From acorns to oaks
emerges as The innovation in the war risk market introduced by DNK, Noria and Clearwater tracking vessels using sensor data and connected insurance to automate policy administration has generated a lot of interest from the global marine insurance market. Participants in this roundtable discussed this solution, the way it has affected the market the wider implications for the insurance market and how it could and should embrace the digital age. From acorns to oaks
The rise of the digital age and the fourth industrial revolution clearly offers huge opportunities for the insurance and risk management sector to seriously up its game, shed the baggage of the past and all the cost associated with it, design innovative new products and services for customers and offer a wholly new and painless experience for all parties in the chain.
To date, however, real innovation has only really been seen in the personal lines and health insurance sectors in which forwardlooking established players and new disruptors are coming up with on-demand coverage that much more accurately reflect the lifestyles of customers. This new approach will accelerate and revolutionise the sector breaking down age silos and barriers and blurring the age-old divisions between risk holder and distributor. The application of the new technology to the commercial and corporate insurance sector – such as marine - has been less dramatic and potentially game-changing. This is a complex business that becomes increasingly complicated by the day as the combination of globalisation and adaption of new technologies and ways of doing business by customers in all sectors is more often than not leaving insurers scratching their heads and wondering how they are going to keep up.
Supply chain is a great example. Companies the world over would love to buy an affordable, all-singing, all dancing, comprehensive and real-time coverage for non-damage business interruption to their ever longer and more interconnected supply chains using the latest digital technology.
But if they themselves don’t actually know who their third and fourth tier suppliers are and where they are located how can the insurance industry be expected to keep up?
It seems therefore that, for now, the rise of the digital age in the commercial insurance space will be a more iterative process, evolutionary rather than revolutionary.
Solutions such as DNK’s sensor-based automation system, based on the idea of making the process better for the customer and therefore for the whole sector, is the way ahead. This is a ‘win-win’ for insurer and customer through the application of cutting-edge technology to a very old challenge as Svein Ringbakken, Managing Director at DNK and Chairman of Osprey Solutions, explained. “As a war risk mutual we receive thousands of AP calls (when a vessel is about to enter a high war risk area and needs to arrange short term cover) every year. This is really labour-intensive and not efficient for us or for the customer. So we spent a 10-year period looking at the options to simplify and make the process more transparent, efficient and accurate. Finally, we founded an Internet of Things (IOT) solution - the Raptor sensor and gateway that collects and sends position and performance data directly from the vessel every 6-7 minutes,” he said.
“This understandably generated a lot of interest among members as it provided much more rapid information about when a ship was entering and leaving an AP area based on the receiver on the ship. This significantly brought down the volume of manual labour involved. This became particularly useful in 2019 when the attacks occurred in the Straits of Hormuz. For members this was much simpler – better for us and they are able to use it for their own purposes. A win-win situation. We have seen a great improvement in the numbers, our solution
Ronny Reppe – CEO, Noria Group Will Unwin- CEO, Clearwater Dynamics Svein Ringbakken - Managing Director, DNK Neal Croft - Global Client Relationship Director, Willis Andreas Hovelsrud - Insurance Director, DNK Irene Phillips - CEO, Osprey Solutions Chris Bhatt- Global Sales Director, AON Adrian Ladbury – Editor, The Marine Insurer
is far more accurate and efficient. For customers a vessel is a high and long-term investment, usually about 15 years. We have given this to the members because it protects their asset and investment and our interest at the same time.”
Irene Phillips, CEO Osprey Solutions, said that the customer pull rather than provider push nature of the solution was critical to the success of the project.
“This is a genuine solution to an old problem that shipowners and their insurers have grappled with for a long time. It combines both business process and technological improvements to give an end to end solution for all. It was designed the right way around, through an analysis of the problem and what was needed first rather than finding a technology that looked good and then working out how to apply it which is how it often works. This can also be replicated in other areas which is very encouraging.”
CUSTOMER DRIVEN Chris Bhatt, Global Sales Director Aon Marine, agreed that following the herd is not the way ahead. “I liken the whole Insurtech space to a kids football match with everyone all bunched up and chasing the same ball. This is not the way to play the game. This kind of solution is the way ahead as it is uses the latest technology and data to deliver a real solution for the customer. Brokers such as Aon have vast amounts of data and we are at the centre of the relationship between carrier and customer. The key is not to just collect a lot of data but to work out what to do with it, how to use that data to the benefit of all.”
