasks was to bring all these undertakings under the one umbrella, always ensuring that anything we did was with the view that it was of benefit to our membership. However, there were of course new activities that needed to be carried out in line with strategic objectives. These included:

> The undertaking of a materiality assessment and survey to understand the issues of highest priority to the Club and our stakeholders;

> The scoping of the Club’s operations against the greenhouse gas protocols to measure our carbon footprint;

> The mapping of our business activities to the Global Reporting Initiative (GRI) reporting standards to ensure our reporting follows global best practice;

> The undertaking of an impact assessment to understand our impact on society and the environment;

> As part of this impact assessment, the setting of KPIs and benchmark indicators to quantitatively measure the progress of our strategy as well as the collection of the data required to monitor these measures;

> A review of the UN’s Sustainable Development Goals to identify the Club’s current and future contribution to these target areas;

> A review of our internal policies and procedures to ensure they reflect our CR strategy;

> The development and dissemination of a code of conduct to strengthen our commitment to maintaining our

required standards and values across our entire network; and,

> The engagement of our investment advisor to perform an ESG-rating of our investment portfolio.

As with everything we do at the Club, communication was, and is, key to our strategy. One of the main factors of CR is transparency and ensuring that a clear and accurate picture of your activities is reported to both internal and external stakeholders.

Prior to issuing the CR Report, part of ensuring a solid foundation for the Club’s strategy was the successful engagement of staff through internal communications.

To effectively facilitate the Club’s work, an internal governance framework was developed. This included a defined reporting structure, the appointment of a director responsible for CR and the adoption of internal CR specialists.

This was further enhanced with the formation of the CR advisory committee, comprised of managers and executive level staff from all areas of the business, to further facilitate internal stakeholder engagement.

CONTINUOUS PROCESS

With all these work tasks and those planned for 2023, it is clear that CR is a continuous process of learning something new every day. One of the first things that we took on board is that CR should be stated and not marketed and this ethos is what the Club continues to keep at the fore when embarking on any new associated workstream.

We made the conscious decision to not communicate the work we had undertaken in the areas of ESG until now.

It was important for the Club, that when detailing our CR strategy externally, it was from a place of substance and action.

With the CR Annual Report 2022, we believe we are in the right place in our strategic roadmap to advise on what we have learnt, detail the process we have been through and outline where we still have work to do.

We hope this may assist others on their own sustainability journeys both within our market and the wider industry.

WHERE NEXT?

So, where do we go from here?

As stated, CR is about continually seeking to improve. For the Club, our strategy is about looking at ways to further enhance the frameworks we have developed, continue to engage with stakeholders as to their CR strategies, to inform, share and collaborate where possible and appropriate and to learn how we can potentially have a positive impact for our membership and the industry as a whole.

One of the key guiding principles of the Club’s business plan states that: “We will strive to incorporate and embrace a CR strategy that focuses on the long-term sustainability of the Club while adding value to its business activities.”

“It was decided that we would refer to our strategy as Corporate Responsibility - an all encompassing approach to sustainability and ESG principles.’’

Louise Hall, Shipowners’ P&I Club

Future of salvage contracts under question

Captain Henk Smith , Marine Masters, who has worked in the maritime industry since 1987, notes that the world fleet, regardless of the economy and the fluctuations in global trade, has continued to grow during his time in the industry and believes that will remain the case. The size of vessels is also growing because of consumer demand leading to challenging claims for insurers and the salvage sector

The number of LOF salvage contracts reported by Lloyd’s Salvage Arbitration Branch (LSAB) continues to decrease year on year. At the time of writing, there were less than 30 LOFs (Lloyd’s Open Form - a regime for determining the amount of remuneration to be awarded to salvors for their services in saving property at sea and minimising or preventing damage to the environment) reported by Lloyds in 2022.

That trend doesn’t look set to change any time soon although the International Salvage Union, and maritime community more generally, is seeking to promote LOFs wherever possible which has included the recent publication of the “Delay Report” by the International Group of P&I Clubs.

It is interesting to explore the divergence between the smaller number of LOFs and the increasing costs of those that are entered into.

One must also consider alternative contracts to the LOF which may be appropriate for certain cases, thereby reducing expense and allowing underwriters to understand the costs

of the project from the outset, in a way that LOF doesn’t.

When I was sailing as a cadet in 1987 on the Nedlloyd Dejima this was considered a large container vessel at close to 3000 TEU. This is around the same size as the Rena and Kea Trader, two container vessels which have been involved in complex and expensive wreck removal operations in recent years.

SEVEN TIMES THE SIZE

The latest container vessels carry more than 22,000 TEU, more than seven times the size. It is not only container carrier but also LNG carriers, car carriers and cruise vessels which are getting bigger.

When considering salvage and wreck removal in this context:

•The size of the salvage assets, for example the bollard pull of tugs involved or the size of heavy lift cranes, will also have to increase;

•The media, and local authorities, are now paying close attention to every incident (even more so since the high profile Ever Given grounding);

•Environmental stakeholders, often in close coordination with local authorities, will want to ensure that there is no trace

of the vessel or any cargo following an incident, regardless of how laborious and costly a clean-up operation may be; and, •Increasingly unpredictable weather conditions can hamper emergency response, often exacerbated by remote locations where there is no “shelter zone”.

SMALLER CREWS

Against this background we are seeing the crews onboard these mega ships getting smaller and smaller, so less able to play an active role in “self-help” when an incident does occur.

More importantly, though, is that we are seeing a year on year decrease in the size of the salvage industry and particularly those salvors that maintain warehouses of equipment and have assets available for prompt mobilization.

The Salvage Convention 1989 states that a salvage award shall be made with a “view to encouraging salvage operations”.

So, one can see how a perception may have arisen that awards have been increasing in relative size if the industry is smaller and awards are less frequent.

“More importantly, though, is that we are seeing a year on year decrease in the size of the salvage industry and particularly those salvors that maintain warehouses of equipment and have assets available for prompt mobilization ’’

Captain Henk Smith Marine Masters

It is not for me to say whether that is correct or not and I appreciate that many in the industry consider that, if anything, salvage awards are actually decreasing in relative terms.

Although it is hard to find reliable statistics on vessel casualties, a brief snapshot of some “broad-brush” data follows:

•Worldwide in 2021 there were more than 53,000 vessel trading over 1,000 GT;

•According to Lloyds there were only 54 total losses;

•The average age of the vessels lost was 28 years;

•Extreme weather was named as a factor in at least 13 of these 54 losses; and,

•Other causes include machinery failures, collisions, fires and explosions.

As I state at the outset, there will always be a place for the LOF contract in the maritime industry and everything should be done to protect it.

There are numerous recent examples of LOF contracts not being entered into, or being concluded too late, meaning that some losses (or major incidents) could be avoided.

Nonetheless, the BIMCO WRECK contracts should not be overlooked and often provide an alternative option for owners and underwriters. This is a form of contract that my company, Marine Masters, negotiates regularly.

The advantages of the WRECK contracts include that:

•The contract is straightforward and can be negotiated quickly (often within a day);

•There is visibility and transparency on costs from the outset;

•The contract has built-in flexibility if the contractor needs to change the method of work, personnel, craft and/or equipment;

•The contract personnel can replicate the LOF salvage team to include salvage masters, salvage officers, naval architects and divers (to name but a few); and,

•There is a swift and effective dispute resolution procedure where any determination is made by one of the LSAB salvage arbitrators.

In my experience, the WRECK suite of contracts have been very effective for all parties in circumstances such as:

• The refloating of a bulk carrier loaded with 40,000 MT of cargo at a port entrance in the Baltic Sea, where a salvage master oversaw the project which included local tugs and lightering tonnage;

•The refloating of a grounded bulk carrier, in ballast, using a salvage team and hired-in assets following a heavy storm;

•Towage of an abandoned drifting vessel after a collision; and,

•Towage of a vessel after an engine room fire.

In many cases the equipment needed for these kinds of emergency services, such as compressors, generators and pumps, can be sourced locally and the salvage contractor can

be remunerated at cost plus an agreed uplift.

This is to be compared with LOF contracts where the purchase, maintenance, upkeep and mobilization of salvage assets has to be taken into account by the salvage arbitrator when determining the salvage award.

For some jobs, though, the only sensible contract is an LOF and particularly where there is an immediate risk to life, the vessel, cargo or environment.

The “best endeavours” obligation in the LOF means that the underwriters will know that no stone is being left unturned in the efforts to save the assets.

The LOF contract also binds all other interests (such as charterers and cargo interests) so the costs are not exclusively for the “company” as named in the WRECK contracts. The flexibility of the LOF contract is also second to none.

Nonetheless, there is clearly a role for the WRECK suite of contracts when working with knowledgeable and sophisticated salvage contractor that can hire in the assets needed, while also providing the professional salvage response needed.

“The latest container vessels carry more than 22,000 TEU, it is not only container carrier but also LNG carriers, car carriers and cruise vessels which are getting bigger.”

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Effective. Aggressive.

Galloway has provided AGGRESSIVE and EFFECTIVE representation of companies engaged in the blue and brown water trade, offshore oilfield and energy services, terminal operations, and vessel construction and repair.

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ETA for NorthStandard set for February 2023

North P&I Club and Standard Club approach the close of 2022 preparing for a new beginning, armed with regulatory approval to merge and unify as NorthStandard. The combined club will launch on 20th February 2023 - next year’s P&I policy renewal date - and will become one of the largest providers of mutual cover in the maritime industries with consolidated annual premiums of around $750m.

The formal approval will see NorthStandard headquartered (and regulated) in the UK with offices in Newcastle and London. Paul Jennings, CEO of North, and Standard Club CEO Jeremy Grose will lead the merged operation.

