The Marine Insurer Issue 19 - Oct 2024

The Marine Insurer

Geopolitics andclaims: SpecialEdition

Red Sea

Growing challenges

l Cargo fraud: Finding the solutions

l Sanctions: Are they working?

l Decarbonisation: New EU regulations looming

l Supply chain: Technology set to help

l Cyber wordings: Insurers need to mind the gaps

04 Crew claims

Why the maritime industry still faces significant challenges in ensuring the safety and protection of seafarers

08 Geopolitics and claims

Recent geopolitical unrest has had a major effect on marine claims and P&I Clubs will have to up their game

10 Marine war risk

Should the P&I market entertain the option of offering primary war risk cover?

12 To clause or not to clause

The simple but highly important question of whether sanctions are really necessary

16 Russian sanctions

The impact of sanctions against Russia on marine insurance companies’ compliance, and underwriting

18 An evolving landscape

Why insurers need to manage their risk carefully as the sanctions regime intensifies

20 Risk intelligence

How underwriters can leverage real time risk intelligence to drive value and minimise exposure

24 AI and ML

We look at how the insurance sector must use AI and ML to transform the business for the benefit of all

Why ship owners should take a close look at cyber wordings and exclusions in the

Unveiling some of the peculiarties of the Italian marine insurance claims system

Examining complex and increasingly significant static commodity claims

The challenges of hybrid knock-forknock clauses

Know your limits

Looking at

towards climate neutrality across the EU?

Red Sea risks not going away

Geopolitics and the marine industry go hand in hand. Wherever trouble strikes, there are bound to be repercussions for the global supply chain – something maintained by the maritime sector.

So, no surprise that the troubles in the Middle East have spilled over to impact the marine market. However, when the Houthis first started firing rockets at civilian vessels, there was a feeling that it would soon be brought under control. Sadly, that is not the case and with more than 100 vessels attacked and four seafarers losing their lives, the market is concerned that there is absolutely no sign of it abating.

The military attempts to stop the attacks have failed and the only glimmer of good news has been that the Sounion salvage was successfully, and most importantly safely, carried out with some brave salvors taking the risk accompanied by a military escort. However, overall the traffic through the Suez Canal is said to be at just 40% of its usual levels – something that will impact not just the Egyptian economy directly, but all of us indirectly as supply chains lengthen, containers are held up and cargos face new risks as shipping takes to the Cape route.

As always, one such issue is not the only challenge for the market. The marine insurance market continues to grapple with how and when to adopt artificial intelligence (AI) and machine learning. How do insurers embrace it within their own organisations and how do they view the risks as their insureds adopt the new technologies too.

Questions remain on cyber wordings. Are they fit for purpose, which clauses should insurers adopt, etc, etc? The tech experts would say that AI is an everyday part of life already and so is it a question of the insurance market simply playing catchup on existing risks?

Finally, we turn to crew claims. Seafarers are the life blood of the marine sector but it seems are often the last to be considered in the marine market chain. The latest figures from Gard make for sobering reading but perhaps will be a wake up call for all in the industry to pay more attention to the hard working people who make the industry tick.

Lots to mull over at the moment so I hope you enjoy the read!

Liz Booth, Editor, The Marine Insurer

Seafarer insafety focus

Kunal Pathak , team leader, Gard AS and Lene-Camilla Nordlie , vice president, Gard AS review the P&I Club’s first analysis of crew claims. The conclusion is that the maritime industry still faces significant challenges in ensuring the safety and protection of seafarers from the operational hazards inherent in life at sea. Suicide cases remain worryingly high

The maritime industry is reliant on its people, be that seafarers, stevedores, surveyors or others working in our industry. When something goes wrong onboard a vessel, it can have serious consequences for that vessel’s crew.

As a marine insurer the safety of seafarers is a top priority. First and foremost, they are people. They are also the backbone of the maritime industry.

Regrettably, we deal with a lot of crew-related cases. Today, people claims form close to half of all our P&I claims (by number) and some 43% of the total claim amounts paid.

Gard recently published its first-ever Crew Claims Report, analysing five years’ worth of claims data covering the period 2019 to 2023. During these five years our claims teams dealt with more than 20,000 people-related claims cases.

As noted by Christen Guddal, chief claims officer at Gard in his introduction to the report: “The health and safety of

seafarers and their working environment will impact situational awareness and the decisions they make. This, in turn, has an impact on the risk and likelihood of maritime accidents.”

The report focuses on the top ten most frequent illnesses and injuries, and crew fatalities during this five-year period and highlights key trends. It highlights the importance of mental health, as well as on preventive measures that can be taken by shipowners, managers and by the seafarers themselves.

CREW INJURIES

Injuries made up some 32% of all crew claims during the past five years, with the average claim amount for an injury usually being higher than for illness claims. This may be due to the urgency of the treatment required in connection with injuries, which could sometimes require significant diversion of the vessel or medical evacuation at sea.

We see a relatively high number of crush injuries, for example fingers getting trapped in hatch covers, burns, incidents related to heavy lifting and falling between levels or into cargo spaces.

In 2023, we registered close to 1,000 injury claims, both crew and non-crew, and the frequency in 2023 increased by 44% compared to 2020. If we include the IBNR numbers, the

the frequency of injury claims, which is a matter of concern.

Figure 2 shows the top 10 body parts most frequently injured for all registered crew-related cases in the past five years. Finger injuries are the most common, often related to fingers being trapped in machinery.

Gard has published posters and alerts to help seafarers to prevent such injuries and it may be useful to revisit some of the recommendations. Among the recommendations made are:

>Selecting the appropriate glove for the job. The Code of Safe Working Practices has the following recommendations: >Leather gloves when handling objects which may be sharp or rough;

frequency increases further.

The increase in frequency of injury claims is a clear trend since 2020 and deserves the attention of both vessel operators and seafarers.

It is likely due to a combination of increased freight rates, which put pressure on operations and in turn lead to safety lapses, as well as the consequence of the period of reduced activity during Covid-19 during which time younger seafarers did not gain as much operational experience.

As we can see from figure 1, there has been an increase in

“Our claims data shows that the most frequently registered causes for injuries are slips, trips and falls, as we can see from figure 3. The second most common cause is being hit by an object or a line, mostly during mooring operations.”

FIGURE 2: TOP 10 CREW INJURIES PER BODY PARTS.

>Heat resistant gloves when handling hot objects;

>Rubber, PVC or synthetic gloves when handling acids, oils, solvents or chemicals; and

>Insulated gloves when working on electrical equipment

>Use a cotton inner glove when wearing gloves for longer periods to prevent skin becoming hot and sweaty as well as to prevent skin problems.

MOST FREQUENT CAUSES

Our claims data shows that the most frequently registered causes for injuries are slips, trips and falls, as we can see from figure 3. The second most common cause is being hit by an object or a line, mostly during mooring operations.

CREW FATALITIES

This category of claims should ideally be zero. However, as an industry we are unfortunately far from where we would like to be. In the past five years, Gard has recorded more than 400 crew fatalities. The frequency of death claims is fortunately low at 0.01 deaths per vessel year with the worst recorded year being 2021 in the last five years.

When it comes to the cause of death, 74% of the fatalities registered with Gard were due to illness. This correlates with other data sources, as according to the World Health Organisation (WHO), 74% of all deaths globally are due to non-communicable diseases.

The most common causes of death are cardiovascular disease, cancers, chronic respiratory disease and Type 2 Diabetes, according to WHO. Our registration of the increase in illnesses in the Gard fleet correlates with these statistics.

A concerning trend we can see from figure 5, is that some 11% of our registered crew fatalities are due to suicide. This is a worryingly high number and we believe that the actual number could in fact be much higher due to underreporting. We also believe that many cases of crew deaths are preventable.

The maritime industry still faces significant challenges in ensuring the safety and protection of seafarers from the operational hazards inherent in life at sea. There is still considerable work to be done to achieve the ideal state in which seafarers are safe and shielded from these risks.

Stepping up to the plate

Recent geopolitical unrest has had a significant effect on marine claims and P&I Clubs have had to up their game writes Andrew

Glynn-Williams VP, head of FDD Nordics and Eastern Europe business unit, Skuld

We live in increasingly uncertain and troubled times where there are areas of political instability and several conflicts taking place, the war in Ukraine and the Middle East being the obvious recent examples.

We have also seen shipping bearing the brunt of some of these conflicts, particularly in the Middle East, which has seen ships attacked frequently in the Red Sea and vessels “seized” in the region around the Straights of Hormuz.

While geopolitical events having a direct impact on shipping is nothing new, for example, during the Suez crisis, it’s our experience that the impact on insurers, particularly P&I clubs, is greater than ever.

The day to day running of P&I Clubs is affected in many ways. Our experience is that we see an impact on all lines of business, particularly P&I, hull and machinery (H&M) and freight, demurrage and defence (FDD).

What we also see is that while there is a direct financial impact due to claims brought following an incident, there is also a significant increase in the time and resources required to deal with the incident.

Furthermore, even routine procedures, such as paying a lawyer, can take significantly longer, especially where sanctions are involved.

CLAIMS

At the time of writing, two ships have been sunk by Houthi rebels in the Red Sea since November 2023. In addition, two of the attacks have been fatal, and we must not forget that it is the ships’ crews who face the brunt of these attacks, sadly, sometimes with fatal consequences.

Other vessels have been hijacked in the region with crew still held hostage. P&I risks for these sorts of incidents might be injury, pollution and wreck removal, whereas H&M will be responsible for the damage to/loss of the vessel itself and any salvage, if possible. For the Red Sea losses, however, war risk insurers will likely be on the cover for the risk and therefore, there may be little or no additional financial exposure to an individual club or hull insurer for the sort of events that you see making headlines.

However, that does not mean a P&I club or H&M can sit back. For example, there might be claims handling agreements between the respective P&I or H&M and war risk underwriters.

We know from experience that assessing where the liability lies, sometimes with limited information, establishing lines of communication, agreeing on who is doing what etc can take a considerable number of hours and sometimes take weeks to sort out. If you throw a Russian nexus into the mix, for example, matters soon become resource intensive.

SANCTIONS

One of the most significant impacts that we see at the Club as a consequence of geopolitical events is sanctions and we see this right from before the inception of the risk to dealing with claims.

The landscape in this regard has changed significantly since around 2018 with the reinstatement of Iranian sanctions.

As with other clubs, we had Iranian members whose cover had to be terminated before the sanctions were reimposed. One of the biggest issues we saw during the wind-down period was the growing inability to make routine payments, where the banks were increasingly self-sanctioning, such that legitimate payments, such

“There can be no doubt that geopolitical events impact the day-to-day operations of a P&I club from both a financial and a time perspective. Dealing with sanctions issues is particularly time-consuming.”

FDD

In our experience, we see a lot of initial FDD enquiries whenever a new geo-political event occurs, recent examples being the invasion of Ukraine, the Israel and Palestine situation and most recently, the attacks by Houthi rebels in the Red Sea.

Typically, the sort of enquiry we get from our

owner members is: “Are we obliged to follow these orders / to go to a particular port, or can we refuse or deviate?”.

Whereas the opposite is often the case from the charterers side ie: “Can we insist owners follow our orders etc”.

as paying a correspondent, were stopped.

Where payments were allowed, several hoops had to be jumped through, all of which added significantly to the time taken to process something that ordinarily should have taken minutes.

We also had a small number of larger cases to carry over. To do this and continue working on such matters, special licences are required from the likes of OFAC, where the process of obtaining such licences is extremely time-consuming.

We saw a repeat of this when Russian sanctions were imposed and where any matter with the slightest Russian nexus requires much information to be provided to the banks before any payment can be processed.

Other requirements, such as dealing with “price cap” attestations, significantly increase a club’s administrative burden. Whilst we fully understand the reasons for this, it does not take away from the fact that relatively simple matters can become extremely time-consuming very quickly.

MEMBER ASSIST CASES

Closely linked to the impact of sanctions on claims is the impact on our “member assistance” cases; these are those more general enquiries which are not, in themselves, claims.

In particular, we see several enquiries related to members’ due diligence obligations in respect of calling at certain countries where sanctions operate, for example, in Libya or Myanmar.

While the Club cannot do the due diligence for a particular member, we can assist with certain of the necessary enquiries and do so frequently.

Through the years, we have seen several ‘similar’ type scenarios, and the key here is for the Club to keep a good precedent database so that claims handlers do not have to reinvent the wheel each time and which also avoids having to instruct external lawyers for each new enquiry. An example is the similarities in the legal issues faced by members following the invasion of Ukraine and the Red Sea situation. Cover questions also arise where there are deviations to the contractual voyage.

Inevitably, however, some cases are more complex than others, particularly where the member is in the middle of a chain of charters and the charter parties are not back-to-back or where we have to advise on bespoke or particularly not well-drafted clauses.

There is much to be said for using unamended standard forms to contract on. We also saw (and still do), particularly with the Red Sea situation, that because the risk situation was changing daily, the advice you gave one day may not be relevant the next.

SUMMARY

There can be no doubt that geopolitical events impact the dayto-day operations of a P&I club from both a financial and a time perspective. Dealing with sanctions issues is particularly time-consuming.

However, Skuld had the foresight, quite early on, to see the direction of travel in this regard and has significantly increased its legal team to deal with sanctions-related queries that we in the claims team receive daily.

We also have suitable structures in place, including knowledge sharing. The reality is that a colleague in Singapore will be asked exactly the same question by a member as someone in Oslo.