Ms Phillips stressed that transparency and accessibility is key for the market to make real progress, She said the sector needs to dare to simplify, not a natural tendency for this market.
“We have to work out a system that enables the data owner – the customer – to share with the insurers and brokers to gain a view of the reality and truth. This has to be an open and transparent process that enables a much better dialogue and analysis of the risk and therefore solutions that benefit everyone…we dare to simplify. The marine insurance industry is very complex with a lot of connections and bespoke solutions. The key is to not necessarily seek to boil the ocean and solve all the challenges with one solution but to dare to simplify.”
HISTORIC BARRIERS “This is exactly what is needed. The insurance industry has been slow to adapt and is, perhaps lurching forward in the way technology is applied. This may be a very individual case and the big question is where do we go from here? How can such a solution be applied to big risks such as geo-political volatility and supply chain disruption?” added Mr Bhatt.
For Neal Croft, Global Client Relationship Director, Willis Towers Watson, the key is to link the systems and data in an enterprise wide manner.
“I think this is great what has been done. There are so many links between immediate and secondary risks that affect all organisations in so many different ways. As with this example in the marine war risks area the data and technology has to be used effectively to help link up all the factors and provide solutions. We have all these individual risks, the next step is how to link them all and manage them in an enterprise wide manner.”
William Unwin, CEO Clearwater Dynamics suggested that a new collaborative approach is needed across the market to make real progress.
“Having co-innovated and implemented a dependable digital solution, a market-wide response makes a lot of sense
“As a war risk mutual we receive thousands of AP calls (when a
vessel is about to enter a high war risk area and needs to arrange
short term cover) every year. This is really labour-intensive and
not efficient for us or for the customer.” Svein Ringbakken, DNK
“There are so many links between immediate and secondary risks that
affect all organisations in so many different ways. As with this example
in the marine war risks area the data and technology has to be used
effectively to help link up all the factors and provide solutions,”
Neal Croft, Willis
creating unique data resource for shipping companies. There are a limited number of satellite providers competing for a modest maritime market ensuring keen competition. A solution integrating Raptor near real time tracking and granular domain awareness built from the ground-up has driven an insurance step change . Maintaining an agnostic approach to hardware and position reporting creates opportunities to future proof ongoing innovation,” he explained.
“Working hand in glove with DNK afforded CWD extensive opportunity to finesse the final platform, this is a rarity many technology initiatives do not have. There is a lot of focus in this sector on two areas risk mitigation and loss prevention directly improving processing and enhancing risk mapping. The industry has struggled to deliver substantive end-to-end deployments at scale given many non-aligned [interests] in shipping operations and security. This has impacted on a number of potentially good solutions not being used,” added Mr Unwin. “ Approached from an insurance perspective with a consolidated stakeholder approach as is being applied within Osprey we contend there are a number of practical wins for shipowner, operators and insurers alike. This successful initiative is directly reducing the burden on the insurer and shipping companies. The shipping and insurance industries are pilloried for not keeping up with technological developments, but, this shows that by using a partnership rather than acquisition approach scaleable deployments can be achieved. The market will change rapidly over the next decade and incremental adaption is needed rather the big bang approach,” continued Mr Unwin.
NO BIG BANG “The market will change dramatically over the next decade and regularly not all in one go, in one big bang. There will not be a dramatic Insurtech change we will see incremental change. Efficiency is the key. We still have manual input throughout the insurance value chain and this has to change very quickly,” he said.
“There are two parallel changes here. The search for efficiency in the insurance industry and the need to improve the customer experience. This DNK initiative delivers both goals, it makes the whole process more efficient and improves the customer experience. This moves towards where the market is headed – insurance when needed and on demand. Less focus on the annual contract, but, rather providing what the customer needs today. One of the big challenges for the industry is cyber because neither the customer nor the insurers really understand this risk.”
All participants in the roundtable – and it seems all risk managers generally – agree that a lack of market standardisation is a problem and barrier to positive change.