Reflecting on 2022 as a year of change, Grose and

COMPLEX CLAIMS

More complex claims are challenging performance across the entire P&I sector, pushing up combined ratios and putting capital under pressure, with scale becoming increasingly important to maintain mutuality and develop the broader commercial offerings needed, they say. Scale can also provide a better platform for exploiting the potential of data and automation to revolutionise the P&I market.

“Members voted overwhelmingly in favour of the proposal to merge because they recognised the benefits of greater financial and operational resilience, greater premium stability and predictability,” comments Jennings. “Many also said that they expected the new club would bring a more competitive edge to the market,” he continues.

“Meaningful competition at this scale and prioritising the needs of shipowners in these turbulent times will drive operational efficiencies, enhance service delivery and innovation, while offerring even greater choice through

Jennings envisage NorthStandard as an organisation capable of offering members what they need from their P&I partners to meet pressing industry challenges.

The approval of the merger of North P&I Club and Standard Club triggers the arrival of a new unified force in global marine insurance in 2023

increased product development and diversification,” adds Grose.

“Approval showed that the regulator was content that the merger will have no negative impact on the range and quality of services our members receive,” he continues.

SCALE AND COVER

The merger unites two strong advocates of mutuality, each working within the International Group of P&I Clubs, whose complementary cultures, ambitions and approaches will combine to deliver added value for all members, adds Grose.

With the $750m of combined premium and 300 years of shared P&I heritage, NorthStandard’s scale and financial resilience are expected to smooth the volatility of market fluctuations and deliver predictability in results, in line with targets to maintain combined ratios at 100%.

Potential savings from removing duplication could achieve the equivalent of a 3% improvement to the combined ratio, say Jennings and Grose. Savings are also forecast on reinsurance premiums arising from the combined club’s increased purchasing power and the ability to take higher retention levels are expected to be at least a further 1% on the combined ratio.

Both clubs have recent experience in running mergers and other change projects. For North, this includes the Sunderland Marine merger into North and the subsequent integration and setting up of Brexit-related subsidiaries. Standard Club’s experience includes its own Brexit arrangements, Strike Club integration and, more recently, transitioning management arrangements to an in-house model away from Charles Taylor.

Once merged, NorthStandard will have a range of products within the mutual business (P&I, FD&D, war risks, coastal & inland and strike & delay) and several nonmutual business lines.

Through the merger process and beyond, the emphasis is firmly on maintaining and enhancing levels of service, Grose comments.

FULL MERGER BENEFITS

The merger will also bring together some of the most respected expert teams in maritime risk management to focus on P&I challenges which range from geopolitics, digitalisation, regulation and decarbonisation, to

recruitment, says Grose.

“We believe NorthStandard will be the P&I club of choice for our people and others – offering more career choices, more opportunities and more flexibility while retaining the long-established family ethos and culture of both clubs. This will make it easier to attract, develop and keep the people that are the foundation of the service-led approach, consistently valued and sought by members,” he continues.

Picking up the theme, Jennings adds: “Combined with faster innovation, NorthStandard will be better equipped to meet evolving market requirements more effectively and offer incisive guidance to navigate the continuing change affecting the global maritime sector and better anticipate future trends and challenges.”

MORE CHOICE

As the merger schedule progresses, conversations are also turning to the broader capabilities members of a combined club can access. “NorthStandard will automatically bring a wider choice of services for members,” says Grose.

Jennings concludes: “I’m incredibly proud of the way we at North have developed into one of the leading clubs and how we have maintained and developed strong relationships with members that last many years, and I want to ensure we protect and capitalise on this. I genuinely don’t believe that there has ever been an opportunity that provides such scope to deliver a step-change in our business strategy, our financial resilience and the range and calibre of the services we provide to our members.”

By acting now to bring NorthStandard into being from February 2023, Standard Club and North can exert greater influence over future developments, the joint CEOs believe. Given the pressures facing the P&I club sector, consolidation is logical and may be an inevitability for others.

“With the $750m of combined premium and 300 years of shared P&I heritage, NorthStandard’s scale and financial resilience are expected to smooth the volatility of market fluctuations and deliver predictability in results, in line with targets to maintain combined ratios at 100%.’’

Paul Jennings, North P&I Club

High seas: Enabling a climate resilient Suez Canal

Nicholas Faull , (top left), Head of Climate and Sustainability Risk, Marsh, Amy Barnes (bottom left), Head of Climate and Sustainability Strategy, Marsh, Louis Ghatauray (top right), Managing Consultant, Climate Resilience and Strategy, Marsh Advisory UK, Antonia Goodman (bottom right), Consulting Solutions, Marsh Advisory UK explains how climate change demands a rethink on and investment in the resilience of key global waterways such as the Suez Canal

The blocking of the Suez Canal in May 2021, caused by the Ever Given, demonstrated the vulnerability of global supply chains to disruptions within the world’s canals and waterways.

The “just-in-time” nature of shipping means that there is limited redundancy, and these routes become pressure points for cascading risk. With increasing incidence of disruptive weather events driven by climate change, greater focus should be given to understanding these potential critical points of failure.

As part of this paper, we have assessed how the Suez Canal may be affected over time by physical climate risks. The modeling results, provided by the Cross Dependency Initiative, a leading physical climate risk modeling organization (XDI), have demonstrated that the Suez Canal and its associated infrastructure is presented with vulnerabilities due to natural hazards that will be exacerbated by climate change.

These include increasing coastal inundation risk, particularly across the northern port infrastructure of the Suez Canal and increasing risk of extreme heat events occurring along the length of

the Suez Canal itself.

Measures that could be considered to help mitigate these risks include the following:

Physical resilience: Resilience to physical climate risks, including coastal inundation, should be considered further and invested in to enable the long-term reliability of the Suez Canal. This would include adapting port infrastructure and lock considerations along the canal within the Canal’s adaption window.

Financial enablers: Finance mechanisms, such as (re)insurance-backed public-private schemes, enable de-risking of resilience adaptation. Mechanisms could be developed further to enable resilience adaptation development offsetting for those that rely on and operate the canal.

Resilience strategies: Physical resilience and financial mechanisms must be underpinned by a consistent and structured approach. The UN Principles for Disaster Resilient Infrastructure can facilitate consistency in developing a resilience strategy.

The findings identified here should be considered for similar critical infrastructure assets globally.

STRESSED SUPPLY CHAINS

Global supply chains have been stressed to their limits in the last two years.

An estimated 80%-90% of the world’s traded goods are traded by sea. While demand for goods has increased only slightly from pre-COVID levels — increasing by approximately 3% against 2019 — a variety of factors have constrained supply.

Global lockdowns reduced shipping capacity. Congestion of ships and containers resulting from social distancing measures, the inability to move shipping personnel around the globe, increased sicknesses and cross-border friction during COVID-19 resulted in containers being held up at ports and at sea, constraining fleet capacity.

Rapid reversal of lockdowns released pent-up demand from consumers, overwhelming the capacity of supply chains. This coincided with the exponential increase in e-commerce — heavily influenced by COVID-19 — that, according to the UN, accounted for roughly 30% of global GDP in 2019 and saw sustained growth through to 2021. The resulting impact has been twofold: delays in, and the surging costs of, getting goods to consumers.

There are a handful of key waterways across the world (a Marsh insights blog identifies five: the Suez and Panama Canals, the Straits of Hormuz, the Bab-el-Mandeb, and the Straits of Malacca). If any are blocked — whether through accidents or deliberate political events — the impact is felt across global supply chains and beyond.

With unexpected and, at times, overnight changes in supply and demand from consumers and industry, the previously successful “just-in-time” delivery model is now less appropriate and this highlights a lack of resilience in supply chains.

THE SUEZ CANAL

The Suez Canal, owing to its geographical location, is one of the most well-known shipping passages, and is critical for global trade. Sitting between Port Said and Port Tawfiq in Egypt, it provides entry to the Mediterranean Sea in the north and the Red Sea in the south, making it the quickest sea route between Asia and Europe.

Around 10%-12% of global trade is thought to pass through the Suez Canal, with around 30% of cargo containers using the route. This means that the resilience of the Suez Canal is fundamental for ensuring smooth operation of supply chains.

In the 2022 Global Maritime Issues Monitor, the importance of enabling resilience across the marine industry was further highlighted, with “failure to adapt to climate change” continuing to sit in the top 10 impacts to the marine industry over the next 10 years.

Using the example of the Ever Given, we can begin to analyze the impacts of the canal being unavailable, including those on insurance which were identified above.

While it is difficult to overstate the canal’s importance to

international shipping, its value to the Egyptian economy is also high.

The canal is operated by the state-owned Suez Canal Authority (SCA) and represents a significant source of national income for Egypt, contributing 2%-3% of the country’s GDP. It is one of the government’s main sources of foreign currency, with 60% of the country’s foreign trade transferring through the waterway.

To take advantage of the Suez’s Canal’s strategic importance, the Egyptian government has been directing billions of dollars to the upgrading of port infrastructure, which also acts to attract new industries such as manufacturing and infrastructure. With the goal of creating an international commercial hub, their hope is the “Suez Canal Economic Zone” will bring 1 million to 1.5 million jobs by 2035.

Also, in recent years, the Suez Canal has undergone adaptation and enhancement, including the addition of a waterway and four ports. The SCA is in the process of widening and deepening 18 miles of the 101 mile canal, to improve navigation and crossing times.

IMPACTS OF CLIMATE CHANGE

On the ND-GAIN Country Index, which ranks countries based on their vulnerability to climate change, as well as their readiness to improve resilience, Egypt is ranked 107 of 181 countries.

Climate change impacts on Egypt are expected to manifest in a variety of ways. The country’s 2,200 mile costal shoreline, and the Nile Delta, are particularly vulnerable to rising sea levels due to their low elevation.