Looking to the future, we do not see the present situation changing. But we know that we have the knowledge and resources to advise our members if they become caught up in a geopolitical situation.

Marine war risk escalation raises P&I questions

Mark Cracknell, global head of P&I, Marsh, suggests that the P&I market should entertain the option of offering primary war risk cover as shipowners struggle to secure adequate solutions

Marine war risk exposure has intensified since the start of the Russia-Ukraine conflict in 2022 and has the potential to increase further, given current geopolitical conditions, including recent attacks on ships in the Red Sea.

As traditional war risk insurers tend to emphasise hull and machinery (H&M) coverage, now may be a good time to reconsider the role of protection and indemnity mutual clubs in managing P&I war risks.

RISING TENSIONS

As tensions in the Middle East have intensified, so has exposure to war risks in the region, including in the Red Sea, one of the world’s busiest shipping lanes, which was already of concern to underwriters.

Hostilities in the region have resulted in damage to several vessels, leading to at least two recent sinkings and the tragic deaths of up to four seafarers.

Shipping in the area had declined before the latest events and many ves-

sels now use alternate routes, which are generally safer, but take longer and add cost. Even as traffic has diminished, the underlying threat persists, as it does in the Black Sea and other bodies affected by the Russia-Ukraine war.

At the same time, war risks insurers have identified portions of west Africa and South America as high-risk areas (HRAs). Elsewhere, tensions in the Taiwan Strait and other parts of the South China Sea could pose additional potential threats to vessels and trade transiting these waters.

P&I PRIMARY COVER?

This begs the question: Should P&I clubs take on primary P&I war risk coverage?

Increased geopolitical friction has led shipowners to exercise caution and question how insurance may respond to liabilities they may incur from war risks.

Coverage for damage arising from incidents caused by war—including

“Hostilities in the Red Sea have resulted in damage to several vessels, leading to at least two recent sinkings and the tragic deaths of up to four seafarers.”

war, revolution, rebellion, insurrection, civil strife and weapons of war — are typically excluded from most P&I and H&M insurance policies. Shipowners therefore often purchase standalone coverage from war risks insurers.

Although traditional war risk insurers offer policies also including the P&I risk, they tend to focus more on H&M exposures. This raises the question as to why primary P&I war risks do not sit within the mutual P&I system.

Outside of HRAs, P&I war risks exposure is very limited. For HRAs, the clubs could take a mutual approach to assessing risk and allocating premium. This would likely result in some cost efficiencies, although they may not be significant.

More importantly, the mutual clubs have the resources and established global professional service networks to respond to a major P&I war event involving serious injuries, loss of life, pollution, or wreck removal.

Similar resources are not readily available for most war risk insurers, including various war risks mutuals that primarily focus on H&M exposure, which is generally their area of expertise.

Until the current surge in war risks activity, separating P&I and H&M war risks was challenging, in large part due to the traditional war insurers emphasizing the H&M risk.

However, as a result of the ongoing Russia-Ukraine conflict, war insurers, influenced by reinsurers, signaled that P&I exposure is of increasing concern by imposing a Russia-Ukraine-Belarus (RUB)

exclusion on the International Group (IG) excess of loss reinsurance program for the 2023 renewal.

The concern was amplified when insurers gave notice of cancellation for war risks cover in the Red Sea on non-pool club reinsurance in the lead-up to the 2024 P&I renewal.

MUTUAL RESPONSE

If premiums for primary P&I war risks cover continue to rise, there may be advantages for turning to the mutual P&I system.

Premium paid to the mutuals would eliminate the need for a profit element and, as stated above, the mutuals may possess greater capabilities to handle P&I war risks claims.

As an added consideration, this approach would eliminate the requirement for P&I club members to insure their vessels for a specified value, in order not to fall short of the excess P&I war risks cover presently provided by the clubs.

The P&I clubs could simply offer a standard limit of “ground-up” P&I war cover — for example, to a limit of US$1bn — without reference to the H&M arrangements.

Finally, war insurers would no longer need to allocate capacity to the P&I risk, which could introduce more dynamism to the H&M war risks market.

To clause or not to clause

Captain (Ret) Neil Watts , Culmen International LLC, asks the simple but highly important question of whether sanctions are really necessary

International sanctions regimes are constantly evolving, with new measures being added consistently and regularly, particularly with the latest sanctions against Russia over the conflict in Ukraine.

The global insurance industry had responded to the various forms of sanctions clauses by applying clauses to cargo, vessels and other insurance policies in the maritime sector since at least 2005 when sanctions against Iran were applied over its nuclear programme.

Typically, such sanctions clauses are exclusionary, meaning denying claims payments to sanctioned jurisdictions, designated companies, or individuals.

Notably, any activity in breach of sanctions will result in insurance coverage being withdrawn immediately and likely accompanied by the imposition of penalties.

SEVERE CONSEQUENCES

Violating sanctions measures could result in relatively severe consequences for companies, from reputational damage to

fines – or even worse - being listed as sanctioned parties. Some jurisdictions, such as the EU, Japan, or the US, impose criminal liability for a breach of sanctions. The value of carefully crafted sanctions clauses in contracts can, therefore, not be underestimated.

Consequently, these clauses have become crucial for companies trading internationally for two reasons: to manage and mitigate sanctions risk and to remain compliant with the various sanctions regimes while continuing to do business in a highly competitive environment.

There are several best practices to use as a helpful frame of reference when developing appropriate clauses:

> Language matters. The LMA3100 clause (introduced in 2010) became widely used in the global insurance industry to prevent coverage under a policy that could expose an insurer to a breach of sanctions in the UK, US, or EU or those imposed by the UN. Following legal challenges, the title had to be changed from an “exclusion” clause to a “limitation” clause because it moved to suspend coverage rather than exclude it. LMA3200 was introduced to apply to non-English or US law jurisdictions and is used as a “condition” clause to meet the requirements for exclusion in other jurisdictions. Lloyd’s Market Association (LMA) provides guidance on sanctions clauses on its website at https://www.lmalloyds.com/LMA_Bulletins.

> A clause should define what is meant by sanctioned activity, the expectations of non-involvement in sanctioned activity or designation, what constitutes a breach of contract, and the consequences – such as termination or claim for damages. Charterers could require loaded cargo to be discharged at any port of their choice at the owners’ expense in case of a breach. It is incumbent on the charterers to ensure that any sub-charterers, shippers,

“Some jurisdictions, such as the EU, Japan, or the US, impose criminal liability for a breach of sanctions. The value of carefully crafted sanctions clauses in contracts can, therefore, not be underestimated.’’

Captain (Ret) Neil Watts, Culmen International LLC,

receivers and cargo interests are not sanctioned parties. Regarding supply chain compliance, the charterers must also ensure that the clause is incorporated into all sub-charters, bills of lading, waybills, or other documents for carriage relating to the contract. Lastly, precise language, terminology, and guidance on clauses concerning cargo/ freight are available on the BIMCO website at https://www. bimco.org/contracts-and-clauses.

> Manipulation of a vessel’s automatic identification system (AIS) is nearly always found in cases of sanctions evasion, particularly when deception is employed to hide a ship-to-ship transfer (of both petroleum products and dry goods), the port of origin or destination or provide a false identity.

The continuous operation of a ship’s AIS is mandatory under SOLAS. However, there are circumstances, such as transiting high-risk areas prone to privacy or Houthi attacks in the Red Sea, where switching it off may be necessary. A specific clause is therefore required to ensure that when it is switched off for legitimate reasons, the coverage will not be immediately terminated. This will help ensure a balance of the rights and responsibilities between owners and charterers to prevent AIS manipulation to circumvent sanctions. This clause should be part of a company’s sanctions compliance due diligence programme, spelling out the period (48 hours to 72 hours) for reporting why the AIS was off – called going “dark.” BIMCO also provides guidance on an AIS “switch off” clause for charter parties at https:// www.bimco.org/contracts-and-clauses/bimco-clauses/ current/ais_switch_off_clause_2021.

Several tools are available to detect a “dark” period, provided by specialised maritime databases on a subscription basis. Some databases also provide a virtual “geo-fencing” alert facility when vessels enter, or are about to enter, highrisk areas identified for sanctions evasion, such as those used for ship-to-ship transfers to evade North Korean or Russian sanctions or passing through waters under sanctions such as Syria and Iran.

Companies can, therefore, be alerted of vessel movements in relation to these areas and requirements of a clause could include providing more frequent positional updates, manual positional updates in the event of going dark, or the fitting of a long-range identification and tracking (LRIT) system required by some flag registries.

The LRIT frequency of position reporting can also be increased from the standard (every six hours minimum required by SOLAS) but at an additional cost. This aspect could be critical when carrying cargo to Japanese ports since Japan bans the entry of all vessels that have previously called at ports in North Korea.

INCOMPLETE PROTECTION

It is important to note that sanction clauses are crucial to insurance policies but cannot offer complete protection

“The LMA3100 clause (introduced in 2010) became widely used in the global insurance industry to prevent coverage under a policy that could expose an insurer to a breach of sanctions in the UK, US, or EU or those imposed by the UN.”

against sanction violations in all circumstances. They do not provide indemnity for inadequate due diligence or compliance.

In addition, as insurance professionals, you must carefully assess whether a payment is permissible, despite a sanctions clause, due to sanctions or related AML restrictions. This assessment is critical before making a payment to a sanctioned company, individual, or bank.

Ultimately, using sanction clauses in insurance policies is a sound business practice, as they can help prevent sanctions violations or subsequent criminal liability falling on insurance companies and their employees.

29 January 2025

A brand new event for 2025, The Marine and Energy Insurtech Forum will take place in January bring together Heads of Digital Transformation, IT Directors, Chief Information Officers and technology providers to establish a forum for members of the market with a keen interest in digital transformation of marine and energy insurance technology.

GLOBAL PARTNERS

Agility is key to sanctions risk management

Nelius Strydom, chief executive officer, Seamless.Insure, reviews the impact of sanctions against Russia on marine insurance companies’ compliance, governance, pricing and underwriting

At Seamless, we closely monitor the evolving nature of the marine insurance industry, with an eye on the Nordics, as we continuously enhance our technology platform to meet the sector’s changing needs. And those needs are definitely changing. The global maritime industry has faced significant challenges following the imposition of sanctions against Russia due to geopolitical tensions . The sanctions imposed against Russia have been comprehensive and multifaceted, targeting various sectors of the Russian economy in response to geopolitical tensions, particularly related to Russia’s actions in Ukraine and other international conflicts. Marine insurers, in particular, have been navigating a complex landscape of compliance, governance, pricing and underwriting.

INCREASED COMPLIANCE REQUIREMENTS

Imposing sanctions against Russia has led to heightened compliance requirements for marine insurers worldwide. These insurers must ensure they are not inadvertently providing coverage to sanctioned entities or for activities that would violate these sanctions. This necessitates extensive due diligence and

compliance checks, which, when done manually, will be both time-consuming and costly.

Marine insurers must now employ rigorous screening processes to verify that clients and cargoes are not subject to sanctions. This includes cross-referencing databases of sanctioned entities, conducting thorough background checks and frequently updating compliance procedures to align with evolving regulations.

The increased administrative burden has compelled many insurers to invest heavily in compliance infrastructure, including specialised software and compliance teams dedicated to monitoring and managing these risks.

Many marine insurance companies report significant increases in their compliance efforts to address these new requirements. While exact budgets vary, it is clear that the financial impact of enhanced compliance measures is substantial across the sector.

Furthermore, insurers must stay abreast of international regulatory changes and ensure their operations comply with the legal frameworks of multiple jurisdictions.

Non-compliance can result in severe penalties, including substantial fines and reputational damage, which can further complicate the insurer’s operational landscape.

According to a 2024 report by the Centre for Research on Energy and Clean Air (CREA), UK insured tankers transported 33% of all Russian oil since the sanctions were implemented in 2022 until November 2023.

This amounts to approximately €46.4bn worth of Russian oil, highlighting the significant role UK insurers play in the global oil trade despite the sanctions, and the high stakes

RESTRICTED INSURANCE COVERAGE

Sanctions have also forced many marine insurers to limit or

completely withdraw coverage for Russian-owned vessels, cargo, or companies.

This includes hull and machinery insurance, protection and indemnity (P&I) insurance and cargo insurance. The withdrawal of coverage from these high-risk entities helps insurers mitigate potential legal and financial repercussions.

The restrictions on insurance coverage have had a cascading effect on the shipping industry. Russian vessels and cargoes now face difficulties in obtaining necessary insurance, leading to operational disruptions.

Lloyd’s of London reports substantial decreases in policies issued for Russian-related maritime activities since the sanctions were imposed and compliant insurers adopt a cautious approach, extending coverage only after ensuring that all parties involved are compliant with international sanctions.

This reduction in coverage options has not only affected Russian entities but also global trade routes.

Shipping companies that previously relied on Russian ports or transit routes have had to seek alternative pathways, often at increased costs.

A 2022 report by the United Nations Conference on Trade and Development (UNCTAD) highlighted that the RussiaUkraine conflict and related sanctions have led to longer shipping distances, higher fuel costs and increased transit times, all contributing to rising operational costs in the shipping industry. The resulting complexities have strained the relationships between insurers and their clients.

MARKET VOLATILITY

The sanctions have introduced significant volatility into the marine insurance market. The uncertainty and increased risks associated with Russian maritime activities have driven up premiums.