“The Internet of Things is not one standard tool, but, many things. I worked in finance and other markets before returning to the insurance market and I have to say that they are very different,” said Ms Phillips.
“The banking market worked out a while ago that its value does not come through transactions but advice. As a result, the sector adopted standards and common systems such as the international settlements system that all can use because it does not really provide a competitive edge. This enables the banks to focus on where they can really add value. The insurance industry has not taken this approach and so is hampered and this makes it more difficult to derive value out of new technology,” she continued.
HAPHAZARD APPROACH Mr Ringbakken agreed that the somewhat haphazard approach that the insurance market is taking to the adaption of new technologies is holding back progress.
“The biggest insurance and reinsurance companies are investing in new technology. The sector is changing, the fourth industrial revolution will hit this sector, but, there is a huge disparity in how companies are adapting. Some of the big insurers are very forward looking but others appear to be doing nothing about it.”
Ms Phillips pointed out that in some ways it is easier for a mutual such as DNK to focus. “Perhaps there are advantages to being a mutual in this sense because, by definition, the insurer has to focus on risk management and view everything from the customer or member perspective. This gives focus on what is really needed to the benefit of all. The big question for the wider insurance market is not just how can it improve its own processes and efficiencies, but, how to improve the underlying risk.”
Mr Croft added that this is why it is so important to take an enterprise wide approach.
“This is why we are looking at geopolitical risk through a six coloured lens. The risks that all companies face are numerous
“Having co-innovated and implemented a dependable digital
solution, a market-wide response makes a lot of sense creating
unique data resource for shipping companies.”
Will Unwin, Clearwater Dynamics
and interconnected. These risks cannot effectively be dealt with in isolation and in silos they have to be tackled on an enterprise wide basis.” he said.
And, as Mr Bhatt stressed for this reason communication and partnership is critical to make progress.
“A more joined up approach to risks in this increasingly interconnected world is vital. This demands greater partnership and improved communication to the benefit of all. We are working on an interesting project in the maritime sector currently that involves authorities from around the world. We are seeking to create a set of cyber standards to help everyone improve the way the risk is identified, measured and managed and benefits all parties.”
CYBER THREAT Mr Unwin pointed out that a more joined up and pro-active approach is definitely needed in the ever more critical world of cyber risk.
“It is now widely accepted that a pro-active threat hunting approach fused with more traditional defensive strategy is essential to keep on top of fast evolving current and future threats. This is complex for organisations with a sophisticated cyber strategies and even more so within the maritime sector. Good cyber hygiene is further hampered driven by event fatigue and cyber skills shortages. Those in the maritime industry are also grappling with wide reaching automation and digitalisation objectives substantially increasing opportunities for cyber criminals to exploit connected systems,” he pointed out. And taking a ground-up approach again makes sense.
“CWD’s Horizon platform simplifies and consolidates cloud computing risk monitoring enabling down skilling delivering actionable insights through a single pane. This empowers existing IT teams to manage cyber security and reduces the need to hire cyber experts. We have had the good fortune to hire a highly regarded former senior cyber expert from GCHQ, Horizon was built from the ground up employing a hackers perspective,” explained Mr Unwin.
“This level of expertise is not readily available outside of specialist security providers, in real terms building capability integrating active rather than passive defence approach consistently assists in the early indicators of compromise. It has been reported criminal hackers are generally evolving their techniques circa 90% faster than the defensive capabilities under development within the private sector. These are shifting sands and risks continue to evolve unabated. The shipping industry is entering an unchartered and increasingly unsettled period,” he added.
Ms Phillips stressed that, in her view, customers need the insurance sector to do more to apply their risk management expertise to rising challenges. she said.
“The core question is who is handling the data and what are they supposed to do. The insurance and wider risk management industry needs to be much better at understanding the data and helping the shipowner prioritise all the risks. This simplifies everything. The insurance sector needs to look at what the banking industry has done in this area – how simple online banking has become. All the hard work needs to be carried out by the insurers. Insurers are the experts on risk management and should make a greater effort to provide understandable solutions, without customers needing to become experts themselves to be able to buy insurance.”