In turn, the country’s agricultural sector is threatened because of the risk of saltwater intrusions: The Delta alone is expected to lose more than 30% of its food production by 2030. This trend is likely to be found globally, as flood risk levels are expected to increase under every climate change scenario.

Egypt’s current climate is generally dry and hot, with very low annual precipitation. Because of climate change, temperatures in most parts of the country are now 1°C hotter than they were 100 years ago while annual total precipitation has reduced by approximately 22% in the past 30 years.

The effects of climate change are being felt across what is already a highly arid country.

Hot windstorms known as “Khamsin”, have already played a role in the grounding of Ever Given, and with increased desertification and drought, an increase in the intensity and frequency of sandstorms and dust storms is likely.

The Ever Given event has demonstrated how weather events can threaten critical trade routes, disrupting canal operations and global supply chains. And, if climate change is not tackled sufficiently, the possibility of increased frequency or severity of similar events may need to be considered.

Given the canal’s importance to global supply chains and the Egyptian economy, exploring these evolving climate risks now is paramount. Conducting this analysis will provide transferable findings which can be used to mitigate risks to other similar critical infrastructures as well as to the broader global supply chain.

Due to the difference in the nature of the assets, we have assessed the Suez Canal port infrastructure vulnerabilities and the canal waterway vulnerabilities separately.

PORT INFRASTRUCTURE VULNERABILITIES

Analysis shows that increase in physical climate risk exposure could cause considerable change to the surrounding environment.

The Suez Canal Container Port in the north has the highest physical climate-related peril exposure across the four locations.

Between 2020 and 2100, the Container Port’s risk to climate perils doubles — mostly driven by coastal inundation. This trend is also seen at Port Said, with a comparatively lower risk profile over the century modeled at Port Faud. A similar, but muted trend occurs for Port Tawfiq, with the greatest acceleration of risk occurring between 2050 and 2100.

This is unsurprising because the primary driver of coastal inundation is sea-level rise which is projected to rise up to 1m by 2100.

The strategic importance of these sites as the entrance to the Suez Canal means that the impact from coastal inundation is material.

Increasing exposure to coastal inundation will challenge the integrity of infrastructure and port operations because of potential disruption to the loading, unloading and movement of cargo.

Placement of infrastructure, including transportation and communication networks, industrial sites, housing, and sanitation systems are also likely to be affected. If central communication hubs and channels are impacted, additional investment will be required in resilience adaptation, as well as ensuring that canal operations are not disrupted.

This is because logistical coordination of the Suez Canal is operated from the Port Said location.

The high likelihood of coastal inundation risk to Port Said and the Suez Canal Container Port is reflective of a wider issue. Global projections of inundation on seaports by the IPCC, estimated a 80% rise in the number of ports exposed to inundation of greater than 1 meter between 2030 and 2080.

If similar levels of exposure to coastal inundation are experienced at other global ports without considerable resilience adaptation investment, shipping pinch points could become hazard multipliers, causing considerable disruption, financial losses and higher container costs across the global supply chain.

SUEZ CANAL WATERWAY CLIMATE VULNERABILITIES

Both extreme wind and heat events were modelled along the canal, as both can have impacts on shipping.

Extreme wind events were modelled to increase marginally over the course of the century. Separately, extreme heat events were also modelled to increase over the course of the century. Compared with today, extreme heat events reaching 45°C double by 2050 and are likely to increase seven-fold by 2100.

Extreme heat events affect soil moisture, leading to increased

sandstorm events in semi-arid countries. This is because extreme heat dries soil, making it easier for winds to mobilize it, creating dust storms. If there is an increasing incidence of extreme heat and sandstorm events, visibility levels for navigating through the Suez Canal will be affected, which may result in, for example, restricted port operations or increased need for dredging caused by higher rates of sand deposition.

With the Suez Canal susceptible to a number of climate change impacts, the risk of confluence events — where multiple events occur simultaneously — is heightened.

While a number of conditions contributed to the Ever Given running aground, there is evidence that a similar confluence event may have occurred — temperatures of 43.6°C were recorded in Luxor and a sandstorm preceded the incident.

With a projected rise in heat, and high wind events continuing to occur, the incident serves as a cautionary tale. With shipping trade typically running on tight time schedules, the propensity for these incidents to cause significant disruption to port services and the logistics chains is high.

In addition to potential navigational issues, the impact of extreme heat events can vary from productivity loss, to changes in sea salinity and density. The latter may also impact engine cooling ability and efficiency. These broader risks arising from extreme heat present second and third order risks that could result in increased costs and delays.

IMPLICATIONS FOR BUILDING RESILIENCE

Increasing the resilience of the Suez Canal and adjacent infrastructure can take the form of a patchwork of measures — financial enablers, physical adaptation, and operational adjustments.

For the SCA, the most critical priority is to mitigate operational risk and downtime for the canal. In the short term, downtime will reduce revenue. Longer term, operational impacts will erode business models, requiring fleets to look at alternative routings if Suez cannot be relied on. In future years,

“To take advantage of the Suez’s Canal’s strategic importance, the Egyptian Government has been directing billions of dollars to the upgrading of port infrastructure, which also acts to attract new industries such as manufacturing and infrastructure.’’

as the Suez Canal potentially achieves greater draft capacity through sea-level rise, practical resilience measures, such as reviewing operating procedures, may be necessary to build resilience.

As with any major infrastructure project, material proactive upgrades to the Suez Canal and its supporting ports and facilities may be decadal undertakings. This will require access to stable, long-term capital, which may come in the form of either government (co-)sponsorship, direct-to-market bonds issues by the SCA, or lending by pension funds (which, given the long-dated nature of their liabilities, often support multi-decade infrastructure projects). By using these alternative and proactive methods of financing, resilience can be embedded into the planning and development stage of infrastructure projects.

A combination of reliability and cost for fleets may begin to make longer routes financially appealing — as long as risk of disruption can be reduced. The knock-on effects would result in undesirable environmental implications. For example, if transport is rerouted around Africa, rather than through the Suez Canal, there is a resulting increase in carbon emissions due to the additional distance travelled.

While sea-level rise defences may improve the canal’s risk profile through proactive investment in resilience, there will always be risks associated with its operation and maintenance, which may require a more holistic approach that considers associated infrastructure as well as the canal itself.

Frameworks such as the UN’s Principles for Disaster Resilient Infrastructure can support countries and communities to mitigate risk. At an enterprise level, a resilience strategy, underpinned by prudent risk management helps to minimize risks associated with operation and maintenance, with residual risks transferred to the insurance sector.

The UN’s Principles for Disaster Resilient Infrastructure is a robust framework to underpin strategies such as these. When loss events do arise, restoring an asset to its previous specification — a historic norm for the insurance industry — may prove insufficient because of the evolving pressures of climate change.

The insurance industry is increasingly recognizing the value of “resilient rebuilding”. Initiatives such as FloodRe’s Build Back Better — a public-private scheme that tops up pay-outs for flood risk for UK residential properties to focus on improving flood resilience — demonstrates how (re)insurance can focus adaptation funding where it is needed most, while reducing the likelihood of future claims at the same time.

SIGNIFICANT INFRASTRUCTURE CHANGE

Looking ahead, significant infrastructure change may be required to enable the resilience of the Suez Canal. With coastal innundation increasing over the course of the century, ensuring the resilience of ports will soon be critical. For the canal this may include the raising or hardening of banks to adapt to sea-level rise.

A further physical infrastructural change to reduce

vulnerability is the canal widening. While in theory this could considerably improve channel safety by promoting better and easier navigability, this change could also result in increased use. The existing one-way system may become two-way in some places, allowing more vessels to pass through. Unless actively managed, this could reverse the benefits of these resilience efforts.

All of the above adaptations should be considered in the context of the time horizon in which they occur. There is an adaptation window to assess how quickly key infrastructure needs to react and the level of change required. This could coincide with planned upgrades and may inform lifecycle planning.

While physical infrastructure change has a place in building resilience, it is in ship and cargo owners’ interest to seek independent risk mitigation measures.

By building strong communication networks with suppliers, increasing visibility of supply chains, and taking time to understand any single points of failure, hazard multiplication can be limited through pro-active preparation.

Finally, purchasing trade disruption insurance (TDI) and other forms of bespoke insurance, are becoming increasingly popular and valuable methods of risk transfer.

Insurance and reinsurance mechanisms play a critical role in reducing the financial risks associated with climate change.

Using the Ever Given event as a “wake-up call” that highlighted the importance of approaching risk mitigation from multiple angles will provide an improvement on the current level of resilience.

CONCLUSIONS

Shipping and global trade rely heavily on critical routes and infrastructure and the insurance industry has mechanisms to enable the de-risking of their pinch points. Building resilience, can be achieved using multiple methods, including physical resilience, financial enablers, and definition of a resilience strategy (based on UN Principles for Disaster Resilient Infrastructure, for example).

Given the global strategic importance of the Suez Canal, a patchwork of resilience measures in addition to a comprehensive understanding of the risk landscape will be required to galvanize asset owners, operators, governments and investors on the longterm viability of the canal.

More broadly, similar lessons can be applied to other globally critical infrastructure assets. We have identified three primary takeaways for infrastructure asset owners as part of this paper. These are:

Asset owners should seek to identify the physical resilience measures required and define their adaptation window to ensure the long-term viability of their assets;

Financial mechanisms such as (re) insurance-backed schemes can enable the development of physical resilience measures and ultimately de-risk the investment required; and,

Finally, while an asset’s resilience can be viewed in silo, a resilience strategy that takes a more holistic approach may prove beneficial in ensuring that the asset, as well as associated infrastructure, continues to remain viable.