Insurers are pricing in the additional risk of further sanctions or legal challenges, which could further impact their own financial stability.

Increased premiums reflect the heightened risk environment. Marine insurers must account for the current and potential for further sanctions, the complexities of claims involving sanctioned entities and the overall instability in the geopolitical landscape.

Clients seeking coverage for operations involving Russia are now facing significantly higher costs, which impacts their operational budgets and strategic planning.

Moreover, the fluctuating premiums have affected the broader insurance market. Other regions and sectors are experiencing spillover effects, with insurers adopting a more cautious stance across the board.

The reallocation of underwriting capacity and resources to manage sanction-related risks has led to a tighter market, where obtaining comprehensive and affordable coverage has become increasingly challenging.

Leading global marine insurers have pulled back from underwriting Russian companies, including the oil shipping supply chain, as well as vessels due to the ongoing conflict in Ukraine and the impact of Western sanctions on Moscow, according to Thompson Reuters.

“As the geopolitical landscape continues to evolve, marine insurers must remain agile, adapting to new regulations and maintaining robust compliance frameworks to navigate these turbulent waters successfully.”

OPERATIONAL CHALLENGES

Sanctions against Russia have created substantial operational challenges for shipping companies and insurers alike.

One of the primary difficulties is navigating payments and other financial transactions involved in maritime insurance. Banking restrictions make it challenging to make payments to or receive payments from Russian entities, complicating claims handling and settlements.

These financial barriers necessitate alternative payment mechanisms and often lead to delays in processing claims. Insurers must establish clear protocols for managing claims involving sanctioned entities to ensure compliance while minimising disruption to their clients.

This involves close coordination with legal and financial advisors to navigate the complexities of sanctions law and international trade regulations.

Additionally, operational challenges extend to logistics. Insurers and their clients must ensure that any movement of goods or vessels adheres strictly to sanctions guidelines, requiring meticulous planning and execution.

Innovative operators can use technology that embeds intelligent cargo and ship data to cross-check information, helping to untangle the dynamic web of sanctions across the supply chain.

NAVIGATING THE FUTURE

The sanctions against Russia have significantly impacted marine insurance companies, imposing increased compliance requirements, restricting insurance coverage, driving market volatility and creating operational challenges.

As the geopolitical landscape continues to evolve, marine insurers must remain agile, adapting to new regulations and maintaining robust compliance frameworks to navigate these turbulent waters successfully.

Through diligent compliance, strategic risk management, transparent communication and using technology, marine insurers can mitigate the challenges of sanctions and continue to provide essential coverage to the maritime industry. The ongoing challenges underscore the critical importance of the role technology can play in navigating geopolitical uncertainty.

An landscapeevolving

David Savage , partner, and Bea Bray , associate, HFW, explain why it is more important than ever for insurers involved in covering trade with Russia to manage their risk as carefully as possible as the sanctions regime intensifies

Following Russia’s invasion of Ukraine in February 2022, sanctions have once again been put under the spotlight as the UK, European Union and US have all imposed rigorous and expansive restrictions, the nature and scope of which are constantly evolving. In the marine space, this is a difficult matrix to untangle.

This article will focus on some of the restrictions which have been imposed by the UK and the EU that apply to the insurance and reinsurance markets. It will also consider the steps re/insurers can take to ensure that they are not breaching these restrictions.

The UK and EU have imposed restrictions with the aim of encouraging Russia to cease actions which destabilise Ukraine, or undermine or threaten the territorial integrity, sovereignty or independence of Ukraine.

In both the UK and the EU, these restrictions apply to international trade, not only in relation to the underlying trades

themselves, but also to ancillary services such as finance and insurance which enable these trades to take place seamlessly.

UK REGULATIONS

The Russia (Sanctions) (EU Exit) Regulations 2019 (the UK Regulations) came into force on 31 December 2020 and have been regularly updated since the onset of the Russian war in Ukraine

The most recent update to the UK Regulations came into force on 31 July 2024 and amended Regulation 57F, a restriction which outlines the specification of ships which are subject to shipping sanctions as set out in Regulation 57A to 57E. Many provisions in the UK Regulations which apply to insurers apply to “financial services”. “Financial services” includes insurance, reinsurance and retrocession, as wll as insurance intermediation such as brokerage and agency as per Section 61(a) (iii)and (iv) of the Sanctions and Anti-Money Laundering Act 2018 (SAMLA).

The UK Regulations dictate that a person (whether natural or legal) must not directly or indirectly provide financial services in pursuance of or connection with an arrangement whose object of effect is inter alia:

(a)The import of iron and steel products;

(b)The import of oil and oil products;

(c)The import of coal and coal products; and

(d)The import of liquefied natural gas where those products originate from Russia or are consigned from Russia.

A person who directly or indirectly provides financial services (including the provision of insurance cover) in contravention of these restrictions might have committed an offence under the UK Regulations.

The UK Regulations apply within the UK and in relation to the conduct of all UK individuals wherever they are in the world. They also apply to UK companies incorporated or established in the UK and to branches of UK companies overseas.

EU REGULATIONS

As many insurance providers will have an EU nexus and will therefore be subject to both sets of restrictions, it is best practice to remain vigilant of EU as well as UK regulations.

The EU has also imposed various restrictions which impact the insurance market under Council Regulation (EU) No 833/2014 (the EU Regulation). The EU Regulation came into force on 31 July 2014 and, like the UK Regulations, is regularly updated.

Of particular relevance to marine insurers is Article 3s(f), which contains a prohibition on directly or indirectly providing insurance cover for a vessel listed in Annex XLII of the EU Regulations, which includes inter alia”vessels which are owned, chartered or operated by natural or legal persons entities or bodies listed in Annex I to Regulation (EU) No 269/2014, are otherwise used in the name of, on behalf of, in relation with or for the benefit of such persons”.

Article 3g(e) also mirrors Regulation 46H of the UK Regulations in that it prohibits the provision of insurance and reinsurance related to the provisions set out in Article 3g(a)-(d) covering the import and transport of iron and steel products from Russia.

CONSEQUENCES OF BREACH

Breach of UK Regulations relating to trade sanctions carries a maximum sentence on indictment of 10 years imprisonment and a fine, or both.

For the EU Regulations, penalties will depend on each member state. However, the new Directive (EU) 2024/1226 (the EU Directive) defines criminal offences and penalties for breaches of EU sanctions.

The EU Directive was published in the Official Journal of the European Union on 29 April 2024 and entered into force on 20 May 2024. Member states must transpose its provisions into national law by 20 May 2025.

As per Recital 10, EU restrictive measures include the prohibition of trading, importing, exporting, selling,

“It is prudent for insurers to ensure they are staying on the right side of the prohibitions, particularly since member states will soon be enforcing the EU Directive into national law.”

purchasing, transferring, transiting or transporting goods or services. The provision directly or indirectly, of insurance and any other service related to those goods or services, would also constitute a criminal offence.

Therefore, it is prudent for insurers to ensure they are staying on the right side of the prohibitions, particularly since member states will soon be enforcing the EU Directive into national law.

STATUTORY DEFENCES

In circumstances under which an insurer believes it may have unintentionally breached the UK or EU Regulations there are some statutory defences available.

For example, if a person did not know and had no reasonable cause to suspect that the financial services were being provided in contravention of the UK Regulations or EU Regulations, they may have a defence under those regulations (see Section (3) of UK Regulations and Article 10 of the EU Regulation).

In the UK, insurers may also have a defence to payment under a policy by virtue of Section 44 SAMLA which provides a defence to civil liability where an act is carried out on the reasonable belief that it is in compliance with SAMLA.

It was confirmed in Celestial v Unicredit that Section 44 can be relied on where a party refuses to make payment under a policy on the belief that it will be acting in breach of sanctions, and this belief is objectively reasonable.

A party is not required to show how it came to the decision that it would be in breach of sanctions, but the belief should be assessed objectively, accounting for the novelty of the legislation and the time available in which to reach a view on the issue.

CONCLUSIONS

As the war in Ukraine looks increasingly likely to continue for some time, it is key that insurers continue to assess their risk in covering voyages and any activities with a Russian nexus. While the pace of change in the restrictions has momentarily slowed, regulatory expectations regarding risk management have never been higher.

Driving value and minimising exposure

Stefan Schrijnen , chief commercial officer, Insurwave, explains

how underwriters can leverage real time risk intelligence to drive value and minimise exposure to geopolitical risks

The fallout from geopolitical conflicts poses a constant threat to industries worldwide. From simmering regional tensions to the looming threat of cyberwarfare, insurers must navigate a complex web of geopolitical risks and respond swiftly to assess and address the impact of emerging events.

In such a volatile environment, the combination of realtime threat and risk intelligence and detailed historical data has grown in importance for underwriting teams.

The ability to anticipate and mitigate risk exposure can significantly enhance their decision-making and resilience.

WHAT IS THREAT INTELLIGENCE?

Live threat intelligence plays a pivotal role in modern risk management strategies. It continuously monitors and analyses

real-time data to identify potential risks and threats.

This approach empowers organisations to proactively assess their risk landscape and promptly detect emerging vulnerabilities or malicious activities. By integrating live intelligence into risk management processes, organisations can swiftly prioritise and implement mitigation measures based on the most current threat insights.

This dynamic capability not only enhances situational awareness but also enables agile decision-making, ensuring that security resources are allocated effectively to mitigate the highest-priority risks in real time.

Consequently, organisations can strengthen their resilience against evolving threats and maintain a proactive stance to safeguard their assets and operations.

“This proactive approach minimises the likelihood of underestimating risks and ultimately helps maintain profitability. In the event of a claim, insurers can rely on timely and accurate information to assess its validity and manage payouts efficiently.”

WHY IS IT IMPORTANT?

Risk and threat intelligence provides insurers with real-time data on emerging risks and vulnerabilities that could affect policyholders.

By continuously monitoring threats such as cyberattacks, natural disasters, or geopolitical instability, insurers can better assess the likelihood and potential impact of these risks on insured assets and liabilities.

Similarly, accurate risk assessment leads to more precise underwriting decisions. Real-time intelligence enables insurers to adjust premiums based on current threat levels. It ensures that they adequately cover potential losses while remaining competitive in the market.

This proactive approach minimises the likelihood of underestimating risks and ultimately helps maintain profitability. In the event of a claim, insurers can rely on timely and accurate information to assess its validity and manage payouts efficiently.

Beyond insurance policies, insurers can offer risk mitigation services to policyholders based on live threat intelligence. This might include proactive measures such as security assessments, disaster preparedness training, or cybersecurity solutions.

By helping policyholders mitigate risks, insurers reduce the frequency and severity of claims, thereby improving overall risk management outcomes.

As the frequency of geopolitical events increases, so too does the regulatory pressure for insurers to demonstrate adequate due diligence in their underwriting and claims processes.

Service providers that can combine access to real-time threat alerts, enhanced security and risk data, and aggregation insights can help insurers with these compliance efforts by providing evidence of proactive risk assessment and mitigation strategies.

MAXIMUM VALUE?

While applicable to many different areas of the insurance

market, the maritime industry is well-placed to benefit from this combination of threat intelligence and enhanced insurance systems and operations.

With shipping giants such as Maersk expecting Houthi disruption to last until the end of this year, live threat and risk intelligence plays a crucial role in ensuring the safety of vessels and mitigating potential risks associated with maritime operations.

In the instance of a Houthi attack, the value of combining live threat and risk intelligence with the insurance market and underwriters provides operators and insurers with an enhanced capability to be aware of incidents and reduce the severity of incidents when they happen through faster information exchange in anticipation of an event occurring.

It is also important to understand that geopolitical events do not occur in isolation, and to respond effectively in the short term and mitigate future threats, detailed historical data is also valuable.

Patterns of prior events, responses to them and the resulting impacts all have a bearing on present-day operations and business continuity.

For example, historical AIS (automatic identification system) data is a powerful tool that allows insurers to examine patterns and trends in vessel movements, identifying high-risk areas, times, and vessel types. This analysis can then help determine factors like what time of day would be best suited to traversing specific microzones.

RISK MANAGEMENT AGENDA

Anticipating this trend, Insurwave partnered with Ambrey, a global leader in maritime security risk management, to deliver an integrated, comprehensive solution for marine insurance and risk management.

By combining Ambrey’s extensive experience in providing operational and digital maritime security services with Insurwave’s specialty insurance technology platform, risk managers, underwriters and exposure managers will have access to a comprehensive, global view of marine perils and risk.

“Getting relevant information to the people who need it as quickly as possible to save lives, time and money,” explained Joshua Hutchinson, managing director of intelligence and risk at Ambrey, in an interview with the publication Nautical Digital Online.

“Our vision is to provide the best commercially available real-time maritime domain awareness and intelligence globally. We can’t do this ourselves, so we believe in the power of partnerships. Working together across the industry ensures that any operation on our oceans is prepared and executed as securely and safely as possible,” added Hutchinson.

As part of the partnership, Insurwave’s dynamic risk zoning will use Ambrey’s dynamic elevated threat areas (DETAs), and sentinel alerts, which supply vessel-specific

“By continuously monitoring threats such as cyberattacks, natural disasters, or geopolitical instability, insurers can better assess the likelihood and potential impact of these risks on insured assets and liabilities.”

notifications triggered by users.

Leveraging both market-leading technologies and data-driven insights, the combined offering aims to further advance risk management and mitigation in the maritime and insurance industries.

For example, a newly built floating production storage and offloading (FPSO) vessel was due to move from Singapore to Israel via the Suez Canal, presenting a high-value target to opponents of Israel.