RAISING VALUE Ronny Reppe said that, in his view, the insurance business
“I liken the whole Insurtech space to a kids football match with
everyone all bunched up and chasing the same ball. This is not the
way to play the game.” Chris Bhatt, AON
“This is a genuine solution to an old problem that shipowners and
their insurers have grappled with for a long time. It combines both
business process and technological improvements to give an end to
end solution for all.”
Irene Phillips, Osprey Solutions
does not need to be so complex. It needs to package its products and services differently and standardise at the same time or risk being seriously disrupted.
“The customer does not need all the complexity that is built into the insurance industry. I recently spoke with a life insurer who said that it would be impossible to replace life insurance because it is so complex with all the actuarial work involved and the like. I do not think that this is the point. Does it really need to be so complex for the customer? Can it not be package differently? Those that hide the complexity and offer simple and easy to use products to the customer will win. We have to look at delivering more value for money. We have to improve products and efficiency,” he said.
Mr Ringbakken added that potential systemic threat posed by cyber and the whole host of geopolitical threats outlined by Mr Croft really demands urgent collective action.
“I see a potential perfect storm here. If you consider the major events that took place in 2019 and into 2020 – trade wars and political tensions between the US and China, the conflict and attacks in the Gulf of Arabia, catastrophic events in Asia and Australia and now the real prospect of a pandemic and serious impact on global supply chains and therefore shipping – then you have many interlinked risks manifesting at the same time. Add to this the rising cyber threat that threatens all sectors not just marine then this demands a much more co-ordinated and robust response. Risk identification, analysis and management needs to be significantly improved using the latest data and technology to cope with this.”
INNOVATION NEEDED NOW This scenario outlined by Mr Ringbakken demands a more innovative approach from the insurance sector and new solutions said Chris Bhatt. “If the market can more effectively gather and analyse all the data it holds then it can more effectively work out the probability of risk, help to reduce and prevent risk and then develop new products and solutions that focus on the risk that cannot be managed and retained,” he said.
“If the market shifts its capital focus to more difficult risks such as pandemics or cyber because the more predictable risks are retained and managed then this would be progress. Companies would be able to retain more traditional risk and buy more innovative coverage for the more challenging risks with the same budget. The global surveys of the major risks find that almost 50% of them are currently uninsurable. There is trillions of dollars of capital out there that could be put to work with these currently uninsurable risks if the market can come up with workable solutions such as it already has by using parametric triggers. This will help ensure that the industry retains its relevance and resists the disruptors.” And, finally as Mr Ringbakken reminded participants, the ever present and onerous area of compliance really should not be forgotten because new technologies can be adapted to this critical area too.
“Another important aspect that we have not considered is compliance and regulatory pressure. There are a lot of demands on shipowners currently – such as environmental standards - from international bodies such as the IMO, regulators, banks and insurers. Everyone is doing their best to keep up and comply. We need to use technology to help in this area too, use solutions such as Osprey to help shipowners comply by giving them the data to comply. We need to focus our minds on what we can do to help using this technology.”
“The market will change dramatically over the next decade and
regularly not all in one go, in one big bang. There will not be a
dramatic Insurtech change we will see incremental change.
Efficiency is the key.” Ronny Reppe, Noria Group
54 th ANNUAL HMEIC THE WESTIN GALLERIA HOTEL HOUSTON, TEXAS
SAVE THE DATE: September 20 -22, 2020
MANAGING RISK IN A SUSTAINABLE WORLD
For more information on the Conference, visit www.HoustonMEIC.com
Covid-19: the impact upon ship operators, shipyards and P&I Insurers
The Coronavirus threatens to paralyse the world economy, is already massively disrupting global supply chains and will lead to a huge economic cost. Nicola Cox Head of Defence at West of England Insurance Services, explains what is not covered and what is covered under protection & indemnity policies.
The spread of the Covid-19 virus worldwide has potentially far-reaching effects under charter parties, bills of lading and shipbuilding contracts. Many - but by no means all - the claims and liabilities that arise will be insured by P&I Clubs.
This article explores some of the practical issues and the types of claims that can arise.
