The Marine Insurer. Sept 2021. Issue 7

ISSUE 7

| SEPTEMBER 2021

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

s m n i o a l iti c e Ed n i al r a ci M pe S

How will marine claims evolve to meet changing risk landscape

The power of knowledge: Loss reporting in the digital age l

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Transit troubles: The risks of disruption in shipping lanes

Impact of Scopic: Amending the culture l

Climate change: l Arctic shipping: Evolution in the Risks and rewards energy markets in the balance

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Follow Us @MarineLondon20

11 March 2022 etc Venues 155 Bishopsgate, London Held virtually in 2020 due to the Covid-19 pandemic, this market-leading event will be back in March 2022 as a face-to-face event with an integrated digital element. Our aim is to bring together insurers, reinsurers, brokers, shipping companies, service providers and others from the marine world with an interest in the London market in a relaxed setting, where the focus is on examining the current state of the marine insurance market and in this case, London’s role in it.

Virtual attendees:

Total delegates = 720 1.94% 0.28% 0.97% 3.89%

8.06%

Global Partners:

3.47%

1.94% 0.14%

23.75%

25.14% 0.97% 2.36% 0.97%

3.75%

22.36%

Adjuster Claims Management

Africa (0.56%)

Americas (16.81%)

Europe (15.69%)

Middle East (0.83%)

Africa

Americas

RoW (0.28%)

Asia

Nordics UK (48.47%) RoW

Europe

Asia (3.75%)

Legal

Middle East Nordics (13.61%)

P&I Club

Association

Bank

Consultants Reinsurer Sur veyor

Broker

Forensics Salvage

Insurer Shipping

Tech

UK

Contact:

Made with

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CALL

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CONTENTS | EDITORIAL

Comment

Highlights MARINE CLAIMS SPECIAL EDITION 12 SCOPIC on salvage

Benefits brought by the SCOPIC Clause for the whole salvage market

14 Turkish straits

Navigating through the often complex world of marine claims in the Turkish

16 Marine fires

The critical role of forensic investigation following a ship fire or explosion

04 Loss reporting

The impact of the digital transformation era on the perception of losses

06 Risk management

Mitigating ESG risks with environmental pollution incident claims

08 The Ever Given

18 Deepwater risk

The growing market for deepwater exploration and the potential risks for insurers

22 Admiralty assumptions

Important rules concerning allisions and collisions in navigable waters

The many complex legal and insurance implications facing all involved in the ship that blocked the Suez Canal

10 Claims technology

How technology played a vital part in the London market claims payments during lockdown

FE ATURES

30 Arctic shipping

The challenges and opportunities around the opening up of the Northern Sea Route

32 Northern sea route

There are few indicators that use of the Northern Sea Route through the Arctic will grow dramatically for larger goods

24 IMO 2020

36 Removing barriers to innovation

The evolving industry response to IMO 2020, the rule introduced in 2020 that limits the sulphur in the fuel oil used on board ships

Organisations everywhere are under pressure to drive competitive advantage through innovation,

28 Real-time data

38 Carbon emissions

The influence of real-time data on active risk management

03

How the shipping industry stands to be heavily impacted by emissions-related regulatory changes Editor Liz Booth liz@lizbooth.co.uk Assistant Editor Adrian Ladbury ladburya@gmail.com Art Editor Rob Crotty rob@greenlightpartners.co.uk

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

Sustainability driving shipping and its insurers SUPPLY CHAIN has suddenly become a household conversation as media across the world flags the problems of delivery. From whether we will get our Christmas presents delivered and whether we can find timber to rebuild homes damaged in summer storms to the delivery of chips for cars and computers, the world is suddenly worried about supply chains.

All of which has served to highlight the global marine markets in new ways – for the first time, in a long time, the world is valuing the delivery service.

So when something goes wrong and claims emerge, it is crucial to know that the insurance markets will be responding quickly and efficiently to get those precious cargoes refloated and underway.

In this issue, we take a look at how technology is playing its part in modernising this segment of the insurance world and also at the Ever Given grounding and the subsequent claim – no ordinary dispute as the authors explain.