Using the combination of Ambrey’s threat intelligence, historical event data and live intelligence, the global maritime risk management firm was able to assess the vessel’s planned route and advise on an alternative one.

Ambrey Intelligence also provided advice to the vessel on when to move through critical areas at certain times of day and delivered an integrated asset tracking and monitoring service, ensuring the FPSO reached Israel securely without any incidents.

MORE EFFICIENT CLAIMS

The convergence of live threat and risk intelligence with the insurance market holds the potential to transform the industry by enhancing risk assessment, improving claims management, enabling real-time incident response, and driving cost efficiencies.

By embracing these technologies, insurers and underwriters can better anticipate risks, reduce claim frequencies and severities, ultimately providing more value to their customers.

The transformative power of AI and machine learning

Andy Yeoman , co founder and CEO, Concirrus explains how the insurance sector must use AI and ML to transform the business for the benefit of all

Artificial intelligence (AI) and machine learning (ML) are reshaping the insurance industry, fundamentally altering how underwriting and claims processing are conducted.

These technologies bring unparalleled efficiency, accuracy and insight, promising a new era for insurers that adapt. The impacts are far-reaching, extending from routine tasks to complex risk assessments and from policy personalisation to fraud detection.

Yet, as these technologies revolutionise the industry, they also pose significant challenges, especially in terms of ethical considerations and regulatory compliance.

ROLE OF UNDERWRITERS

Underwriters have traditionally been the gatekeepers of the insurance industry, tasked with assessing risk and determining the terms and pricing of policies.

This role has historically been labour-intensive, relying heavily on historical data, actuarial tables and expert judgment. However, the introduction of AI and ML is shifting this dynamic, automating many routine tasks and allowing underwriters to focus on more strategic decision-making.

With AI and ML processing the data, underwriters now need to learn how to be data literate to understand the results. Data literacy enables underwriters to effectively

interpret, analyse and use data in their decision-making processes.

Here’s how underwriters can enhance their data literacy:

UNDERSTANDING DATA SOURCES AND TYPES

> Familiarity with diverse data sources: Underwriters need to understand the various types of data sources available, such as structured data from internal databases (eg historical claims data) and unstructured data from external sources (eg social media, news feeds, IoT devices). Recognising the relevance and reliability of these sources is crucial.

> Data types and formats: It is important for underwriters

“With AI and ML processing the data, underwriters now need to learn

how to be data literate in order to understand the results.

Data

literacy enables underwriters to effectively interpret, analyse and use data in their decision-making processes.”

to understand different data types (eg numerical, categorical, textual) and formats (eg CSV, JSON, XML) and how they can be used in risk assessments and pricing models.

BASIC STATISTICAL AND ANALYTICAL SKILLS

> Statistical concepts: Underwriters should grasp fundamental statistical concepts such as mean, median, standard deviation, correlation and regression analysis. These concepts help in understanding data trends, variability, and relationships between variables.

> Data interpretation: Learning how to interpret data visualisations such as charts, graphs and dashboards is key. Underwriters should be able to extract meaningful insights from these visuals and apply them to risk assessments.

DATA-DRIVEN DECISION MAKING

> Evidence-based analysis: Underwriters should shift from intuition-based to data-driven decision-making. This involves using data to support or challenge assumptions, justify pricing and identify potential risks that may not be immediately obvious.

> Predictive modeling: Understanding predictive models, such as those used in AI and ML, helps underwriters anticipate future risks and behaviours. While they don’t need to build models themselves, they should understand how these models are constructed, validated and applied.

FAMILIARITY WITH DATA TOOLS AND SOFTWARE

> Analytical tools: Underwriters should become comfortable with data analytics tools such as Excel, SQL and more specialised insurance software. These tools are

essential for manipulating data, running analyses and generating reports.

> Visualisation tools: Tools such as Tableau, Power BI, or Google Data Studio allow underwriters to create and interpret data visualisations that make complex data sets more accessible and actionable.

LEARNING AND USING AI AND MACHINE LEARNING

> AI and ML Fundamentals: While underwriters don’t need to be data scientists, they should understand the basics of AI and ML, such as how these technologies process data, identify patterns and make predictions. Understanding these fundamentals enables them to better evaluate AI-generated insights and integrate them into their workflow.

> Model interpretation: It is crucial to understand the outputs of AI/ML models, including how to assess the accuracy, bias and reliability of these models. Underwriters should be able to question and validate the results provided by AI tools.

DATA ETHICS AND GOVERNANCE

> Ethical data use: Underwriters need to be aware of the ethical considerations related to data use, including matters of privacy, bias and fairness. This involves understanding how data should be collected, stored, and used in a way that complies with legal standards and ethical guidelines.

> Data quality and integrity: Ensuring data quality is essential for reliable decision-making. Underwriters should learn how to assess data accuracy, completeness and timeliness.

PERSONALISATION AND CONTINUOUS LEARNING

AI and ML are enabling the development of highly personalised insurance products. By analysing individual risk profiles, insurers can offer customised policies that reflect the unique needs and circumstances of each customer. This level of personaliation not only improves customer satisfaction but also helps insurers manage risk more effectively.

One of the key advantages of AI and ML is the ability to learn and adapt through time. As more data becomes available, machine learning models continuously refine thus improving accuracy.

This continuous learning cycle ensures that underwriting and claims processes stay up-to-date with emerging risks and market trends, allowing insurers to remain competitive and responsive to change.

CONCLUSION: EMBRACING THE FUTURE

AI and ML are revolutionising the insurance industry, particularly in underwriting and claims processing, by bringing enhanced efficiency, accuracy and personalisation.

These technologies are shifting the role of underwriters from routine data processing to strategic decisionmaking, enabling them to focus on interpreting complex

“While underwriters don’t need to be data scientists, they should understand the basics of AI and ML, such as how these technologies process data, identify patterns and make predictions.’’

data insights, developing innovative products and optimising risk portfolios.

In the marine insurance sector, AI-driven solutions such as those offered by Concirrus are leading the transformation, providing insurers with the tools they need to navigate the complexities of the modern market.

However, as the industry embraces these advancements, it must also address the challenges of bias, transparency and regulatory compliance to ensure that the benefits of AI and ML are realised responsibly and equitably.

The future of insurance is undoubtedly digital and those who effectively integrate AI and ML into their operations will be well-positioned to lead the industry in the years to come. By partnering with companies such as Concirrus, insurers can stay ahead of market trends, improve operational efficiency and offer more personalised, data-driven products, ensuring they remain competitive and capable of meeting the evolving needs of their customers.

Adapting to change with configurable software

Baheerathan (Thamba)

Vykundanathan, product manager at Noria AS, explains how investing in configurable software could be the answer to the insurance market’s legacy system problem and enable it to keep up with fast-evolving customers

Success in insurance is about adapting to change. New regulations, shifting customer demands, emerging market trends. Insurers have to be on their toes to stay competitive. The challenge is that many are stuck with decades-old, inflexible software systems.

Suppose you are an insurance provider intending to roll out a new product to cater to your customers’ changing needs, but your legacy software is so rigid and non-configurable that making even the smallest tweak becomes an ordeal.

The IT team becomes involved and dives into a tangled, spaghetti-like codebase. Six months later, you are still no closer to launching your new product.

LEGACY DRAG

Technical limitations are only the beginning. Non-configurable systems also make it a struggle to keep up with regulatory changes and industry trends.

People often wonder why the insurance sector appears to be evolving slower than parallel industries such as payments and banking. The answer lies in our legacy, non-configurable systems that simply cannot keep up.

By the time the IT team figures out how to make the necessary changes, the market has already moved on.

On the talent side of the equation, finding people who know how to work on legacy insurance systems will only become harder, like trying to find a mechanic who specialises in restoring vintage cars. The pool of qualified talent is dwindling and the costs just keep going up.

Perhaps the biggest challenge is around integration. We need to be able to seamlessly connect with all kinds of third-party services, from customer relationship management tools to data analytics platforms.

Non-configurable systems are holding insurers back from taking advantage of all the new insurtech solutions entering the market, expected to grow to $10.14bn by 2025.

The good news is that more companies are opting to purchase or implement configurable software as they seek enhanced flexibility, agility, cost efficiency, user empowerment and scalability without the cost of extensive redevelopment.

A report by Celent found that 72% of insurers have either implemented or are planning to implement configurable policy administration systems that allow for easy customisation and integration, streamlining policy creation, management and renewal processes.

BENEFITS OF CONFIGURABLE SOFTWARE

The key benefit of configurable software is the ability to meet your clients’ demands for tailored software solutions. It allows businesses to customise features, workflows and interfaces without extensive coding, making it easier to adapt to changing requirements.

It empowers end-users and non-technical staff to make changes and tailored updates to the system without relying heavily on IT departments, leading to lower development costs, increased satisfaction and improved productivity.

Configurability is also about speed. It enables the rapid deployment

and modification of applications; a crucial capability in an environment where requirements can change quickly and businesses need to respond promptly to market demands.

This approach can also reduce development costs and time. Instead of building solutions from scratch, companies can configure existing platforms to meet their needs, resulting in significant cost savings.

Insurers are always looking for ways to differentiate themselves from competitors. Configurable software allows you to create unique, tailored solutions that provide a competitive edge in the market.

Configurable systems are better positioned to integrate with modern technologies and evolve through time, while new features and updates can be implemented faster through configuration rather than coding.

Additionally, cloud-based configurable software solutions provide accessibility, scalability and cost-effectiveness. The cloud allows businesses to leverage configurable software without needing extensive on-premises infrastructure.

Yes, implementing new, more configurable systems or making legacy systems configurable can be challenging and resource intensive. But, the costs are nowhere near as onerous as the ever-rising burden of maintaining legacy systems, especially when you factor in the opportunity costs.

A strategic approach involving thorough planning, modularisation and continuous improvement can help organisations successfully transform their business to meet modern demands.

At Noria, we recently took such an approach when onboarding a marine insurer to our cloud-based, highly configurable insurance platform, helping them migrate from their mainframe legacy system.

The entire onboarding process, from a signed contract to users starting to produce data on production, was completed in under five months; a real achievement in a sector where onboarding new insurers to a new system is a highly complex process.

This success was only possible because of the highly configurable nature of the Noria Insurance Platform, that allowed most business processes to be configured into the system with minimal or no coding involved. As a result, users can now perform their daily tasks more efficiently than before.

GETTING STARTED

The journey towards adopting more configurable software solutions can seem daunting for insurers burdened by decades-old legacy systems. However, the process can be broken down into manageable steps to help ease the transition.

The first step is to carefully assess the current software ecosystem and identify the pain points that configurable solutions can address.

This may include challenges around product innovation, regulatory compliance, integration with third-party tools, or the ability to empower non-technical staff.

Understanding these pain points will help guide the selection of the right configurable platforms and implementation approach, or guide the decision to make legacy software configurable.

Next, research the configurable software options available in the market, evaluating their features, configurability, integration capabilities and total cost of ownership. Assess the vendor’s industry expertise, implementation track record and long-term product roadmap.

Pilot projects can then be undertaken to test the selected configurable solutions on a small scale, allowing your organisation to gain hands-on experience and validate the anticipated benefits before committing to a full-scale rollout. This iterative, agile approach helps minimise risk and ensure a smoother transition.

Throughout the process, it is crucial to secure buy-in from key stakeholders, including IT, business units, and executive leadership. Effective change management and training programmes will also be essential to empower employees to use the new configurable systems.

TREND TOWARDS CONFIGURABILITY

The rise in configurable software reflects a broader trend toward greater flexibility, efficiency and user empowerment in the digital world. This trend is likely to continue growing as technology evolves and businesses increasingly seek agile and adaptable solutions.

Configurable software is an adaptive technology that enables an adaptive workforce. With a highly flexible system that allows for rapid changes and control over business workflows, it helps employees become highly flexible and versatile, capable of quickly responding to changing conditions, technologies and business needs.

These legacy systems have been the backbone of the insurance industry for a long time. But the world has changed and insurers need to change with it.

They need to start investing in more configurable, adaptable software that can keep up with the pace of the industry. It is not going to be an easy transition, but the insurers that can stay nimble and responsive are the ones that will thrive as the landscape continues to transform.

Mind the gap

Colin Lavelle and Reema Shour of Hill Dickinson LLP advise ship owners

and operators to take a close look at cyber wordings and exclusions in the maritime sector as

the risk and insurance market response continues to evolve

The global maritime industry continues to face an increasing risk of cyber-attacks that target both vessels, as well as ship owners and operators.

While the digitalisation of maritime operations has made them more efficient, it has also made them more vulnerable

The more that maritime and logistics businesses rely on interconnected systems and data exchange platforms to manage cargo movements, vessel operations and port logistics, the greater the risk of potential cyber threats, including supply chain disruptions, data breaches and ransomware attacks.

With the advent of autonomous ships and also the absence of onboard crew, the potential for one person onshore to be controlling hundreds of vessels with the help of artificial intelligence (AI) creates an even greater risk that hackers could steer an autonomous vessel off course, causing untold damage.

Some underwriters are already offering cyber insurance within their ‘all risks’ policies for autonomous vessels.

Ransomware activity is reported to have been the predominant source of cyber insurance claims generally in 2023 and that trend has shown no signs of abating in 2024.

In maritime, it has been estimated that about half of vessel operators have been exposed to some form of cyber-attack in the past three years, with most of the threats coming from Russia, China and North Korea. Some of these attacks have resulted in significant ransom payments.