Where are we heading to?

Over the years the changes have been big in both marine and cargo portfolios. I have no reason to believe that the years ahead would be any different. There will be mergers and acquisitions. Insurers’ risk appetites and brokers’ focus areas will be volatile.

In the Nordics we have a healthy and growing captive market – large entities with appetite to retain a reasonable risk. From a claims service provider’s perspective this is obviously an opportunity. Whilst the traditional insurers do from time to time outsource carefully selected claims related services – typically surveys and in some cases claims management – the captives are more prone to use us as their partners.

FRESH WINDS

One thing that will, I believe, develop going forward is expansion of MGAs in our market. We have seen MGAs grow. This is most welcome and it will balance the existing ‘local company market’ going forward. The Nordic market has traditionally been very local with insurers having capacity and capability to underwrite risks 100%. This is how it’s been for more than a century so it cannot be all wrong,

However, fresh winds are not always bad.

By consuming typically up to 80% of total premiums, the claims process dominates the insurance industry’s operations in a way that has few parallels in other types of business.

Globally operating independent loss adjusters have existed in the Nordics only since late 1980s. Many of these companies currently operating here have their roots in marine claims. They were typically Lloyd’s/ILU agents that then expanded their service portfolios to non-marine losses. Their marine expertise in the region has since been diluted to some extent and this has in turn opened doors for smaller operators to exist and grow.

Beside the insurers’ in-house claims services there are a number of small survey companies along the long coastlines of Norway, Denmark, Sweden and Finland.

Many of these companies have very competent staff but, in the current rather strictly regulated business environment dominated by GDPR, sanction checks, compliance requirement, proper PI insurance cover and the like - these professionals are finding it more and more challenging to provide services.

Those service providers that can provide– in claims

Heikki Vaara, Claims Director at leading Nordic claims and survey company Wesmans, has been an independent claims service provider to the marine insurance industry for more than four decades. In this role he has had the opportunity to closely follow market developments from a claims perspective in the region. Heikki shares his expert views on this important market and stresses that these are his own personal views do not always necessarily reflect those of her valued employer

management or surveys or both - the expertise and credibility and also comply with ever-increasing regulatory requirements are the ones who will be the frontrunners in this niche market.

TOOLS FOR THE TRADE

A focus on claims management services also means a greater need to develop tools for this trade.

It has proved to be challenging for locally operating service providers to develop and especially maintain such tools. Larger claims management companies will be able to do this but they are facing the challenge of adapting the tools for the clients’ needs in each region. Being able to adapt and scale the tools continues to be a key to success as it will link the client and service provider tightly together.

Insurers and also claim service providers are capturing data. The ability to use it in a productive way will be one of the key elements in developing the business going forward. This is inevitable – it also means that data protection and the way data can be used will have to be clearly defined in procurement contracts.

One area that has received only very limited attention is human resources. Marine and transportation related claims

work is typically international, very volatile, requires multiple skills – not least language skills – and challenges vary from day to day considerably.

Those who are able to attract and motivate individuals with the right attitude, not necessarily education, will be the forerunners in the future.

Experienced people are always sought after as they are the ones who have competence and do give credibility to the operation. However, retired and semi-retired people seldom have the passion to develop the business. Many of the existing service providers within the region are facing this problem, either knowingly or not.

HR PERSPECTIVE

From a HR and finance perspective the volume of marine claims business transacted today in the Nordic region could be streamlined.

We are known to be expensive and the main expense here, as in any other service sector, is personnel. Staff costs are typically north of 55% of revenue and this means that focus must be kept on billable hours to safeguard business continuity.

In my opinion it is clear that the market will change. New stakeholders will enter and exit. At the same time the claims need to be adjusted and surveys carried out.

Those buying these services will be increasingly cost conscious and new tools of the trade will be developed and introduced for the sake of efficiency.

Those of us who started their careers in this business back in the time before electric typewriters/telefax, have experienced enormous changes in both communication, but, also in reporting and monetary transaction.

There is no question that more and more claims will be handled based on streamlining the way claims data is processed. However, I do not see that this would take away the human professional touch as claims are often complex.

Experienced claims adjusters with right skillsets are the ones who can protect their principals’ interest.

“By consuming typically up to 80% of total premiums, the claims process dominates the insurance industry’s operations in a way that has few parallels in other types of business.”

Heikki Vaara, Wesmans

Sponsors:

etc Venues 155 Bishopsgate, London

The largest UK marine insurance event is back for 2023. With over 400 attendees in 2022 and now in its fifth year, Marine Insurance London is the leading global marine insurance conference and all brokers, insurers and third parties should attend this event to help shape the future of the industry.

Global Partners:

24 March 2023

Friday 24 March 2023

www.marineinsurancelondon.com

All times are in Greenwich Mean Time (GMT)

07:50 - 9:00 : Registration and Coffee in the Pre-Function Area

08.05-08.55: BREAKFAST BRIEFING: Time to Come Together – The Future of P&I?

Moderator: Demian Smith, Managing Director, Head of Mutual, Agency and Captive Reinsurance Solutions Global Marine and Energy, Guy Carpenter

Panellists: Ed Davies, Chief Strategy Officer, North Standard Andrew Cutler, Chief Executive Officer Britannia P&I Club and Chairman of International Group of P&I Clubs, Christian-Pritchard Davies, Chief Financial Officer, GARD

09.00-09.45: PANEL DISCUSSION: Can London Still Call Itself the Marine Market Leader?

Panellists: Louise Nevill, Chief Executive Officer, Marine and Cargo, Marsh, Tom Midtunn, Head of Production Global Marine, Lockton Marine

09.45-10.15: KEYNOTE ADDRESS: The World – A More Uncertain Place Than Ever

Presenter: Richard Luckyn-Malone, Director, Herminius

10.15-10.45: FIRESIDE CHAT: War Insurance – How Well is it Working?

Participants: Frédéric Denèfle, President, International Union of Marine Insurers, Michael Davey, Barrister (KC,) Quadrant Chambers

10.45-11.15: COFFEE AND NETWORKING

11.15-11.35: KEYNOTE PRESENTATION: Time to go Nuclear?

Presenter: Mikal Boe, Chief Executive Officer, Core Power

11.35-12.10: PANEL DISCUSSION: Embracing the Poseidon Principles

Panellists: Nick Shaw, Chief Executive Officer, International Group of P&I Clubs, Pauline Des Vallieres, Sustainable Insurance Manager, SCOR, Hildegunn Nilssen, Communications Director, Norwegian Hull Club

12.30-13.20: LUNCH

13.20-13.50: ONE TO ONE: Information is King! Or is it?

Presenter: Astrid Seltmann, Analyst/Actuary of Cefor, The Nordic Association of Marine Insurers

13.50-14.15: PRESENTATION: Impact of Geopolitics on Cargo

Presenter: Neil Atkinson, Head of Marine, CNA Hardy

14.15-14.45: PRESENTATION: Capping the Costs

14:45-15:00: COFFEE AND NETWORKING

15.00-15.20: PRESENTATION: Operating in the Dark?

15.20-16.00: PANEL DISCUSSION: Collaborating with the Salvors

Panellists: Melis Otmar, Claims Director, BMS Harris & Dixon Marine, Caglar Coskunsu, Partner, Cavus & Coskunsu Law Firm, Andreas Brachel, Head of Environmental Claims, GARD, Wilco Alberda, Commercial and Claims Manager, SMIT Salvage

16.00-16.20: PRESENTATION: Keeping the (Claims) Records Straight

16.20-17.00: WORKSTREAM REPORT: What Will it Take to Make LOF Future-Fit?

Participants: Jenna Hales, Marine, Energy and Specialty Claims Manager, Hiscox, James Herbert, Secretary General, International Salvage Union, Stephen Chapman, Marine Claims Manager, Ascot, Ben Harris, Head of Claims London Branch, The Shipowners Club

12.10-12.30: PRESENTATION: New Year, New Rules

17.05-Late: Drinks Reception and After Party

The “POLAR” revisited: the future of subrogation immunity

Through the years, cases before the English courts have shaped the limits within which subrogated recoveries can be successfully pursued in the name of an assured against third parties.

One key limitation is founded on the concept that, in certain circumstances, a third party may receive subrogation immunity despite not being a party to the insurance.

While at first blush this concept may seem straightforward, cases before the English courts have dealt with a collection of distinctive situations and disputes that have created an intricate patchwork of authorities that need to be considered for potential claims.

Subrogation forms a key part of an insurer’s book, but can often be disregarded or overlooked and together with identifying opportunities early, securing evidence and identifying claims, understanding the effect of these cases is vital in determining whether a recovery prospect is possible.

SUBROGATION IMMUNITY

Looking at the year ahead, a shipping case developing this case law, and one which serves as a timely reminder of the intricacies of subrogation immunity, is Herculito Maritime Ltd v Gunvor International BV due to be heard by the Supreme Court in 2023.

Heard by the Commercial Court in December 2020 as an appeal from an arbitration award, and by the Court of Appeal in December 2021, Herculito concerns the extent to which subrogation immunity can be conferred on third parties in circumstances where there is no express agreement between the insured and the third party granting such immunity

During a voyage from St Petersburg to Singapore, M/V “POLAR” was seized by pirates while transiting the Gulf of Aden, forcing the shipowners (Herculito) to pay a ransom to

release the vessel.

Additional clauses were incorporated within the charterparty including a Gulf of Aden clause, war risks and kidnap and ransom clauses, providing that “any additional premiums payable by the owner in respect of war risks ... shall be for the charterer’s account”.