We also take a look at the energy markets. Energy is another area that has suddenly become a hot and very public topic of conversation. With global leaders meeting to discuss how the world can shift from carbon-intensive sources of power to renewables, it is the perfect time to discuss how this will could impact the marine insurance landscape in the years ahead. Again technology will be playing its part as we explore, while Marsh outlines the regulatory changes ahead.

And in terms of global sustainability, the future of the Arctic shipping lanes remains one of the most controversial. Keeping abreast of the future of that region is of crucial importance to the shipping sector and its insurers.

I very much hope you enjoy the read.

Liz Booth Editor, The Marine Insurer Published by Cannon Events and Publications © Cannon Events Limited 2021 Pictures: Adobe Stock

All rights reserved. No part of this publication maybe reproduced, stored in a retrieval system, or transmitted in any form or by any means, electrical, mechanical, photocopying, recording or otherwise without the prior written permission of the publishers. The views expressed in The Marine Insurer Magazine are not necessarily shared by the publisher, Cannon Events limited. The views expressed are those of the individual contributors. No liability is accepted by Cannon Events Limited for any loss to any person, legal or physical as a result of any statement figure or fact contained in this title. The publication of advertisements does not reflect any endorsement by the publisher.

The Marine Insurer Claims Edition | September 2021

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MARINE CLAIMS | Loss reporting In association with MatthewsDaniel

Transcending the Tweet: Loss reporting in the digital age David Cox, Chief Executive Officer at MatthewsDaniel, the leading London-based international loss adjusting and marine warranty surveying firm, discusses the significant impact of the modern era of communications on the perception of losses and the need to retain professional objectivity despite the ‘noise’ The loss of a ship; the ringing of the Lutine Bell; the Lloyd’s waiter, a trusted scribe, entering it in the Loss Book. A centuries’ old tradition of committing to record, and thereby to fact.

The Lutine Bell, recovered from the wreck of HMS Lutine in 1858, came to be used to announce news of an overdue ship to those in the Lloyd’s market. It was simply struck once when a ship was known to have been lost, and twice for news of a safe arrival.

What place does the Lutine Bell, a most basic form of The Marine Insurer Claims Edition | September 2021

communication, have in the modern world, at a time when shipping and insurance are increasingly reliant on technology, and data from ships can be transmitted across the world in a matter of moments, quickly becoming common knowledge and therefore construed as fact?

Knowledge itself is power. Knowledge, and the sharing of knowledge, has been at the centre of insurance since its earliest inception. Lloyd’s of London arose alongside the desire to share knowledge; to exchange ideas; and ultimately to trade.

But trade can breed sharp practice. A selective omission, a partial truth, or perhaps an outright lie are all inherent dangers of trade, of getting the best deal possible.

The consequent desire to establish the true condition or ‘class’ of vessels to be insured led to the creation of thus-named classification societies. Such names as Bureau Veritas; Veritas, the Roman goddess of truth.

OBJECTIVE INFORMATION Truth? What renders something true is a definition too long and philosophical to discuss here, so we should perhaps allow ourselves to consider truth as being only that which may be established objectively. Objective information facilitates trade leaving the subjective elements to be weighed-up subjectively by the parties.

Objectivity requires independence and impartiality. This is the

MARINE CLAIMS | Loss reporting In association with MatthewsDaniel

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Knowledge itself is power.

Knowledge, and the sharing of knowledge, has been at the centre of insurance since its earliest inception. Lloyd’s of London arose alongside the desire to share knowledge; to exchange ideas; and ultimately to trade.

TRIED AND TESTED

premise of the surveyor, the party sent to gather knowledge.

Translated and transcribed truthfully, this, in turn allows trust.

Trust that the knowledge shared is objective fact, true to the greatest extent possible.

Throughout the history of the insurance market, insurers have relied upon surveyors to provide knowledge; trusted information to be acted upon. Be it detail of a casualty in a far-flung place, or the details of repairs being undertaken in a major port, surveyors have been tasked to report accurately to insurers, typically in writing.

Whilst these reports have been shared in a variety of forms, they have always consisted of established, considered and objective information; a document destined to become record long after the casualty has passed and repairs are completed. By their very nature they have to be prepared with care and take time. Timely is not immediate, and thus should not be confused or clouded with the sensational. The report is not meant to be a news story.