HUGELY EXPENSIVE

As demonstrated by several much-publicised cyber-attacks on shipping companies in recent years, cyber incidents can be hugely expensive and can result in significant operational disruption and reputational damage.

Consequently, shipowners and operators must be proactive in addressing gaps in their cybersecurity – they cannot afford to make only minimal investments in cybersecurity or to have no (or inadequate) cyber insurance.

To this end, marine insurers have been extending the coverage they offer to include cyber risks. They are, in some cases, doing so by implementing clear and comprehensive cyber clauses into existing insurance policies to define the boundaries of coverage.

In recent times, concerted efforts in the marine insurance sector have resulted in a range of cyber provisions across different insurance classes, such as hull, cargo, specie and marine liability.

Reinsurers are also requiring cyber provisions in their reinsurance policies. In 2023, the Joint Excess Loss Committee of the Lloyd’s Market Association (LMA) produced a cyber clause designed specifically for the marine and upstream energy sectors.

The aim was to eliminate the need for separate underlying clauses and to address concerns around aggregation uncertainty, which gives rise to many reinsurance disputes.

However, while P&I cover usually has no express cyber exclusion and normal cover will respond to P&I liabilities arising out of a cyber-attack (as long as this does not come under the war risk exclusion), other more traditional marine insurance policies may exclude cyber cover.

Such an exclusion is often incorporated in the form of the Lloyd’s Market Association LMA5403 Marine |endorsement clause, which has effectively replaced the former CL380 Institute Cyber-attack exclusion clause since 2019.

STANDALONE ADVISED

Therefore, a standalone cyber policy is recommended. Many marine insurers are offering marine cyber insurance policies with specific coverage, risk management and cyber incident response service for the maritime sector, for example cyber hull insurance.

There are also cyber policies covering the specific cyber threats addressed by ports and terminals. Such policies are designed to address the fact that ship infrastructure and port activity are increasingly interconnected and reliant on operational technology, enhancing the risk of cyber-attack.

Specialised policies that cover a range of cyber threats, including data breaches and ransomware attacks provide a new revenue stream for insurers.

Furthermore, by working with cybersecurity experts to develop tailored risk assessment tools and mitigation strategies for their assured, insurers can help the assured to reduce their cyber exposure and prevent cyber-attacks before they occur.

“Insurers are looking to update their war exclusion for cyber coverage, specifically in relation to state-sponsored cyber-attacks.

The LMA has published various war, cyber war and cyber operation model exclusion clauses intended for standalone cyber policies.”

Among other things, insurers may use data analytics to better understand cyber security risks and vulnerabilities in the maritime and logistics industries and to make recommendations and give guidance to their assured on how to cyber-proof their businesses. These efforts and initiatives benefit both insurers and assureds by helping to reduce claims.

STATE-SPONSORED PERILS

However, even standalone cyber policies may have exclusions. Insurers are looking to update their war exclusion for cyber coverage, specifically in relation to state-sponsored cyber-attacks. The LMA has published various war, cyber war and cyber operation model exclusion clauses intended for standalone cyber policies.

A cyber-attack in early 2024 on an Iranian vessel suspected of espionage activities in the Red Sea is just one example of the way in which cyber capabilities are being used to target shipping activity for political purposes.

Given the prevailing geopolitical landscape and ongoing global conflicts, the scope and effect of such exclusions is only likely to come to the fore in coming years.

Among other things, it may not be straightforward to determine whether an attack is state-sponsored or conducted by private criminal hackers. Nor may it be clear whether a

cyber-attack is an act of war.

The issue of attribution and questions of characterisation are likely to give rise to complex issues and, inevitably, disputes between insurer and assured.

The role of AI in cyber security should also not be underestimated. While AI systems in the maritime sector are as susceptible to cyber-attacks as those in any other industry and bring cyber challenges of their own, AI systems can also be used to improve cybersecurity, guard against threats, monitor crew behaviour and detect and block suspicious activities.

It has been estimated that global costs from cybercrime will exceed $10tn by 2025. Although shipping forms a small part of this amount, cyber-attacks in the maritime industry are becoming increasingly common and costly, both financially and reputationally.

Since 2022, the frequency of ransom payments in maritime has risen by 350%. Data in 2024 indicates that a cyber-attack in the shipping industry can cost the targeted organisation an average of $550,000 and shipping companies are paying an average of $3.2m in ransom.

The risk exposure for the targets and/or their insurers is considerable and it is in the best interests of marine underwriters and their assureds to work together to address the risks and minimise their exposure.

Nordics

16th October 2024, Oslo

The inaugural Marine Insurance Nordics event was first held virtually in 2021 and was a resounding success. With a record number of attendees in 2023 , this event is specifically designed to bring together all the key players in the Nordic marine insurance market. The agenda it will feature a range of senior speakers discussing, debating and offering actionable insights into the issues affecting the region in 2024 and beyond.

08.55-09.00 Welcome Address: Grant Attwell, Managing Director, Cannon Events

09.00-09.20 Keynote Address: A Level Shipping Playing Field is a Serious A air Presenter: Christen Guddal, Chief Claims O cer, Gard

09.20-10.20 Panel Discussion: Seeing Red – New Risks in the Red Sea

With more than 90 attacks on shipping in the Red Sea, we examine the risks and the impact of the attacks on shipping patterns. We also consider the emerging risks for salvors attempting to operate in these waters and take a look at war clauses in the light of the new exposures.

10.20-11.20 Panel Discussion: The Unintended Consequences – Do Sanctions Really Work?

As neighbours to Russia, both the Nordics and also Turkey are impacted by the ongoing war between Russia and Ukraine. Two years on, new sanctions are being introduced to try to stem the tide of illegal ships transiting European waters. But, we ask in this session, will they work and what might the unintended consequences be? This session will include a look at the Andromeda Star case.

11.20-11.40 Presentation: The Investigation of Yacht and Superyacht Fires

The investigation of yacht and superyacht fires can be a complex process as they contain a large number of di erent systems and, dependent upon the construction of the superstructure, they are often significantly structurally a ected following a fire. This presentation will cover some of the main causes of fires on these vessels and the issues associated with modern water sports toys, which are often stored onboard yachts.

12.10-12.30 Panel Discussion: Energy – All Change Ahead?

Energy transition is particularly relevant to the Nordic market, where many projects are already underway. The marine insurance market is essential in enabling vessels to ply this new trade, so this discussion will centre on the new opportunities. It will include carbon capture, which could become a key market for the whole of the Nordics, but Norway in particular.

12.30-12.50 Presentation: AI in Practice

In this session, a technology expert talks with a customer about maximising the opportunities presented by new technology, the evolution of artificial intelligence in the marine insurance space and how that might impact on the underwriter of the future.

13.50-15.00Roundtable Sessions

15.00-15.20 Presentation: To be Compliant or Not to be? Sailing Close to the End of the First Calendar Year Under the EU ETS Regime

Since 1 January 2024, all cargo and passenger vessels calling an EU/EEA port for commercial purposes fall under the EU emission trading system (ETS). This session will address the challenges owners and charterers have shared with us when trying to navigate through the regulation and requirements to be compliant.

15.50-16.10 Case Study: The DALI Salvage

Examining the unique technical challenges posed and how the response is viewed through the OPA-90/ USCG Incident Command System.

16.10-16.30 Presentation: Dali – The Biggest Claim in Marine History?

The Dali incident in the Port of Baltimore shocked the world and could well result in the largest claim in marine history. Although the likely claims picture is only beginning to emerge, we look at the impact of the claim from the likely rises in rates at the upcoming renewals to the physical challenges posed by the incident.

16.30-17.00 Presentation: Resolving the Security and Collections Conundrum in Large Container Salvage and General Average Cases

In all large containership cases, the collection of security at the start is a crucial part of protecting the common interests in the maritime adventure. The industry needs to retain a global salvage industry. All of this underlines the importance of an e cient and e ective collections approach.

11.40-12.10, 15.20-15.50: Co ee break 12.50-13.50: Lunch 17.00: Close of conference

When in Rome...

Gian Piero Priano , global head of claims, Cambiaso Risso Group, unveils some of the peculiarties of the Italian marine insurance claims system

Despite restrictions on free hull insurance across borders, marine insurance is open to cross-border competition more than other types of insurance business.

This has not always been the case. In most European countries (including Italy), ship insurance in the past was strictly a monopoly of national insurers.

Hull insurance was therefore placed 100% in the Italian market, including a limited number of non-Italian companies with an established branch office in Italy (thus coming under the fiscal and regulatory control of the competent Italian state authority).

Even when Italian hull insurance was largely a domestic business, some of the best marine-oriented Italian insurance companies started to accept foreign hull business through a limited network of Italian agents.

More significantly, a few Italian marine insurance brokers did dare to offer Italian placements to Greek owners as they were traditionally free to seek and place cover wherever they deemed better.

EU LIBERALISATION

When the EU Directives came into force and created the single insurance market, breaking the national insurance monopolies and permitting free cross-border business, it was a natural development for those brokers who had already become known in the international shipping community to bring new business to the market.

At that stage, and even now, an efficient and successful handling of claims from international clients has been essential for expanding the international business in Italy.

To that end, the peculiar approach of the Italian market was and still is to actively assist (but never replace) the assured in dealing with both damage and claims.

When damage occurs, and critical or even emergency decisions must be taken, market operators (leading underwriters and brokers) and all professionals (surveyors, adjusters, lawyers) appointed, or agreed on by leaders, are available to advise the ship owners. However, this is not done by taking control of the

case, which remains on the ship owners.

The involvement of market operators and professionals in dealing with the cases also assists when the time comes to prepare and adjust the claim under the hull policy and obtain underwriters’ approval.

The Italian marine insurance companies had joined in a Committee of Marine Insurers within which a Claims Control Committee was established, delegated to provide scrutiny and approval of marine claims to the market.

The existence of the claims committee and the appointment of an independent co-adjuster on behalf of underwriters when the assured elects to appoint their international adjuster are the conclusive steps of a cooperative approach to handling claims, which represents the major difference from London, Scandinavia and other European claims procedures.

Regarding legal issues, Italy is a ratifying party of most of the main conventions in shipping law. However, there are some peculiarities which are worth to be mentioned.

SALVAGE

In the case of salvage, for instance, Italian law plays a supplementary function with respect to the convention on Salvage 1989, ruling the aspects that the convention refers to domestic legislation.

In practice, the most peculiar issue is that, according to the Italian case law, in the first instance, shipowners or bareboat charters would be liable for all salvage shares and might have an action of recourse against other interests in the common adventure in proportion to their shares of liability.

When handling a case, this requires market operators and professionals to provide shipowners with timely advice on both the salvage solutions to be preferred (LOF or another commercial salvage contract, no contract at all, etc) and need to promptly involve cargo and other salved properties.

This is done by declaring general average and collecting securities, before part of their claim is irretrievably lost, all depending of course on an evaluation of the applicable insurance conditions.

While Convention 1989 states that “No remuneration is due from persons whose lives are saved, but nothing in this article shall affect the provisions of national law on this subject” Article 493 of Italian Code of Navigation acknowledges the right to remuneration to those who save human lives.

However, the right arises only when the remuneration amount is covered by insurance or the people are saved in vessel salvage.

The law of the flag of the salving vessel also rules the remuneration apportionment between the owner, master and other persons in the service of the salving vessel.

Article 496 states that when the vessel is not fitted and equipped to carry out assistance and salvage services, onethird of the total remuneration shall be paid to the shipowner. At the same time, the other two-thirds shall be apportioned among the salving vessel’s crew

“Italy is a ratifying party of most of the main conventions in shipping law. However, there are some peculiarities which are worth to be mentioned.”

Gian Piero Priano, Cambiaso Risso Group

ADMINISTRATIVE ENQUIRIES

In Italy, there is a two-stage investigation by the maritime authorities, namely the “inchiesta sommaria” (summary investigation) and “inchiesta formale” (formal investigation). As soon as a casualty occurs, the maritime authority carries out a summary investigation into the causes and circumstances of the casualty. When this is concluded, if there is evidence of wilful misconduct or gross negligence or on request of the concerned parties, a formal investigation is carried out. The facts in the final report have considerable weight in future proceedings.

COLLISION

Italy applies Colreg 1972 and the principle of contributory negligence. However:

(i)If no liability of either vessel can be ascertained, the court will find the vessels equally to blame; and

(ii)In case of personal injuries or fatalities, both vessels shall be held jointly liable.

LIMITATION OF LIABILITY

For vessels up to 300 GRT, the limitation fund is equal to the vessel’s market value, plus freight. The limit can be broken in case of a shipowner’s wilful misconduct or gross negligence. For vessels above 300 GRT, limitation is that provided under 1996 Protocol to Convention on Limitation of Liability for Maritime Claims, 1976.

PILOTAGE

The pilot is a member of the crew and can be found liable in case of inaccuracy of the indications provided for the course assessment. In any case, the pilot’s liability is limited to €1m, but for the pilot’s wilful misconduct or gross negligence. However, the pilot must hold professional liability insurance coverage.

Italian law and any casualty that occurs in Italian waters are somewhat tricky as there are some differences with other markets’ claims practice and law. As they say, when in Rome do as the Romans do!

Forward Thinking™ Foreign Exchange

Ballinger & Co. is authorised and regulated by the Financial Conduct Authority under the Payment Services Directive as an Authorised Payment Institution with registration number FRN 825771.