ALL TERMS, CONDITIONS, LIBERTIES AND EXCEPTIONS

Six bills of lading were issued in favour of Gunvor (holders) for the carriage of fuel oil. The bills provided for the incorporation of “all terms and conditions, liberties and exceptions of the Charterparty”. The owners were fully indemnified for the ransom payment under the additional risks cover. After general average (GA) was declared, shipowners’ insurers sought a GA contribution from cargo interests.

At arbitration, cargo owners successfully defended the contribution claim. Among other findings, the tribunal held that, on the true construction of the bills of lading, the bills gave rise to an “exclusive insurance fund” which precluded owners from recovering a GA contribution from the cargo interests.

This was because: (1) the charterparty contained a “code” for losses resulting from piracy in the Gulf of Aden and pursuant to the charter owners had agreed not to claim a GA contribution from charterers for such losses, and (2) the “code” was incorporated into the bills such that owners’ insurers were unable to pursue a recovery against cargo interests.

The Commercial Court overturned this decision, finding that, while the additional clauses in the charterparty created an insurance code between the owners and charterers, this code could not extend to cargo interests since there was no foundation in the bills for an agreement by owners not to seek a contribution from holders for piracy losses.

The Court highlighted that the bills did not contain an agreement by the holders to pay an additional premium.

The Court of Appeal affirmed the decision of the

Rob King , of Clyde & Co LLP, analyses the significant implications of the coming hearing of Herculito Maritime Ltd v Gunvor International BV due to be heard by the Supreme Court in 2023

Commercial Court, noting that ultimately this was a case where both parties were insured against the risk of piracy and allowing the owners to claim would mean each set of insurers would bear its proper share of the risk which they had agreed to cover.

In contrast, the effect of construing the bills to exclude a claim by owners would have meant the owners’ insurers bearing the loss entirely with the cargo owners’ insurers escaping liability.

The Court also raised doubts over the practicalities of suggesting that charterers’ obligation to pay premium could be manipulated to impose the obligation on holders.

The Court noted there was nothing in the bills or charterparty indicating how liability for premium would be apportioned between the holders, eg, jointly and severally or by reference to cargo value or volume.

POWERFUL ARGUMENT

The Court did acknowledge the “powerful argument” put forward by cargo owners that it was cargo owners rather than charterers which would be directly concerned with the GA contribution and that there should be no reason why one party (charterers) should not agree to pay premium for the benefit of another (cargo interests) on the basis that the counterparty (owners) would not seek a contribution from the party for whose benefit the premium is paid. However, the Court did not accept this, stating that had this been the intention it should not have been left to be implicitly understood by reference to “complex arguments concerning the incorporation of charterparty terms”, this being “an unnecessarily convoluted way to express a simple concept”.

There were no express terms rebutting the presumption that shipowners had not abandoned its right to GA

contribution from cargo owners.

At its heart therefore, the Court of Appeal’s decision emphasised the commercial reality of the parties’ insurance arrangements in circumstances where cargo owners’ financial interest was covered by its own insurance (on ICC (A) terms).

As it stands,  Herculito emphasises in line with previous key authorities on the insurance code, including The Evia No. 2 [1983] 1 AC 736 and  The Ocean Victory [2017] UKSC 35, that whether a contractual provision creates an insurance fund as the sole avenue for making good a loss (and subrogation immunity towards third parties) must be determined in each case as a matter of construction based on the facts presented and with specific consideration of the express intention between and actions of the insurance interests and the third party.

There are a number of points made throughout the Herculito  judgments which suggest that in different circumstances the courts’ analysis may have been different, regardless of whether ultimately the same decisions would have been arrived at.

For example, if it was not common practice for cargo interests to take out insurance, if there was some indication regarding how liability for premium should be apportioned or if there was some factor to rebut the presumption that owners had not abandoned their right to a contribution from cargo owners.

In this context a further decision from the Supreme Court on the insurance code, albeit specifically in the context of incorporation of a charterparty’s terms, stands to provide additional key authority on the extent of a third party’s ability to obtain subrogation immunity absent express agreement.

During a voyage from St Petersburg to Singapore, M/V “POLAR” (inset right) was seized by pirates whilst transiting the Gulf of Aden, forcing the shipowners (Herculito) to pay a ransom to release the vessel.

“Subrogation forms a key part of an insurer’s book, but can often be disregarded or overlooked, and together with identifying opportunities early, securing evidence and identifying claims, understanding the effect of these cases is vital in determining whether a recovery prospect is |possible.’’

Marine insurers rise to new risk paradigm

The commercial and marine insurance industry isn’t exactly known for being at the forefront of innovation and change. It has maintained a bit of a “why fix it if it’s not broken” attitude that has allowed the industry to thrive for years. However, the trade environment and insurance realm no longer look the way they did 50 years ago. This means that it is high time for the industry to begin adapting to keep up with the ever-changing marketplace.

Today, because of globalization, the trade network covers

nearly every corner of the world.

The internet, online platforms and other new trade patterns have only aided this expansion, creating economies of scale and opportunities for businesses of all sizes to join the market. And, as the trade environment continues to adapt and change, so must the insurance industry.

As we look toward the future of commercial and marine insurance, we predict that the industry will tap into several growth opportunities.

The insurance sphere will find different ways of

Jack Falvey , Chief Operating Officer, Falvey Insurance Group, has an optimistic view of the potential for the commercial marine insurance sector as it finally grasps the potential offered by technology

addressing and attracting potential clients in an increasingly decentralized market. We assume this will involve implementing advanced technologies and developing new approaches to identifying non-modeled risks.

Below, we’ll unpack some of these ideas to better understand the direction the insurance industry is moving toward in the coming years.

IMPACTS OF DECENTRALIZED TRADE

If we look back on the history of global trade, the majority of imports and exports are funneled through a few big players with large capital investments.

Smaller businesses and more remote countries could not get in on a piece of the pie because they were limited in the ways they could show up, connect with customers and expand their business.

That is, until the onset of the internet. The internet has

made it increasingly possible for those smaller players to have a bigger stake in the market.

Further, with the increase in online marketplaces and platforms, from Amazon to Frieghtos, the world seems to have gotten a little smaller, as these aggregators are finding new ways to reach customers around the world.

This, in combination with innovative shipping and fulfillment methods like drop shipping, dark stores and micro fulfillment centers, is helping to further decentralize the current trade model and reduce logistical challenges.

So, how does this impact the insurance industry? With its new and different delivery practices, this diverse and decentralized market will bring unique risks and challenges that the insurance industry must accommodate. Not to mention, with so many new smaller operations now on the scene, insurers will need to experiment with different strategies to bring their insurance products in front of this dispersed audience of potential customers.

Essentially, the insurance industry must adapt to keep up with this rapidly changing trade environment.

DIGITAL TRANSFORMATION

While the insurance industry has been notoriously slow to adopt digitalization, it is beginning to phase out its legacy systems in favour of more advanced technology.

Instead of relying on paper-based documentation, we can expect insurance companies to continue implementing technology infrastructures focused on streamlining services and processing and storing data.

In fact, Deloitte’s 2022 Insurance Industry Outlook predicts that within the next year, 74% of insurance companies will expand their AI budget, 72% will increase spending on cloud computing and storage, while 67% will boost their data analytics budget.

Jack Falvey, Falvey Insurance Group

“Deloitte’s 2022 Insurance Industry Outlook predicts that within the next year, 74% of insurance companies will expand their AI budget, 72% will increase spending on cloud computing and storage, while 67% will boost their data analytics budget.’’

Allotting more money toward these technological initiatives will help make the insurance industry run more smoothly, effectively and accurately.

In fact, it’s digitizing their products that will make it easier for insurers to reach their decentralized customers and interact with them in a more personalized way.

It will certainly improve the customer service experience as automated and accessible digital products allow insurers to better tailor their solutions to their customers’ specific needs. And furthermore, these technologies will promote more flexibility and agility.

With data stored digitally, insurers will have relevant data at their fingertips, letting them oversee and process all the moving parts of the shipping journey, such as providing updates on goods and tracking the exact location of vessels.

MANAGEMENT OF NON-MODELED RISKS

Data plays a big role in underwriting as insurers rely on actuarial data to determine risks. However, as is, insurers are limited when it comes to risk assessment because they really can only accommodate for and predict those risks that are already modeled.

SO, WHAT ABOUT THE NON-MODELED RISKS?

These risks do not fit traditional models because unlike property risks, they’re constantly moving throughout the supply chain, such as trade embargos, port congestion, supply shortages, labour negotiations, factory shutdowns and war disruption. And as we know, the supply chain is complex and fragile. One event can cause a domino effect, impacting every stage, from production to distribution.

The recent Ever Given incident is just one example of a non-modeled risk that highlights the need for this kind of modeling.

When the massive cargo ship got stuck in the Suez Canal, it blocked an estimated $9.6bn worth of cargo each day and triggered delays and backlogs all around the world that took months to rebound.

Perhaps if this kind of risk was more widely modeled, its impact on the supply chain wouldn’t have been so drastic.

SUPPLY CHAIN CHAOS

If the last few years of supply chain chaos have taught us anything, it is that the industry needs more access to data to create applicable models in this growing network of companies moving and selling goods.

This gap in risk management is something we predict the insurance industry will focus on improving and evolving in the coming years.

Essentially, insurers need models to spit out expected losses in specific locations, run scenarios, and monitor trade exposures. This global initiative needs to be a centralized system that all insurance companies can access to better identify, assess and monitor risks.

That way, even if the exposure hasn’t happened in one specific location, insurers should be able to track how a similar exposure impacted other regions.

We have already seen some examples of insurers making strides toward modeling these risks.

For example, the Association of British Insurers (ABI) recently set forth a best practice guide titled “Non-Modeled Risks - A guide to more complete catastrophe risk assessment for (re)insurers”.

It outlines methods for identifying exposures, quantifying non-modeled risks and representing them in a model. The more insurers can understand these risks, the better coverage they can provide.