1) Crew, passengers and Club cover:
l Crew: Shipowners, as employers, owe a duty of care for the safety and well-being of their crew. Precautions should be taken to minimise the spread of the disease on board, including:
> Regular hand washing > Keep bathrooms and sinks clean > Covering the mouth and nose when coughing and sneezing > Wear a medical mask fitted tightly to the face in an area with a known outbreak. The mask should not be touched or handled during use > Thoroughly cooking meat and eggs > Avoid close contact with and refuse boarding to anyone showing symptoms of respiratory illness such as cold or flu > Seek prompt medical attention if you have symptoms of fever and respiratory illness. > Consider restricting shore leave and crew changes in ports where Covid-19 cases have been reported > The Master should convene a meeting with all crew, prior to arrival at a port where cases of Covid-19 have been reported to discuss the measures necessary to mitigate the risk of contracting the virus.
Where a crew member becomes ill with Covid-19, owners will be reimbursed by their P&I Club for any hospital and medical expenses incurred. Reasonable funeral expenses will also be paid by the P&I Club, including the cost of repatriating the crew member’s dead body.
In addition, where the vessel deviates in order to save the crew member’s life, the’ P&I Club will reim
The Marine Insurer | March 2020 burse owners for additional costs incurred due to the deviation (fuel, insurance, wages, stores, provisions and port charges).
l Passengers: If a passenger becomes ill or dies as a result of being infected by Covid19 because of owners’ negligence in failing to contain the spread of the virus, owners will be reimbursed by their P&I Club in accordance with club rules for any liability in damages to the passenger.
If, because of owners’ negligence in failing to contain the spread of the virus, the vessel is not able to complete her voyage, owners will be reimbursed by their P&I Club in accordance with club rules for the cost of repatriating passengers and, possibly, for cruise compensation.
2) Charter parties:
From a commercial perspective, the outbreak of Covid-19 can have unanticipated knock-on effects. For example:
l Commencement of laytime and free pratique: In voyage charter parties, the vessel must be physically and legally ready to perform the charter service required when the Notice of Readiness is given. If there are no circumstances that would affect the vessel being granted free pratique, a valid notice of readiness may be given without having obtained the necessary clearances.
However, where there is a known, or possibly just a suspected infection of Covid-19 on board the vessel, owners should ensure that they have the necessary free pratique clearance before issuing a Notice of Readiness.
l Off-Hire: If several of the crew on board are ill and this prevents or delays the service required by charterers, this may be considered as an off-hire event (e.g. “deficiency of men” offhire event in Clause 15 of the NYPE 46 Form). Note that some charters specifically refer to “quarantine restrictions” (eg Shelltime 4).
l Deviation: Where a crew member becomes ill during the voyage, many standard charter party forms will give owners the right to deviate in order to save the life of an infected crew member.
In a voyage charter, although the deviation would be permissible, owners would not be able to claim additional freight unless owners have included an express clause providing that additional freight is earned where the vessel is forced to deviate to save the life of a crew member, eg because of an actual or suspected case of Covid-19.
l Safe Port: Under most standard time charter party forms, charterers are obliged to nominate a safe port and owners must generally comply with the order to proceed to that port unless owners reasonably assess that the port is unsafe. The Master does not, however, have a duty instantly to obey charterers’ orders so that if owners are in doubt about the safety of the port, owners/the master will have reasonable time to make enquiries. If the port becomes unsafe after charterers have nominated the port, charterers will have an obligation to nominate an alternative (safe) port.
l Claims arising under an implied indemnity: Owners may be able to claim the benefit of an implied indemnity against time charterers if owners can show that the loss arose from a risk which was not reasonably foreseeable and that owners had therefore not agreed to bear when owners agreed to sail to the port. However, if owners agree to go to a port which is known to be affected by Covid-19, it is likely that owners will be held to have agreed to bear the risks arising from such voyage order and/or have waived any implied indemnity against charterers. If there is a specific clause in the charter that relates to diseases, epidemics an the like the provisions of the specific clause are likely to exclude such an implied indemnity.