Ballinger & Co. is a leading specialist in Foreign Exchange. We deliver FX risk management strategies and trading services to corporates and institutions. Through superior pricing and execution, improved transactional efficiency and deep market knowledge we provide each of our clients with an essential competitive advantage. E: info@ballinger.co T: +44 (0) 20 3869 1800

Preparation is all

Rob Hawes , technical claims lead marine and specie, Liberty Specialty Markets, stresses the importance of careful and thorough risk assessment and management by all parties in often complex and increasingly significant static commodity claims

Misappropriation is not a new issue for cargo owners, is not limited to any specific type of commodity and is ambivalent to geographical location. The knock-on effect should not be underestimated, effecting supply chains, traders and their insurers.

Recently these events have resulted in larger and more complex losses leading to more severe insurance claims, commercial disputes, and litigation.

The insurance market facilitates world trade. International trade relies heavily on available goods being ready for manufacture, transit, storage and distribution to ensure the flow of commodities across borders.

Regional distribution centres play a vital role in meeting the demands of global manufacturing. These goods are kept in a range of storage facilities around the world.

The cargo insurance market is an enabler of global trade. It is linked to trade/repo financing which facilitates trade in raw materials and which are used in the manufacture of the finished goods that we use and enjoy every day.

RISK OF LOSS

Examples of commodities include foodstuffs, cotton, precious/ non-precious metals, bulk liquids, fossil fuels and pharmaceuticals to name a few.

Stakeholders include commodity traders, bank financiers, buyers, sellers, producers, wholesalers, retailers and their insurers.

These are all exposed to risk of loss and with so many involved, it increases the challenge of identifying goods released from stock, who and how any misappropriation occurred.

MISAPPROPRIATION

English law has no settled definition of misappropriation. It is a

criminal offence and may amount to theft, or the civil tort of conversion. Cargo shippers must entrust their goods to third parties which increases the risk of loss, including misappropriation.

Insurers have attempted to define cover for misappropriation. For example, the Joint Cargo Misappropriation Clause (JC2017/010) Cargo disappearance is more commonplace than is appreciated. It is difficult to trace and recover from third parties despite the efforts of the cargo market and insurers to use more sophisticated risk management, such as computerised inventories.

Types of loss include fraudulent documents, criminal gangs, swapping for lower grade product, fabricated break-ins, discovery during stock taking, bankruptcy of collateral managers, bribery and corruption,unauthorised release of goods in time, co-mingling, unapproved product releases by CMA/SMA, goods pledged multiple times to multiple buyers and consignment stock losses.

PRICE DRIVEN LOSSES?

We have experienced a period of high inflation and supply chain challenges. This has resulted in increased pricing of many commodities. This has caused issues for global traders. Commodity pricing affects the severity of loss, the supply and demand and the likelihood of loss. >If the price of a specific static commodity has rapidly decreased

since entering a place of storage, the goods may be less likely to sell and may be held longer. This financial pressure is further exaggerated if the goods are debt leveraged/trade financed. Along with trade price losses this leads to increased moral hazard; and

>Conversely, opportunity for higher profit follows price increases but volumes and values at risk also rapidly increase. This can create a value accumulation problem. Higher valued goods attract more interest from criminals manifesting in unsanctioned product releases. These losses are often only discovered on stock taking.

ISSUES ARISING

Complex issues often arise:

>Did the goods ever physically exist?

>Was it possible to (re)move the quantity of goods in the time frame?

> Was there an insurable interest in the goods at the time of the loss?

>Is it an indemnifiable physical loss, or a trade credit issue?

>Who is at fault?

>Which insurance periods or coverages may attach?

>How many losses occurred and when?

>Was employee fidelity involved?

>Is it a mysterious disappearance? and

>Were fraudulent documents used and how did the security/ release mechanism fail?

Sophisticated fraudsters use increasingly effective methodologies, for example using the data and identities of a legitimate business, enabling them to unlawfully collect goods.

POLICY COVERAGE CONSIDERATIONS

A full expert and independent investigation is often necessary to get to the root of the problem which can stretch beyond the claim itself. Key policy coverage considerations must be established and assessment of the due diligence conducted.

Insurers will evaluate what was disclosed, the applicability of exclusions and the presence of a fraudulent documents clause as well as the usual compliance with the terms, clauses, conditions and warranties of the policy.

There have been some significant cases which have clarified how tortious misappropriation will be dealt with by the courts.

In the absence of a settled English law definition, the Joint Cargo Misappropriation Clause (JC2017/010) defines it rather well:

“Misappropriation Exclusion (Amended 15th November 2017)

…Misappropriation [shall in this insurance be deemed to] mean the unauthorised conversion, use, release or disposal of the subject-matter insured at or from a warehouse or other place of storage whether on or offshore, other than in the ordinary course of transit, by or with the knowledge of the bailee or of any other person or entity including their officers and employees to whom the subject-matter insured has been entrusted.”

MINIMISING RISKS

Risks need to be assessed and monitored carefully while the entire risk management framework of the insured should be considered by the prudent underwriter.

Use of inspection companies to verify the existence of goods on a regular basis and conducting background checks on their collateral managers. Additionally, the use of the insurer’s own in-house risk engineering expertise can also help to identify, assess and minimise risk, working in conjunction with the insured’s/broker’s own risk management teams and enhancing the claims feedback loop.

PREPARATION IS KEY

Static commodity insurance claims are costly, complex, damaging for supply chains and potentially restrict the efficacy of global trade. One cannot legislate against the unscrupulous criminal. However, through review, preparation and advice at risk analysis stage and the careful investigation, consideration and handling of a claim in partnership with the insured and their brokers, it is a problem that can be significantly mitigated.

‘Hybrid knock -for-knock agreementsA Trojan horse for the offshore vessel sector?

Alexander McCooke, offshore syndicate claims manager, The Shipowners’ Club discusses the challenges of hybrid knock-for-knock clauses

The modern offshore sector, be it oil and gas or renewables, is built on knock-for-knock agreements. They allow parties to operate expensive assets in close proximity to each other, in the most challenging conditions.

They facilitate information sharing, avoid a proliferation of claims and legal disputes and ultimately reduce the operating costs of all parties, particularly their insurance costs. However, the principles once considered axiomatic are increasingly under threat from an unlikely source.

We have written in the past about the importance to members of retaining knock-for-knock principles when engaging in offshore work. For years we have seen members resist requests to contract on proposed contracts with negligence-based liability terms, or standard form Bimco contracts with the knock-for-knock clause removed. This has been largely successful and the industry is all the healthier for it.

RISE OF THE HYBRID

However, more recently we are seeing an increasing number of what are often labelled as ‘hybrid’ knock-for-knock agreements.

On the face of it, these can sound like a suitable compromise. Members obtain a knock-for-knock agreement in broad terms and

the charterers receive some of what they ask for.

But, as always, the devil is in the detail. The reason these contracts are called hybrids is because the liability section is a blend of two arrangements.

Firstly, there is a negligence or fault-based layer, often from the ground up to $1m or $2m (although it can be much higher on some occasions. We have seen on occasion proposals for an initial layer of $100m to be allocated on fault-based terms).

Secondly, there is a layer above that consists of liabilities allocated on traditional knock-for-knock terms.

One might be forgiven for thinking that agreeing to such a scheme is not too consequential. After all, the reasonable scope of claims a typical OSV may be exposed to could be said to range from a few thousand dollars up to around $100m. Such high figures are likely to arise in complex cases of wreck removal, platform damage or pollution.

Of course, it is possible to have a very catastrophic claim that exceeds even this level. We have seen OSV operator members incur claims in excess of $100m occasionally, but such matters are thankfully extremely rare.

From that perspective, an initial layer of liability which is limited to claims in the one or two-million-dollar band could seem like a mere percent or two of the overall contract risk.

“Agreeing to ‘hybridise’ a knockfor-knock, so it only applies above $1m for example, is akin to disapplying it almost entirely. It would no longer be relevant in 99% of the typical claims expected.”

RISK OF IRRELEVANCE

However, if we consider the actual makeup of offshore claims, a different picture emerges. As you will see from the table below, the vast majority of offshore vessel claims would fall into the quantum bands such contracts seek to avoid the knock-for-knock regime applying to.

Therefore, agreeing to ‘hybridise’ a knock-for-knock, so it only applies above $1m for example, is akin to disapplying it almost entirely. It would no longer be relevant in 99% of the typical claims expected.

Inevitably, in the longer term, this would mean higher chartering costs for customers. The increased costs of insurance, the incursion of deductibles in each claim and the added administration time of dealing with disputes will need to be

OFFSHORE VESSEL CLAIMS BY COST INCURRED (US$)

factored into the vessel’s operating budget.

No doubt shipowners will continue to therefore make the case for maintaining the true principles of knock-for-knock and advocate for the benefits they deliver.

KEY POINTS

However, we understand that sometimes it can be commercially difficult to avoid such arrangements entirely. As a result, some of the key points that members may wish to bear in mind if they are considering a hybrid knock-for-knock contracting proposal are as follows:

1. Format of the initial layer: There are degrees to which the initial liability layer can be exempt from the general knock-forknock arrangement. At the least onerous end of the spectrum,there may be a simple confirmation that the knock-for-knock does not apply between the parties below a set level. More onerous than this is an express agreement that members will be liable in the event they or their group are negligent or ‘at fault’. In the most onerous scenarios, contracts can suggest the shipowners will be liable if any damage occurs to certain property during the term of the contract. This is effectively a strict liability, where members can be held liable even where they have done nothing wrong and the damage was beyond their control (such strict liabilities generate exposures that are clearly in excess of those arising under general law and would accordingly require contractual liability cover).

2. Reciprocity: Ideally, any agreement to disapply the knockfor-knock regime between the parties below a certain quantum level would apply to both sides equally. So, if a member’s vessel was damaged by the negligence of the charterer and the claim was below the set level at which the knock-for-knock applied, they would not be blocked from claiming damages from the charterer. However, it is not uncommon to see an arrangement proposed where the knock-for-knock is only disapplied in one direction. This means that the shipowner is restricted from claiming from the ground up but does not receive the same protection in return.

3. Application to non-property claims: A common reason given for hybrid knock-for-knock proposals, is that the charterers have a large deductible on their property insurance policies. Accordingly, their ideal contracting scenario is where any indemnity they give for damage to their property aligns with their insurance deductible for that property. This way, any claims for damage to their property will either be paid by the shipowner or by their insurers, with no responsibility remaining with the charterer themselves. Given this rationale, if a hybrid agreement is being considered, there is no reason why the whole knock-for-knock should be disapplied. Only the elements of it relating to property damage should be isolated and isapplied below the relevant level.

As always, the Club is here to support members with cover that can be tailored to meet their individual contracting position, whether it is on standard knock-for-knock terms, a hybrid arrangement or otherwise. We can also assist with advice on cover during the contracting negotiation or tendering process and would invite members to send us their contracts for review if they have any questions.

Know your limits

Ibrahim Onur Oguzgiray , partner, Cavus & Coskunsu Law Firm explains the significance of the First Instance Court position on the applicable limits in Turkiye

In maritime law, liability limitation is a critical aspect that determines the extent to which shipowners can be held financially responsible for claims arising from maritime incidents. Turkiye, like many other countries, is a party to the International Convention on Limitation of Liability for Maritime Claims (LLMC) of 1976 and to the Protocol of 1996 to amend the Convention on Limitation of Liability for Maritime Claims.

In a decision given this year, the Turkish Maritime Specialised Court in Istanbul, the 17th Commercial Court of Istanbul, decided to limit liability of owners, insurers and other interests of a container vessel.

The decision was not only signifying the principals for limiting liability against maritime claims, it also established some new principals against the arguments raised during the procedures.

This article explores the decision on maritime liability limitation and delves into a recent court decision that underscores the application of the updated liability limits under international conventions.

DISPROPORTIONATE EXPOSURE

The Turkish legal framework on maritime liability limitation is primarily guided by the 1976 LLMC and its 1996 Protocol, which were incorporated into Turkish law under Article 1328 of the TCC.

This framework allows shipowners to limit their liability for maritime claims to certain predefined amounts, thereby protecting them from disproportionate financial exposure.

The limits are based on the Special Drawing Rights (SDR) defined by the International Monetary Fund (IMF) and they are adjusted periodically to account for inflation and other economic factors.

The TCC articulates that the liability limits for maritime claims can be updated in line with international conventions ratified by Turkiye.

Article 1328 of the TCC reflects this by stating that amendments to the LLMC or its protocols become binding once they enter into force for Turkiye.

However, a legal debate arises regarding the application of new limits under the 1996 protocol, especially in light of decisions made by international maritime bodies that increase the limits of liability.

INCREASED LIMITS

In a recent decision in May, the Istanbul 17th Commercial Court of First Instance addressed a case involving the marine vessel ‘Sea Eagle,’ which capsized while berthed and carrying out cargo operations. The court was requested to limit the liability of the shipowners and to establish a fund to cover the claims resulting from the incident.

The vessel that was berthed at Limak Port, Iskenderun, capsized on 18 September 2022 during cargo operations. The court ruled that the capsizing was due to improper stability calculation of the master and the chief officer in preparation to the loading and their failure to adhere to the stability book of the vessel.

The court decided that the owners would have the right to limit their liability under the convention.