At Falvey Insurance Group, we believe the future is bright for the commercial and marine insurance industry. As long as the industry continues to place a strong emphasis on evolving with the changes in the marketplace and implementing new technologies, it will continue to grow and thrive.

“The recent Ever Given incident is just one example of a non-modeled risk that highlights the need for this kind of modeling. When the massive cargo ship got stuck in the Suez Canal, it blocked an estimated $9.6bn worth of cargo each day and triggered delays and backlogs all around the world that took months to rebound.”

Jack Falvey, Falvey Insurance Group

Trust will open new era for addressing cargo accumulation

We cannot avoid the growing realisation that the global cargo market is set to become a far riskier place for insureds, insurers and reinsurers alike.

As the world has emerged from the pandemic and its economic impact, global cargo flows have increased by 20% year on year and are expected to keep on a trajectory of rapid growth.

That growth comes against a background of more severe and frequent, natural and man-made catastrophes.

Hurricane Ian is estimated to have cost the marine market $5bn from losses across the US east coast, causing damage from high winds and storm surge. This is on top of continued pressures on the global supply chain.

But it is not only natural catastrophes we need to consider. The fire and explosion at the Port of Tianjin in 2015 cost marine underwriters more than $1bn, the explosion at the Port of Beirut is estimated at $3bn and the loss of the Felicity Ace and its cargo of high-end vehicles this year is estimated at $500m.

The Russian invasion of Ukraine has left many vessels trapped in the country’s ports, unable to leave and traverse the Black Sea due to the threat of indiscriminate sea mines and attack by the Russian Black Sea fleet.

UNDERSTANDING ACCUMULATION

What the events of the past five years have starkly illustrated is the need for insurers to get a real understanding of their cargo accumulation at any one time

Andrew Yeoman , CEO at Concirrus, says the “era of darkness” for marine cargo accumulations is now at an end, but the industry needs to take a leap of faith and embrace a new era of trust in sharing data

in ports and on vessels across the world.

Despite such challenging times, there is good news for the industry. The technology and systems now exist which can access the information and data on cargo movements that can provide the ability for insureds and insurers to truly understand their cargo risks and the accumulations.

For the insured, such systems will enable them to better identify the risks they face, understand vulnerabilities in their supply chain, and deliver far more detailed data to insurers on which they can base their underwriting decisions.

In the past, the insurers have provided high-level information such as the turnover of the insured company, the typical value of cargo it has moved in the previous year and the company’s claims record.

That has fundamentally changed with insurers now able to access data on exactly what cargo was shipped, to where and when and via which routes. It enables the underwriter to identify risks, and accumulations on a real time basis.

For example, if the insured is shipping company critical machinery in five containers and all are transiting though the Port of New York, it creates the opportunity for the insurer to advise the insured that it should be potentially shipping the

equipment through several ports to reduce the risk that the cargo will all be impacted by a single event.

Insurers are now able to access the data which will tell them their total accumulation risk across all insureds at a particular port, not only today, but how those accumulations are likely to change in the next week, next fortnight, or trend through time.

We now have the capabilities to enable the creation of a complete picture of exposures, and with it their aggregation risks. The days of ‘unknown accumulations’ are over.

That data is also likely to be demanded by reinsurers that may have 10 marine cargo insurers that are ceding risk and the reinsurers want to understand how that affects their aggregate exposure. However, to do so, trust will be key.

Technology and data have enabled the market to move out of the era of darkness and into a more enlightened era, but it will be one that will require trust. For the market to be able to build a full picture, it will require brokers, insurers and reinsurers to share the data which will enable the industry to better model their cargo risks.

The question I must ask is whether the technology and data companies can hand the issue of trust into the hands of the market, or whether they seek to solve the issue themselves.

While I would like to believe that the market can solve the issue of trust and data-sharing, we as a technology company can play a part.

CONFIDENTIAL COMPUTE

If we take the issue of the reinsurers seeking to access the accumulation risk data of its 10-cedents, there is now the capability to create what can best be described as a ‘confidential compute’. This can provide the reinsurer with the necessary aggregation data without the need for the reinsurers to access the cedents’ systems or information.

We can provide the data the reinsurers require to price the risk and manage their aggregations without the need to compromise the insurer and its data. The reinsurers simply want to know the size of the aggregation they have assumed and, with it, the exposures. They do not need to access the client’s granular data, which is bespoke to the insurer.

The market can ill afford to deal with the scale of losses it has faced in recent years. It needs to lower claims, but to do so, it needs to make better use of data throughout the transactional process.

The systems are in place to allow the data to be analysed and understood, but the sector must find a way to access the necessary data and it may well require those in the market to be willing to share data for the collective good.

We can understand that in an industry which has not operated in a system of shared data for centuries, it is a significant leap of faith. But this is where technology can play a part.

It will not only provide the potential for more accurate understanding of accumulation risk. The ability to access such data and better understand the risk can allow the industry to create innovative products which can better serve the needs of the insured or the cedent.

The key to making the most of what data and technology can now deliver will be the ability to trust.

Co-located with Singapore Maritime Week, this live, in-person event is set for 27th April 2023! Now in its 4th year, taking place at the Raffles City Convention Centre, Fairmont Singapore, Marine Insurance Asia is the leading global marine insurance conference in Asia-Pac and all brokers, insurers, ship owners and third parties should attend this event to help shape the future of the industry in the region.

www.marineinsuranceasia.com

Thursday 27th June 2023, Singapore

All Times in Singapore Time (SGT)

07:50 - 9:00 : Delegate Registration and Refreshments

08.05-08.55: BREAKFAST BRIEFING:

A wounded tiger: how will China react to recent events?

In President’s Xi recent speech in Beijing, he made it clear that Taiwan remains firmly on his agenda, however in the last few months he has faced significant opposition internally. This session will ask whether a move on Taiwan might boost his government’s popularity and what the consequences might be. This session would also cover the recent Australian-Japan pact, which builds on the Aukus Pact of last year.

09.30-10.15: PANEL DISCUSSION: Why Insure in Singapore?

This session, consisting of shipowners, brokers and insurers looks at what Singapore does best, as well as looking at what is happening in other global marine hubs. It has been reported that economies in the Asia-Pacific will dominate global growth in the coming year (S&P Global Market Intelligence). How well is the Singapore marine insurance market placed to fully take advantage of these favoured conditions?

Panellists: Chris Coupland, Head of Marine Singapore, Marsh

10.15-10.45: PRESENTATION: Boom and Bust: The Shipping Cycle Container rates have been fluctuating wildly since the onset of Covid-19. What is the impact of that on insurance rates? This session asks how insurers can properly rate vessels and ensure clients avoid either over- or under-insurance.

10.45-11.15: NETWORKING BREAK

11.15-11.45:

PRESENTATION: The True Cost of Claims

In this session we take a couple of ‘mundane’ small claims and explore how they were handled and what the final tally was. We explore whether the claims process could be improved and how to avoid too many of these small claims mounting up.

12.00-12.45: PANEL DISCUSSION: How Recent Political Conflicts are Changing the Marine Insurance Landscape

This session will discuss the current implications of global conflict and what lessons can be taken away from current events and applied to any potential conflict in the South China Sea and Korean sub continent.

12.30-13.20: LUNCH BREAK AND NETWORKING

13.20-13.40:

PRESENTATION: Crew Claims & Supporting Seafarers

The aftermath of Covid has left the marine workforce dilapidated with a lot of seasoned talent seeking non-marine professions. This coupled with the trauma seafarers have found themselves with has raised questions on the safe working culture prevalent on vessels, this is evident with an upswing in crew illness/injury incidents. How can insurers contribute towards improving seafarers wellbeing?

Presenter: Captain Hari Subramaniam, Regional HeadBusiness Relations, Shipowners Club

13.40-14.00: PRESENTATION: Fueling Future Ships

Ammonia is frequently mentioned as a possible future fuel for vessels, along with several other options, including nuclear. However, there will still be plenty of vessels running on oil in Asian waters for many years ahead. How will the insurance market approach rating for different fuel types?

14.00-14.30: FIRESIDE CHAT: Going Green on Shipping Lanes

Increasing numbers of territories are looking at developing green corridors for vessels, including Singapore. This session asks how these will function and what it could mean for insurance of vessels that use them…or that can’t use them.

14.30-15.00: NETWORKING BREAK

15.00-15.45: PANEL DISCUSSION: Ablaze at Sea!

According to the Allianz Safety & Shipping Review, there were 54 total losses in 2022 compared with 65 in 2021 against a backdrop of a 57% decline over the last 10 years. However, fires on large vessels remain a major concern with the cause regularly being attributed to lithium batteries and undeclared dangerous cargo. What can insurers do to mitigate their risks, or is it simply out of their hands?

15.20-16.00: PANEL DISCUSSION: Nurdling Along: Cleaning Up New Forms of Pollution

New forms of pollution are clogging up the sea waters across the world, with plastic nurdles among the greatest concerns. This session addresses the challenges of collecting this tiny debris and asks whether the insurance market is keeping up to speed with the changing nature of debris.

16.00-16.45: PANEL DISCUSSION: What’s the Future for Salvage?

Last year, Lloyd’s decided in favour of keeping the Lloyds Arbitration Branch, but what does that mean for the future of the LOF form in Asia? In this session, we examine the findings of the Asia Working Group and ask how the LOF can be successfully promoted and used in an Asian context.

With frenemies like these, technology platforms?

At first glance, the Renault-Nissan-Mitsubishi alliance may seem confusing. It is not a joint venture but a much looser arrangement whereby the three carmakers intend to share 80% of their common platforms and technologies by 2026.