Note that BIMCO’s “Infectious or Contagious Diseases clause” gives owners wide-ranging express indemnities for costs and claims (including liability to cargo interests) where, for example the cargo is discharged at an alternative port
FORCE MAJEURE IS NOT RECOGNISED UNDER ENGLISH LAW AS A LEGAL PRINCIPLE. THEREFORE, IF PARTIES WISH TO AGREE ANY EXCEPTIONS TO LIABILITY AND/OR FACTORS WHICH WILL EXCUSE PERFORMANCE OF THE CONTRACT, THIS MUST BE DONE VIA EXPRESS CONTRACTUAL CLAUSE.
because the intended discharge port is an “Affected Area” because of the risk of exposure to a “highly infectious or contagious disease that is seriously harmful to humans”, such as Covid-19. Under the BIMCO clause, owners are also indemnified by charterers for any claims or costs that arise after the charter party has been concluded, such as cleaning, quarantine or fumigation costs or and/or losses because the vessel has traded to the affected area.
3) Bills of lading and contracts of carriage:
l Deviation during the voyage: Whilst under the charter, party owners may be entitled to deviate to save life at sea or refuse to proceed to a port, carriers will still have an obligation to deliver the cargo under the bill of lading to the designated port with utmost due despatch and to take care of the cargo. However, where the Hague Visby Rules are incorporated (article IV rule 4), it is likely that the carrier will have a defence to claims for cargo damage caused by delay because the vessel has deviated to save the life of a crew member exhibiting symptoms of Covid-19.
l Discharging the cargo at a different port: The carrier may be entitled to discharge the cargo at a different port if the bill of lading incorporates a liberty clause (e.g. “so near thereto as she may safely get”) and the cargo can be safely delivered to the party entitled to take delivery at that alternative port.
l Claims for delay to delivery of cargo: If, as a result of quarantine and/or deviation arising from Covid-19, delivery of the cargo is delayed, a carrier may be able to rely on the exception of “restraint of princes” in Art. IV rule 2(g) and/or the quarantine exception in Art. IV rule 2(h) of the Hague Visby Rules.
UNDER MOST STANDARD TIME CHARTER PARTY FORMS, CHARTERERS ARE OBLIGED TO NOMINATE A SAFE PORT AND OWNERS MUST GENERALLY COMPLY WITH THE ORDER TO PROCEED TO THAT PORT UNLESS OWNERS REASONABLY ASSESS THAT THE PORT IS UNSAFE.
Nicola Cox, West of England Insurance Services
4) Frustration and Force Majeure (charter parties and shipyard contracts):
l Frustration: Frustration occurs when, without default of either party, the performance of a contract is rendered impossible or when the principal purpose for entering into the contract is rendered “radically different”. It is important to note that under English law it is difficult to prove a contract is frustrated: financial loss does not in itself render the charter frustrated; the delay or disruption has to be so radical that “performance is really in effect that of a different contract“.
Covid-19 is less likely to frustrate a time charter that has a wider trading limit because the time charterer can legitimately give orders to the vessel to sail to alternative ports that are not affected by Covid-19 (even if the charterer finds it difficult to find lucrative employment for the vessel).
l Force Majeure Force Majeure is not recognised under English law as a legal
The Marine Insurer | March 2020 principle. Therefore, if parties wish to agree any exceptions to liability and/or factors which will excuse performance of the contract, this must be done via express contractual clauses, usually by means of list of events in which Force Majeure can be invoked by one (or both) of the parties to the contract. Accordingly, whether Covid-19 will constitute a Force Majeure event largely depends on the wording of the Force Majeure clause. For example, where the Chinese government is offering Force Majeure certificates to local companies unable to fulfil their contractual obligations because of Covid-19, this will not excuse performance by the local company unless the giving of such Force Majeure certificates is an event expressly listed as a Force Majeure event in the contract. Bear in mind, also, that Force Majeure clauses are construed restrictively against the party claiming the benefit of the clause.
l Shipbuilding contracts: In shipbuilding contracts, delays caused by “plague”, “epidemics” and/or “quarantine” are often expressly stated to be Force Majeure events which constitute “permissible delays”, thereby postponing the contractual delivery date. Parties should, however, be aware of strict provisions and deadlines for the yard to declare Force Majeure and for the buyer to challenge Force Majeure notices. However, as with permissible delays generally, even where the contractual delivery date has been postponed due to permissible delays, the buyer will usually still be entitled to cancel the newbuild contract if the delay extends beyond the “drop dead” date specified in the newbuild contract.
This article is intended for general guidance only and should not be relied upon as legal advice.