The court in its reasoning commented that, while the master’s giving incorrect loading instructions contrary to the stability booklet available on the ship, causing the ship to sink may be considered as an act committed “in a reckless manner and with the knowledge that such damage was likely to occur” as defined in article 4 of the Convention of 1976, it was considered that this would not eliminate the limitation of the liability of the claimant shipowner.

This is because, according to Article 1343 of the TCC, the master’s fault is not a “personal fault” attributable to the shipowner.

The court’s decision establishes the Turkish position in approaching to a right to limit a liability under LLMC and losing of such right is similar to the application of the other parties to the Convention where the test is Article 4 of LLMC as below:

“Article 4 - CONDUCT BARRING LIMITATION. A person liable shall not be entitled to limit his liability if it is proved that the loss resulted from his personal act or omission, committed with the intent to cause such loss, or recklessly and with knowledge that such loss would probably result.“

APPLICATION OF LIMITS

A significant aspect of the decision was the determination of the liability limits for establishing the fund. The court faced a contention between applying the limits set by the 1996 protocol and the updated limits established by the International Maritime Organisation (IMO) in 2012.

The court considered the argument presented by the

plaintiff’s counsel that the 1996 protocol limits should apply due to the procedural requirements under Turkish law for adopting new international conventions.

According to Article 1328 of the TCC, new limits would only apply if they had been ratified and formally entered into force for Turkiye. However, the defendant’s counsel argued for the application of the 2012 limits, which were higher and intended to provide better protection for creditors.

The court’s decision was influenced by the intention of the legislature and the procedural context of the 1996 protocol.

Article 8 of the protocol outlines the implied adoption procedure, which allows for automatic application of amendments without requiring separate ratification by each member state. The court ruled that the Turkish legislature intended for the amendments to apply directly once the protocol was in effect.

The court concluded that, based on the automatic applicability of the 2012 limits under the implied adoption procedure, these updated limits should be applied.

This approach aligns with the international practice of ensuring higher compensation for maritime claims and reflects the court’s commitment to providing effective protection for claimants.

CRITERIA OF THE FUND

In calculating the fund, the court determined that the limit of liability for the Sea Eagle case should be based on the 2012 ammended limits but based on Turkish Lira equivalent of SDR.

The ship’s tonnage was 3,120 tonnes, leading to a total liability amount of 2,196,480 SDR, equivalent to TRY 93,592,891.39 at the time of the decision. Legal interest accrued from the date of the incident to the establishment of the fund was added, resulting in a total fund amount of TRY 113,076,244.97.

The court also addressed the arguments regarding the form of the fund. While the plaintiff requested that a P&I Club letter of undertaking be accepted, the defendant and intervening parties preferred a cash deposit or a bank guarantee.

The court ruled in favour of a bank letter of guarantee or cash deposit, emphasising that the fund must be established in Turkish Lira and adhere to the provisions of the 1976 convention and the 1996 protocol.

CONCLUSION

The decision made by the Court Instance has been appealed to the Istanbul Regional Court of Justice whose decision will be subject to a second appeal at the High Court of Appeal in Turkiye.

“The decision was not only signifying the principals for limiting liability against maritime claims, it also established some new principals against the arguments raised during the procedures.”

Onur Oguzgiray, Cavus & Coskunsu

Therefore, it will be ultimately up to the High Court of Appeal to decide whether there was in fact a ratification of the increased limits of 2012 or if the original limits under 1996 Protocol would apply. Therefore, it will take time to know which limits to apply in Turkiye.

Re-routing and fake deliveries: challenges of rooting out cargo fraud

Helen Steadman, head of marine cargo, AXIS tackles the increasingly complex world of marine cargo fraud and provide some useful advice on how to rise to the challenge

Complex logistics, including complicated supply chains, and contingency planning have long been part of the cargo world, however the overheated geopolitical post-covid environment has made transporting goods from A to B particularly challenging.

As the cargo industry navigates disruption to trading routes, trade wars and conflicts, these also provide cover for criminals to exploit the dislocation for their own financial ends.

Cargo fraud has also become a significant factor. For as long as the industry has operated, cargo claims specialists have been alert to market conditions that can fuel costly fraud trends, as opportunistic and organised fraudsters target any chinks they can find in the cargo supply chain.

Just as the industry has become more complex, the techniques deployed by fraudsters to trick, deceive and scam

their targets have also become more varied and harder to detect.

From traditional forms of deception to the rise in online methods of fraud, this pattern within the marine cargo world is reflective of wider society, with fraud accounting for the highest portion of incidents by crime type in England and Wales according to the UK Office for National Statistics.

TECHNIQUES OLD AND NEW

Among the most common forms of cargo fraud are faked documents, which are forged or altered, generally to trick others in the chain into various transactions - whether the goods buyer, the warehouse, hauliers, or shippers - with insurers often ultimately paying for the acts of the criminals.

The theft by trickery technique, conning parties into sending goods to fake individuals, is becoming more of a

challenge in cargo. We have dealt with goods going missing in cases of suspected fraud involving hauliers sub-contracting to fake companies. Again, the number of parties involved in the chain often makes it harder to identify the point where the crime occurred.

In one case, a warehouse expected a driver to pick up a delivery for an insured. When a different driver arrived, the employee asked if he was coming to pick up that particular shipment and released the goods to the driver. When the goods failed to turn up at their destination, enquiries were made but no record of the licence plate, any identifiable information about the truck and no clear camera footage could be found.

It was only following this incident that employees were given clear guidelines not to release any shipments without receiving an authorisation letter and seeing the driver’s licence.

In another case, a logistics company hired a known shipping company to transport goods to an online distributor. They subcontracted to company B that was, at the time, verified as being legitimate with no issues or concerns on its file.

When the goods went missing, it was discovered that

an individual impersonating company B had in fact been contacted and was then able to steal goods and bounce it around various warehouses to obfuscate their trail.

CLOSER VETTING

These types of activity could in part be addressed by closer vetting by suppliers including more consistent and thorough background and credit checks, as well as through employee awareness training and education.

Of course, tackling this issue is far easier said than done, especially when dealing with experienced fraudsters with close knowledge of the company, its operations and its suppliers.

A combination of digital documentation and old-fashioned paperwork persists in areas of the cargo world and so fraudsters make full use of both. We have seen this with faked bills of lading and email being used to provide drivers already out on the road with scans of faked paper orders to redirect their delivery to a different address, apparently at the customer’s behest.

We have also seen cases of forged documents sent to the warehouse stating the name of a legitimate company that will collect the goods, only for someone pretending to work

“Just as the industry has become more complex, the techniques deployed by fraudsters to trick, deceive and scam their targets have also become more varied and harder to detect.”

for them turning up. Neither they or the cargo are ever seen again.

As the cargo industry’s reliance on digital technology increases, more fraud has become virtual with real world consequences. Phishing emails that replicate the style and appearance of a genuine email are widely used by criminals to gain information, entry into a target company’s IT system, or to infect with malware including ransomware.

A typical example could involve a business receiving an order via email that appears to be from a known customer. It is only on closer examination - potentially after the goods have been delivered and no payment has been received - that the sender’s email address is noted as containing one letter different from that of the known contact.

In some incidents in which fraud has occurred, the common practice of allowing customers 30 days to make an invoice payment may also provide an extra window of time for fraudsters to clear up any traces.

PEOPLE POWER

Knowing how criminals have managed to infiltrate the supply chain and trick parties into handing over goods or

funds can be notoriously difficult. Social engineering is one technique deployed by fraudsters to trick employees and gain access to a manufacturer or logistics company’s online system.

Once in, they may move around silently, extracting information they can use to create fake orders using plausible techniques that mirror the real processes. Maintaining strong cyber security and ensuring that employees are educated in what to look out for and how to report a suspect email are the essential first lines of defence for protecting against these attacks.

Former employees can also be a source of risk, especially if measures are not taken to immediately revoke user credentials, update online security and care is not taken to check all documentation. Ex-employees can also use their knowledge of systems, customers and suppliers to commit fraud in ways that appear legitimate or to pass on business-critical information.

PROBLEM SHARED

So, what can the insurance industry and its insureds do about this age-old crime? There is no easy solution. However, concerted efforts to elevate standards in recordkeeping, vetting suppliers and recruitment processes would provide more certainty and awareness of who has ownership and responsibility for cargo at a given time.

The use of GPS technology to track goods cannot prevent cargo from going missing in the first place but has the potential to provide more awareness of where cargo is in its journey. Providing the right training to employees to ensure they maintain good cyber hygiene and follow protocol is also key.

When fraud is suspected, having clear policy wordings and less ambiguity on what is covered under which policy is essential for reducing delay and anguish for customers facing losses.

Insurers and brokers can ensure the process is efficient by working constructively to establish which type of insurance policy the incident is covered under. For example, determining whether an incident is a financial loss and whether it would be covered under a trade credit or cargo policy.

Clear wordings and a joined up-approach by insurers and brokers can help to address grey areas, elevate service and avoid delay and unnecessary worry for customers at the point at which they most need our help.

As we collectively work together to navigate this evolving risk landscape, our success will be grounded in collaboration, open communications and a focus on continually elevating the specialty products and solutions that we bring to the market.

21 November 2024, Houston

Energy Insurance Americas is in its third year and continues to grow year on year. Sponsored by over 20 brokers and insurers

Energy Insurance Americas caters for risk managers, energy insurers and brokers and service providers to the sector.

08.55-09.00 Welcome Address: Daniel Creasey, Managing Director, Cannon Events

09.00-09.20 Keynote Address: Insurance – Global Di erences, Local Impacts

Choosing which insurance market to use is not always an easy one and nor is there always much choice in the matter, as certain markets might have the only available capacity. In this keynote we explore why particular markets are able to o er so much more than others, both in terms of product innovation and also in terms of price.

09.20-10.10 Panel Discussion: The Appetite for Renewables vs Oil and Gas – Balancing the Books

We take a look at the direction of travel for insurers. With more global players announcing plans to back out of oil and gas cover, we consider how the transition to renewables will work in practice. What will it do to available capacity, given oil and gas supplies (and insurance cover) are still required? Oil and Gas provides the building blocks for a lot more than fuel…

10.10-11.00 Panel Discussion: Working Together To Achieve A Common Goal – Finance, the Insurance Sector and Assett Developers

Insurance is absolutely central to the energy transition taking place. In many cases, insurance can been seen as just a line of operational expenditure on a spreadsheet and buyers of insurance may focus on reducing this cost as much as possible. This session aims to bring together three main pillars of energy transition to understand how they can better work with each other.

11.30-12.00 Fireside Chat: A balanced View in Texas? – Energy Transition

In this session we hear the view of Christopher Guith of the U.S Chamber of Commerce’s Global Energy Institute as well as a local politician’s views on the energy transition journey. Texas is investing heavily in renewables, but is also the centre of oil and gas in the U.S. -We learn how politicians see the future developing for the state as it looks to transition from old to new technologies and sources of power.

12.00-12.50 Panel Discussion: Building Up the Risks as Constructions Hit Snags

There are hundreds of construction projects underway, particularly in the renewable sector, with more in the pipeline. The question for this session is whether insurers are keeping pace with the emerging construction risks, particularly in light of recent supply chain challenges and delays on these projects. We investigate how insurers are pricing these risks, including the perspective of the companies carrying out these projects and particularly when it comes to business interruption implications.

12.50-13.10 Presentation: Aging Renewables

While the market tends to concentrate on new renewable projects, there is a growing number of aging sites too, where end-of-life decisions need to be taken. Even newer sites are facing these questions as technology races ahead and leaves relatively new plants without options in the wake of plant failure. In this session, we consider the end of life for renewable projects and analyze how plant is being recycled. We also look at the insurers’ response to what could be a new opportunity for innovative cover.

14.00-14.20 Presentation: Engineering Approaches to Mitigating Energy Sector Risks: Ensuring Safety Across Industries

In this presentation, we will explore engineering methodologies for identifying and mitigating risks in complex operational environments, focusing on ensuring safety across various sectors. Drawing from our expertise in forensic investigations and failure analysis, we will address common risk factors– such as equipment malfunctions, fires, and structural failures– and demonstrate how engineering insights can be applied to mitigate these challenges.

14.20-14.40 Presentation: Sea of Opportunity – The Rise of America’s O shore Wind Farms

The United States, a relatively new player in the global o shore wind market, has set ambitious targets for industry growth, backed by strong support at both the federal and state levels. While significant progress has been made, with several major projects either under construction or nearing that stage, the industry is facing major challenges. These include sharply rising costs, supply chain limitations and issues with existing o take contracts that lock in revenue streams, among other obstacles.

14.40-15.40 Roundtable Sessions:

Topics raised in research include: Jones Act, Storm Damage, Fires and Batteries, Hydrogen, Grid Resiliency, Cyber Security, Adaptation, Battery Storage, Serial Defects, Energy Volatility, AI, Nuclear Verdicts, Limits, Parametric Insurance, Low Energy Carbon, Carbon Capture, Inflation Reduction ACT, Politics & War, Solar Farm Damage

15.40-16.10 Case Study: Personal Injury for O shore Workers

Following a recent poll, this session will explore personal injury trends amongst o shore workers, revealing exactly where most of these claims are coming from: in traditional roles, in energy, in oil and gas or on renewable sites. With a rare opportunity not only to dive deep into the numbers, but to look into the trends, this session will question some assumptions and include questions for the audience.