But it works. Together, they are tackling some of the industry’s biggest challenges including the EV and battery evolution, autonomous driving and connected vehicles.

Other well-known examples of successful competitive collaborations include Sony and Samsung, Microsoft and Intel, Pfizer and Merck and the US-Soviet Union partnership that made the International Space Station a reality.

Sometimes, it makes sense for competitors to share their resources. Amid fears of recession in the UK and elsewhere, “frenemies” across every sector are saving on costs and avoiding duplication of effort by sharing platforms or frameworks.

COST BENEFITS

A 2018 Polish-Norwegian study on the benefits and drawbacks of “coopetition” (the simultaneous existence of cooperation and competition between competitors) found that the benefits outweigh any disadvantages and has a 50% chance of reducing company costs.

Closer to home, one of the most successful examples of coopetition can be observed among the Norwegian banks. The major banks cooperated to form a company known as Bankenes Betalingssentral in 1972 with the mission to offer shared services across payments, IT, clearing and information services.

Smaller banks have similarly clubbed together in groups such as the SpareBank Alliance and Eika Group to collaborate on services, payments and IT infrastructure through economies of scale. More recently, Norway’s banks collaborated to make Vipps the marketleading mobile payment system in the country, overtaking Apple Pay.

COMPETITIVE COLLABORATION

Despite the obvious benefits, most marine insurers are not yet taking

advantage of the opportunities that arise from sharing technology. In reinsurance, the 13 P&I clubs that provide cover for approximately 90% of the world’s ocean-going tonnage share a common business structure, but not technology.

Going forward, we believe collaborating with competitors will be necessary to remain strong in the market. The secret is to find areas to share that are non-competitive, such as administration and core functions.

For example, Noria has several clients that share the same customer-facing framework and derive benefits including cost and operational efficiencies. Our core platform is not an area where insurers compete, making this an ideal target for pooling resources, saving costs and improving the customer experience.

If a function does not provide a source of competitive or strategic advantage, do not hesitate to outsource it or collaborate with competitors to slash costs. Doing so will enable you to focus your resources and energy into activities that truly differentiate your organisation.

Potential non-competitive areas in insurance include billing, collection and disbursement, customer relationship management, claims management, data storage and support

Ronnie Reppe, CEO of Noria, explains how collaboration with your competitors can deliver good results if organised and managed well

why not share

functions such as finance and HR.

Procurement is another area ripe for sharing, with the option to join Group Purchasing Organisations (GPOs) that leverage their collective buying power across indirect categories to drive deep discounts that would otherwise be unobtainable.

THREE INGREDIENTS TO COOPETITION SUCCESS

In my opinion, the three keys to successful co-operation with competitors is to change internal mindsets, ensure any shared platforms or other technologies are secure and build trust between parties.

1.Change internal mindsets about competitors

The fact is that your main competitor has the potential to be your organisation’s most suitable partner. They are facing the same challenges, they have similar knowledge and skillsets, they are roughly the same size and may have a similar amount to invest in a shared solution.

If you are approached by a competitor about some form of sharing or collaboration, consider what will happen if you say no. Adam Brandenburger and Barry Nalebuff, who coined the term “coopetition”, point out that if you do not agree to a deal, someone else may take your place in it and forge a competitive

advantage at your expense.

Yes, you are competitors, but not in every aspect of insurance. Find areas where you do not compete – for example, there’s little to be gained by both insurers building expensive customer interfaces when they could both use the same, white-label platform that can be customised with branding and other tweaks.

Remember also that cooperation isn’t just about cutting costs, but will create operational efficiencies and could unlock new innovation. For example, a group of Noria’s customers are currently cooperating in the development of a digital business intelligence tool. Together, they pool their insights and feedback and agree on what our software engineers should build next in each iteration.

2.Focus on security

Coopetition creates a cybersecurity risk –not in the form of an underhanded attack from your “frenemy”, but by increasing your attack surface for cybercriminals.

Shared platforms must be highly secure or they risk becoming a way in to critical (non-shared) data in the event that your collaborator suffers from a cyberattack. The same principle applies in supply chain attacks, where

cybercriminals target the weakest link in a supply chain to infect stronger targets with their malware.

Organisations can protect themselves by isolating the shared platform from other systems or by rigorously assessing the cybersecurity level of third parties before providing any sort of system access.

3.Build trust

To conclude, the most important ingredient for success in this kind of initiative is a healthy level of trust between the parties. A lack of trust will create a wall between the organisations that will hamper the flow of information and ideas necessary to create shared value.

Some ways to build trust include:

•Aligning business objectives and interests;

•Identifying issues, challenges and risks;

•Being clear about what will and what will not be shared;

•Setting ground rules for decision-making and issue resolution; and

•Working on the relationship to recalibrate when required, continually strengthen trust between the organisation and celebrate success.

“Potential

Prevention is better than cure

The consequences of an engine room fire can be devastating. It can lead to loss of life and severely damage a ship. There is a significant risk to the environment as well. Given the abundant presence of fuel, oxygen and ignition sources in an engine room of a vessel, most fires onboard ships start there. The focus needs to be not just on detecting and fighting a fire but also preventing its ignition argues Siddharth Mahajan , (top left) Senior Loss Prevention Executive, Gard (Singapore) Pte. Ltd, Svend Leo Larsen , (middle) Senior Claims Adviser, Gard AS and Kim Watle, (bottom left) Senior Business Analyst, Gard AS

such as turbochargers;

DATA INSIGHTS

In Gard, when analysing trends, we follow closely the frequency trends of incidents for a given time period as this allows us to account for the growth in our portfolio. For the last five year period, ie from 2017 – 2021, the frequency for the various hull and machinery (H&M) claims areas are showing a downward trend except for fires in engine rooms. Some 60% of these fires originated in the engine room. Key insights from our claims data are as follows:

1 Nearly two thirds of engine room fires occurred on the main and auxiliary engines or their associated components

2.For the period 2017 - 2021, the average annual frequency of engine room fires is 0.13%, which means out of every 10,000 vessels, 13 vessels have had one such fire incident each year;

3.As indicated in the graph on page 41, frequency of both main and auxiliary engine fires show a rising trend.

4.If we drill down into different ship segments, then the frequency of such fires on passenger and container ships is almost double that of the Gard 5-year average; and

5.Older vessels are more prone to fires originating in the engine room and frequency peaks for vessels that are between 25–30 years old.

FREQUENCY

OF ENGINE

FIRES (Gard H&M data)

COMMON CAUSES OF ENGINE ROOM FIRES

Our claims experience indicates that the majority of such incidents were caused by a failure in a flammable oil system, most often in the low-pressure fuel oil piping allowing oil to spray onto an unprotected hot surface.

Below we list some of the most commonly occurring causes of fuel spraying from low pressure piping systems. The list is by no means exhaustive, but a review of past Gard cases has shown that the failures listed below occur frequently:

•Piping, piping connections and other associated components, such as o-rings, were not original parts or of a type recommended by the manufacturer. In some cases, modifications had been made by the crew under existing management. In other cases the crew were not aware of such modifications as they had been made under previous ownership or management;

•Piping connections had not been tightened to the required torque and, in time, it loosens due to, for example, vibrations. Another reason may be incorrect assembly after maintenance;

•Bolts for flanges or filters breaking due to fatigue caused by over-tightening over a period of time. In some cases, securing bolts were also found loose or missing altogether;

•Fatigue fracture of pipes. Such pipes are typically not well supported along their entire length, which causes excessive stress caused by vibrations. Lack of support may be attributed to the design or failure to reinstall the holding brackets after maintenance;

•Fuel oil filter covers coming loose and displacement of the spindle from the top cover for various reasons; and,

•Rupture of rubberized hoses due to degradation caused by the heat generated from nearby machinery.

As noted above, oil coming in contact with hot surfaces is a problem. Shielding can either be by insulating hot spots with thermal insulation or anti-splashing tapes and/or by using physical barriers such as spray shields. Some typical issues with insulation which we have seen in our claims portfolio are:

•the quality may differ from yard to yard;

•it can deteriorate with age;

•it may not have been fixed back properly after maintenance; and

•it can become soaked with oil in time due to minor leakages.

As for physical barriers they may not have been part of the original design and therefore not fitted, or where fitted, they may not have been installed back in place after maintenance has been carried out on the oil system.

Another key point is to be aware that older vessels need more attention. One of the factors which must be considered when assessing fire risks in engine rooms is the age of vessels. The risk of leakages from machinery may increase as ships grow older. Some of the main issues that can increase the risk of fire in the engine room on older vessels are as follows:

•Protection of hot surfaces may degrade, with the quality of insulation deteriorating thereby increasing the probability of ignition and risk of fires;

•Older vessels can face cuts to their maintenance and safety budgets as they near the end of their service life; and, •A vessel may have changed ownership and management a number of times during its life, and this can have a direct impact on the consistency of maintenance in the engine room.

It is also useful to be aware of typical hotspots in the engine room. Based on previous fire incidents handled by Gard, we have found that the below listed areas acted as a source of ignition in most cases. The temperature of these areas can easily exceed 500°c which may be well above the oil’s auto ignition temperature:

•Exhaust manifold, pipes and associated flanges;

•Exposed areas of boilers;

•Turbochargers;

•Indicator valves on cylinders;

•Heater for purifier units; and, •Electrical wires/components and switchboards. Melting or smouldering of cables can also contribute to the transmission of heat.

KEY RECOMMENDATIONS

There are three core ways to prevent such fire losses. First, identify sources of leakages. Check fuel and lube oil pipes for loose fittings, missing bolts on flanges, non-metallic hoses in areas where the temperatures can exceed the oil’s ignition point etc., from where oil can spray onto hot surfaces. This should be done regularly and ideally should be part of the vessel’s planned maintenance system.

Second, map hot surfaces using thermography. Owners/ managers can incorporate the use of thermography onboard for detection of hot surfaces and for checking insulation during normal operations. They should consider including thermographic examinations in new-building specifications.

Third, use shielding in hotspots. Owners and crew should carry out regular checks of the insulation since it may degrade over time or become oil soaked. As for spray shields, owners can consider their use in areas identified as a potential ‘source of oil leakage’.

Mind the gap

Global events since 2020 have underlined the need for more comprehensive insurance products. Between the pandemic, war, political tensions, cyber threats and increasing detention risks, every commercial insurance buyer in the world has been kept up at night by one or more of these developments.

This should be driving demand for products that specifically address these risks. In reality, however, it seems that more buyers are now uninsured against more risks by

virtue of recent market exclusions. This has to change.

As insurance professionals, we make a living out of risk. It is risk that drives demand for our products and services, and it is risk that must inform our product development - not the other way around.

I believe there is a clear tendency to get the order of these two factors wrong. The resulting effect is that clients remain well insured for risks for which they have a reasonable measure of control and may find themselves wholly uninsured or significantly exposed for risks for which they have zero control.

EASILY OVERLOOKED

Lockton Marine’s special risks team has always been focused on the marine risks that are easily overlooked.

For example, demand for trade disruption, loss of hire and anticipated increased cost of replacement (AICOR) coverages is likely to rise in the coming years as a result of clients seeking non-property damage P&L protection against risks outside their direct control.

Marine special risks purchases are generally triggered by unconventional projects, unacceptable contract conditions,

Anders Johannessen , Head of Special Risks, Lockton Marine, argues that the insurance market must work much harder to find solutions for insurance buyers rather than simply adding exclusions for challenging emerging risks

non-standard jurisdictions, a political or financial crisis impacting the industry or sub-sector, or the realisation that one charter contract may represent an unacceptably high part of a balance sheet.

Purchasers of marine special risks generally have a welldeveloped risk management strategy and a good comprehension of what the insurance markets can do.

They understand how the insurance industry overlaps and intersects with the financial industry, thus providing two arenas for risk management in addition to what is so often the unintended consequence of passive risk acceptance: self-insurance.

Self-insurance should be an active decision taken after all its implications – and potential mitigations - have been understood.

Other teams across Lockton Marine are advising clients in this same urgent capacity. Our team in Istanbul (Lockton Omni) is clear that their role must go well beyond putting the insurance contract in place and facilitating the claims process. There could be emergent gaps in coverage to be addressed potentially within a single policy.

Freight indices, for example, are key datapoints which

impact the value of a vessel. We monitor them closely, as well as the sales and purchase market, to assure comprehensive contractual terms at renewal which deliver the appropriate value increases throughout the policy. The Container Freight index has attracted a lot of attention in the last couple of years, showing the volatility of rates to which insurance arrangements must respond.

CUSTOM SOLUTIONS

We are constantly looking to create custom solutions for newly emergent risk sectors as markets develop. For example, Lockton PL Ferrari has been working to support new boutique start-up entrants into the cruise sector.

While the team works across all sizes of operation, one trend that we continue to see on cruise is that bigger may not be better.

Some of the major brands have tapered off their orders for the largest vessels and we have seen multiple new entrants into the market at the boutique level.

With these new entrants comes new exposures and the need for bespoke insurance solutions.

These can range from custom surety solutions to specifically designed pre-vessel delivery balance sheet protection policies.

The smaller operators have their own unique challenges and we work to understand their risk appetite and address their risk transfer needs.

Smaller operators with only one or even a handful of vessels, have a different balance sheet exposure to cruise lines with larger fleets and various brands. We have worked to create tailored solutions with specialist markets.

These respond not only to the loss of revenue exposure found in a traditional loss of hire policy, but also have the ability to respond in the event an incident does not result in damage to the vessel but ultimately impacts the operator’s revenues.

Furthermore, a malicious cyber-attack is a common exclusion in almost all hull and machinery (H&M) policies and most vessel owners are either not aware of the gap in coverage or are uneducated about the potential solutions available to them.

We work closely with Lockton’s cyber division to quantify the risk and to scour the market for the bespoke, sector and sub-sector specific solutions that our clients need.

Coverage gaps (by exclusion or by omission, across insurance programmes or emergent within particular policies, risks actively retained or more passively accepted) are increasing - challenging the marine insurance sector to do more and do better for our clients.

In a world where coverage of even the simplest of risks can be rendered complex by the destabilization of our global systems, we must continually develop our expertise and ambition. Commoditized products with no specialist flex should be increasingly unappealing to both clients and markets.

“I believe there is a clear tendency to get the order of these two factors wrong. The resulting effect is that clients remain well insured for risks for which they have a reasonable measure of control and may find themselves wholly uninsured or significantly exposed for risks for which they have zero control.’’

Anders Johannessen Lockton Marine

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Talented mariners required!

Historian David Abulafia in his widely praised book The Boundless Sea: A Human History of the Oceans traces the skills and techniques developed across generations to traverse the seas. As cargos grew bulkier and trade routes extended, a specialist, highly skilled group of mariners, navigators and captains emerged that enabled this marine based ecosystem to evolve. It is true to say that, in some areas of marine

navigation, there is no replacement for human skill. Experienced pilots are still required to guide large container vessels through tight canals and into narrow booths at ports around the world, which form the backbone of global trade routes.

Despite advances in modelling and expanded technological capabilities, an underwriter’s instinct and experience in risk selection can still be the deciding factor when assessing a risk and setting premiums.

The pandemic has left the marine industry facing a new talent shortage gap. Michael Burle , Head of Marine Division at Liberty Specialty Markets, discusses the reasons why and what the industry needs to do now to solve the problem

These skills are needed right across the myriad of industries that support the marine sector. Underwriters, brokers, shipowners, loss adjusters, risk managers, lawyers, pilots: all competing for the same fresh pool of talent we are all currently struggling to attract.

TALENT PIPELINE

Historically, careers in the broader marine sector were described as having started “by accident”. Whether it was through a family connection, the need for an income, or an opportunity too good to miss, there was no need to make the sector more attractive, as the pipeline of talent was firm and stable.

Things have changed and the marine industry is currently struggling to find people across the board, not just in insurance-based roles, but stevedores and pilots and the like. The lack of talent joining the industry is a concern and we need to find a way to fix that.

The pandemic drove many people to rethink their career choices with some choosing to retire earlier than expected.

The marine sector has spent the last 15 years concentrating on improving its market performance and profitability. I think this is where the industry has taken its eye off the ball. We are now paying the price for our lack of investment in attracting and developing talent and building the future talent pipeline.

To add to the mix the marine sector suffers from the same problem as the insurance industry as a whole: it is not a first choice, destination career option for many young people starting their career.

Right now, there are more people over 50 than under 30 in the insurance industry. This problem is exacerbated by mid-level and junior talent being lured away by offers from industries outside of insurance, as the skillsets are transferable. This can make marine a less appealing sector to work in for young talent and could impact the approach we take to career development and societal action.

To address the talent pipeline problem, marine and speciality insurance need to become a destination career alongside other financial services businesses.

I was pleased to see the London Market Group (LMG) support this idea too. The LMG recognises that the London market needs to retain intellectual and financial capital to be the place where risk transfer issues are most likely to be solved. Its recent campaign is designed to encourage a flow of young talent (aged 18-24) into the market.

MULTIFACETED ROLE

In my 30 years in the marine insurance sector, it has been completely transformed.

The nature of the risk has changed. The exposures have changed. The makeup of departments has changed.

Where once an underwriter’s instinct and their personal relationships created value in the market, we now have teams of analysts, modellers, actuaries and portfolio

managers working to increase profitability.

Job roles in the industry are varied, require multiple (and often overlapping) skills and teams require complementary and diverse people to function properly.

Technology is gradually transforming the sector. From blockchain-enabled underwriting initiatives that allow granular and detailed parsing of risk, to ever more efficient and effective portfolio management, we need teams of IT-enabled leaders to make the most of the opportunity. Not to mention the cybersecurity experts needed to counter any challenge arising from the continuing digitisation of the process.

That is why we need fresh talent. But the question is how do we attract and retain them?

BUILDING SOCIETAL GOOD

Much has been written about how Generation Z and Millennials are keen to challenge the status quo, as well as how they will look at a prospective employers’ ESG and CSR commitments to see if there is a good fit which supports their values and beliefs. I believe marine insurance has been a force for good for decades; now it is time for us to shout about it.

We work with our partners and industry organisations such as the International Union of Marine Insurance (IUMI), on a range of issues.

One recent example is the vital work to improve crew welfare. During the pandemic, crews were stranded on vessels. Right across the sector, the industry worked hard to support plans to extract and repatriate sailors. We are collaborating to enforce standards on the transport of hazardous goods, to prevent environmental catastrophes.

There is room for fresh thinking and initiatives which would be welcomed across the industry. There is work on lowering vessel emissions, finessing regulations around ports of refuge, enforcing sanctions regimes against global tyrannies. We are a force for good and we should not be afraid to tell our story.

CLOSING ARGUMENTS

This is just an outline of what a proper case for the marine sector, and marine insurance in particular, could look like.

More work is required. We need to benchmark our salary and benefits packages with other industries to ensure we are competitive.

We need to raise awareness that the marine sector is an attractive, varied and exciting place to work, with great career progression opportunities.

In addition, we need to remove the invisible barriers such as a lack of insurance experience, which is not an issue to applying for a role. Plus, we can showcase how we are building societal good.

In the competitive post-pandemic marketplace in which we operate, we must make a strong case to attract the young talent that we need. This will allow the sector to maintain its current success while creating an environment in which employees can thrive.