16.10-17.00 Panel: Extreme Weather – The Impact on Renewables

Millions of dollars have been flooding into the renewables space, thanks partly to attractive tax incentives. However, as the sector is hit by increasing numbers of extreme weather events, we ask how this is impacting the availability of insurance. This session will explore the availability of insurance for these projects, the limits being imposed and whether non-traditional instruments might be the way forward.

11.00-11.30: Co ee break 13.10-14.00: Lunch 17.00: Close of conference

A Forensic approach to assessing liability

By Dr Giuseppe Scatigno , corrosion and materials engineering expert with Hawkins & Associates

One of the few certainties in life is that iron will rust. The same can be said for some types of steel, as steel is an alloy that typically contains up to 97% iron. Iron in its elemental form is not stable under typical atmospheric conditions and will readily react with oxygen and moisture to form iron oxide, commonly known as rust.

We are all familiar with images of rusty orange and brown iron and iron alloys by the seaside. The familiar orange rust we see on many metallic components is one of the corrosion products of iron. As the iron bearing alloy corrodes, material is lost until the component, from an engineering perspective, is no longer able to perform as designed.

Different environments are more aggressive than others and seawater, laden with salts, enhances the conductivity of water, speeding up the development of corrosion products.

ENGINEERING SOLUTIONS

But not all is lost. Engineering solutions have been designed to protect steel that is even permanently exposed to seawater against corrosion. This ensures that seafaring operations can be carried out safely and are commercially viable.

The steel employed for hull construction is protected by the application of appropriated coatings and by employing an active protection system known as impressed current cathodic protection (ICCP).

ICCP uses a power source to drive a protective electrochemical reaction that suppresses corrosion ie the normal corrosion reaction is reversed.

For corrosion to take place, what is known as an electrochemical cell must be formed. This includes a conductive medium, an anode, where electrons are lost and a metal degrades and a cathode, where electrodes are gained and a metal is protected. ICCP can electrically drive the hull of the ship into a more stable configuration.

Pourbaix diagrams, such as the one shown in Figure 1, are an empirical tool created to predict how a metal will behave in different conditions. Through the application of a current, the ICCP can ‘push’ a metal into a more desirable area of the Pourbaix diagram, ie an area of immunity or passivity, where the corrosion of any iron alloy would be largely negligible.

Figure 1. A Pourbaix diagram showing areas where an electrochemical reaction is more dominant. Below -0.7 V, iron is in a zone of immunity, where no corrosion is taking place. [Macleod, Ian & Morrison, P & Richards, Vicki & West, N. (2004). Corrosion monitoring and the environmental impact of decommissioned naval vessels as artificial reefs. 70. 592-297.]

Insurance policies often contain corrosion exclusions, and it can be challenging to understand how liability is apportioned. The damage caused by corrosion is often not directly insured, unless it can be proven that it is linked to a single event and not because of lack of maintenance and/ or general wear and tear. On the other hand, the potential damage caused by a corrosion event to nearby components is commonly insured.

A forensic investigator with the right expertise can help in establishing liability. By performing inspections and analysing data, such as ICCP data and ultrasonic thickness testing, they can support in determining how and when degradation started. This can help the ship owner and insurer understand where the liability lies and ensure that the claim is handled quickly and effectively.

A CASE STUDY

In 2023, during dry docking of an 18-year-old vessel, corrosion damage was observed on the hull, rudder, and propeller blades of the vessel.

Hawkins was instructed to assess what degradation mechanisms had occurred and the nature and timeline of the corrosion to determine to what extent the widespread corrosion might be related to an alleged prior grounding in South America that took place approximately three years earlier.

I inspected the vessel in dry-dock where I assessed the extent of the damage via ultrasonic testing (UT), confirming that the hull had lost in excess of 20% of its initial thickness. Inspection of the rudder, the propeller blades and the

propeller hubs showed different types of damage. This included impact damage on the propeller, crevice corrosion on the propeller hub (a localised corrosion mechanism) and stray current corrosion damage on the rudder (a mechanism associated with inadequate earthing).

I analysed all available ICCP data and periodic UT measurements. All dry dock UT inspections carried out before this incident indicated that the hull needed minimum re-work.

The measurements conducted in June 2023 show widespread metal loss across all the hull surfaces exceeding 20%. They also showed several spots distributed in separate areas of the hull peaked above 40% metal loss.

During my site visit, I learned that the crew noticed difficulty with operating the ICCP and had ordered a replacement controller, in December 2021. The installation took place seven months later.

The ICCP data review presented an accurate representation of how the vessel corrosion protection system was operated during the previous six years, as shown in figure 2.

Operating at a voltage equivalent to a potential below 600 mV results in a completely unprotected hull. But does the system have to remain in this recommended range, or is a higher potential a better approach?

Unfortunately, more is not always better; the high current needed to achieve a potential higher than 900 mV would result in the spallation of the protective layers of paint.

If the ICCP is switched off, as when the vessel berths, or

Figure 2. ICCP data review from June 2018 to June 2023.

The ICCP has two reference electrodes, shown in figure 2 in orange and blue. According to the manufacturer recommendations and as suggested by the Pourbaix diagram in figure 1, the ICCP should be operated between 800 mV and 900 mV.

if the ICCP malfunctions, bare metal is then exposed to a very corrosive environment, resulting in an accelerated metal loss.

The ICCP data shown in figure 2 shows the measurements to be erratic over the period reviewed. More specifically, the ICCP, especially past the dry-docking inspection of 2018, has not consistently operated within the recommended guidelines. The measurements appear both above the maximum recommended threshold value and below the minimum recommended threshold value.

Since 2018, the system had been in the correct window of protective voltage for less than one third of the time ie 30.35%, as summarised in table 1. The percentage of the readings that were found within the manufacturers’ recommended settings are highlighted in yellow.

The high and low ICCP measurements indicate that the ICCP operation caused the degradation of paint and subsequent degradation of the hull.

A review of the ICCP system showed that this was most likely caused by a loose electrical connection that would not allow the system to settle on a target value or a malfunctioning reference electrode.

The crevice corrosion in the propeller hub is likely to have been caused by the grounding, which would have created a gap between the gasket, the hub and the propeller, facilitating water ingress, and leading to corrosion.

Damage to the propeller hub was not initiated by the ICCP malfunction, but it is probable that the lack of appropriate ICCP protection exacerbated the issue. A hull protected by an adequately working ICCP and by paint, should undergo

minimal material loss.

Using Faraday’s law, I was able to calculate the expected metal loss, showing that the hull would have sustained the majority of its metal loss between September 2020 and June 2023.

I calculated that the hull would have experienced the following lower and upper bound corrosion rates:

> Lower bound: = 0.58 to 0.63 mm/year

> Upper bound = 1.25 to 1.3 mm/year

The upper bound values suggest that a certain portion of the hull might have exceeded 20% metal loss as early as December 2022.

To confirm whether there might have been other potential causes of corrosion, I performed a bulk characterisation of a retained hull sample. I performed induced coupled plasma –optical emission spectroscopy, which confirmed that the steel was of the right composition and therefore was within specification.

To rule out a contamination issue, I had collected oxide samples during my site visit on which I performed an elemental characterisation, employing energy-dispersive x-ray. This showed that all elements found were consistent with the average composition of seawater, ruling out the possibility of contamination.

CONCLUSIONS

The forensic investigation I performed enabled me to conclusively assess the cause of the corrosion damage, ICCP malfunction and to rule out secondary causes, such as suboptimal metal composition, chemical contamination, or the grounding that occurred three years prior.

I was also able to establish an accurate timeline of corrosion degradation and how rapidly the metal loss had taken place. Given this, the insurer was able to use the information gathered to expedite the claim.

“A forensic investigator with the right expertise can help in establishing liability. By performing inspections and analysing data, such as ICCP data and ultrasonic thickness testing, they can support in determining how and when degradation started.”

Table 1. Reference electrode readings were obtained from the ICCP measurement output.

FuelEU and climate neutrality

Simon Thornton , vice president, head of FDD London, Skuld, says that the coming FuelEU regulation needs to be taken seriously but will help drive the industry towards climate neutrality across the EU

Shipowners, managers and operators have had a lot to contend with in the last few years through a combination of unprecedented world events and unravelling a host of new decarbonisation regulations falling within the EU’s “Fit for 55” package.

While the Carbon Intensity Index, which is part of Annex VI of MARPOL has caused some problems, it is the FuelEU Maritime Regulation (FuelEU) which comes into force on

1 January 2025 that has the potential to create the biggest challenges for the shipping industry.

FuelEU will impact shipowners, operators and charterers trading vessels of more than 5,000GT (excluding vessels involved in the offshore and fishing sectors) either arriving or departing from EU/EEA ports from 1 January 2025.

The aim of FuelEU is to reduce the greenhouse gas (GHG) intensity of energy used by vessels on an annual basis, with a target of an 80% total reduction by 2050. It also aims to promote the use of renewable and low-carbon fuels by setting well-to-wake GHG emission intensity requirements on energy used on board vessels, including emissions relating to the extraction, cultivation,production and transportation of fuel.

In addition, Article 9 of Regulation (EU) 2023/1804, which forms part of the Fit for 55 package addresses the alternative fuels infrastructure of ports and introduces an additional zero-emission requirement necessitating the use of onshore power from 2030.

STARTLING STATISTICS

There are some startling statistics reported within the FuelEU regulations, including:

> In terms of volume, shipping accounts for around 75% of the EU’s external trade and 31% of internal trade;

> A total of 400 million passengers embark or disembark each year at EU ports, of which 14 million are cruise ship passengers alone; and

> Although vessels above 5,000GT only account for 55% of all vessel calls at EU ports, they are responsible for 90% of CO2 emissions from the maritime sector.

Given the EU’s commitment under the Paris Agreement to reduce GHG emissions by at least 55% compared to levels recorded in 1990 by 2030 it is, perhaps, no wonder that shipping companies have found themselves facing tough times ahead.

FuelEU will apply in respect of 100% of the energy used by vessels during calls at EU ports and on voyages between two EU ports, as well as 50% of the energy used by vessels between EU and non-EU ports.”

A port call will qualify for the purpose of the regulations if cargo is loaded or unloaded, or passengers are embarked/ disembarked, but not if the port call is made solely to arrange bunkers, change crew, or make STS transfers outside of port limits.

This regulation permits pooling the performance of different vessels within a fleet, so that any overperformance of one vessel can be off-set against the underperformance of other vessels within the same fleet.

It is also possible for shipowners to roll-over a vessel’s compliance surplus into a subsequent reporting period for that vessel, or to borrow an advance compliance surplus. There is also an option to attain compliance across a fleet of vessels, even if they belong to different shipping companies.

This pooling option has been well received by members with whom we have discussed the matter and perhaps the International Maritime Organisation may wish to consider using something similar in the future.

TICKING CLOCK

The vessel’s ISM company will be responsible for complying with FuelEU the deadline has been reached for them to submit their FuelEU Maritime Monitoring Plan (MMP), setting out their method for monitoring and reporting of data to a nominated, accredited verification company by 31 August 2024.

The other key dates are:

> Before 1 January 2025 the shipping company needs to have its MMP approved and on board vessels;

> On 1 January 2025 the shipping company has to start monitoring emissions from each vessel;

> From 1 January 2026, and annually going forward, the shipping company will be required to provide a specific vessel report as well as prescribed monitoring data, and supporting technical documentation;

> By March 2026 shipping companies will need to submit the data for the previous year to the verifier, together with any intention to include a ship within a pool. The verifier will then calculate the yearly average GHG intensity of energy used on board each vessel against the applicable limit;

> By 1 May 2026 the shipping company must pay any compliance penalty; and

> From 30 June 2026 if the vessel, or other vessels in the same pool meet the applicable GHG requirements, each vessel will be issued with a FuelEU Document of Compliance (DoC).

Shipping companies that operate vessels that do not comply with the GHG limits or fail to adhere to the requirements to use onshore power will face penalties which, as outlined above, will have to be paid by 1 May each year.

The financial penalties are calculated based on the difference between the required and actual GHG intensity, with the deficit calculated based on the actual GHG intensity of the vessel and applying a penalty of EUR2,400 per tonne of VLFSO energy equivalent.

In addition, a DoC will not be issued, and if a vessel fails to hold a DoC for two or more consecutive reporting periods, then a member state can take further action when the vessel calls at one of its ports.

In the case where the vessel is flying the flag of a member state, they can issue the vessel with a detention order, while all other member states will issue an expulsion order and refuse entry to the vessel.

STS OPERATIONS

There has been speculation that vessels which will not meet the GHG limits may stop calling at EU ports altogether and we may see bulkers and tankers carrying out STS operations.

“Given the EU’s commitment under the Paris Agreement to reduce GHG emissions by at least 55% compared to levels recorded in 1990 by 2030 it is, perhaps, no wonder that shipping companies have found themselves facing tough times ahead.’’

However, it is advisable for owners and charterers to make sure that charterparties contain clauses so that vessels comply with FuelEU. This is likely to be easier to achieve with new fixtures going forward, but for existing charterparties, especially long-term charters, it will be necessary for owners and charterers to negotiate and reach agreement on the costs and obligations that FuelEU will bring about.

BIMCO is in the process of producing specific clauses, but until these are published owners and charterers are encouraged to start negotiations well ahead of 1 January 2025 if they are going to avoid finding themselves facing a fait accompli.

It remains to be seen how FuelEU will influence the shipping industry, however, given the potential penalties for non-compliant vessels this should be sufficient incentive for the shipping industry to rise to the challenge and assist the EU to become climate neutral by 2050.