Most losses are not newsworthy and are only of interest to a few parties. However, large or unusual losses do attract attention from observers, interested and disinterested alike. Groundings attract the attention of the concerned parties and the general public; and pollution attracts publicity and the scrutiny of all, some with particular agendas, political or otherwise. These losses make headlines, in the trade and the national press.

Commentary on such losses arrives unsolicited in email inboxes, in LinkedIn feeds and Twitter tweets and retweets. They reach underwriters, actuaries and chief executives directly. They circumvent the claims practitioners. They circumvent the surveyor. They circumvent the tried and tested practice.

Is this a problem? Do these stories circumvent the truth?

The very reason the claim has ended up being reported via such platforms is that there is something of interest. It is only natural that the interesting is focused upon, perhaps exaggerated, and that the mundane and prosaic are overlooked.

At a simple level this may mean confusion, as inaccurate or incomplete information enters the chain at different points. This leaves the surveyor to defend their own work, the timeliness of their reporting, and claims practitioners having to smooth internal tensions.

At another more complex level, it may result in a lessening of trust between the market and their client. Is the client withholding information, is the insurance market sharing information it shouldn’t?

It is perhaps no coincidence that the increase of non-disclosure agreements in recent years has been alongside the rise of fast, easily accessible and digestible news feeds.

How can it be managed? Surveyors can do more to ensure the delivery of their knowledge is timely and convenient. It will, however, always be the case that considered reporting is a slower vehicle than gossip.

Trusted and accurate reporting, in good faith, is the very foundation of Lloyd’s, and of insurance more broadly. A tradition of truth, transcending the tweet.

“Throughout the history of the insurance market, insurers have relied upon surveyors to provide knowledge; trusted information to be acted upon. Be it detail of a casualty in a far-flung place, or the details of repairs being undertaken in a major port, surveyors have been tasked to report accurately to insurers, typically in writing.’’

David Cox, MatthewsDaniel The Marine Insurer Claims Edition | September 2021

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MARINE CLAIMS | Environmental risk management In association with GRS

Much has changed in oil spill management since the Torrey Canyon, with learnings applied to other spills, including Exxon Valdez (inset) in 1989.

Mitigating ESG risks with spill response Pollution incidents often go beyond environmental impact, damaging corporate reputations and inflating claim costs. This reality makes proper response a vital part of marine risk management, writes Kip Radigan, Group Chief Executive Officer of Global Risk Solutions Group, the provider of property and casualty claims adjusting, complex/ large loss and environmental risk management solutions Marine industry professionals and their partners in the global insurance industry know that as ship traffic and transportation of oil increase, so does the risk of oil spills. When a spill occurs, losses often begin mounting immediately, impairing marine ecosystems, harming wildlife, disrupting coastal communities, and inviting litigation.

Spill prevention is of course the preferred method to mitigate these losses, but when accidents happen – and all of us know they will – the next best action is an effective response.

From the perspective of the marine insurance community – including hull and cargo underwriters, P&I clubs, brokers, surveyors and claims firms – spill mitigation is a critical element in marine risk management. But mitigating spills also is required under various pollution regulatory frameworks, and it therefore plays an important role in environmental, social and governance (ESG) programs.

The Marine Insurer Claims Edition | September 2021

ESG is much more than a nice-to-say set of principles.

Growing numbers of corporations of all sizes, in countries around the world, see ESG programs as strategically important to their growth and resilience. It’s also worth noting that growing numbers of regulators, investors and consumers see ESG in the same light. On a planet that is 71% covered by water, applying ESG values to marine activities is imperative.

RESPONSE REGULATIONS GROWING In the past 50 or so years, the management of environmental incidents such as spills of oil and other hazardous substances has become more and more regulated throughout the world.

One of the signal events that led to major improvements in spill response was the wreck of the supertanker Torrey Canyon, which hit a reef off the coast of Cornwall in March 1967 and lost its entire cargo of crude oil.

It spilled more than 100,000 tonnes, about 37 million gallons,

MARINE CLAIMS | Environmental risk management In association with GRS

fouling shores in Cornwall, Guernsey and Brittany, across the English Channel. The incident killed an immense amount of marine life and caused damage to local communities that lasted years.

The Torrey Canyon tragedy inspired the US in 1968 to create the National Oil and Hazardous Substances Pollution Contingency Plan, or the National Contingency Plan (NCP) for short. The NCP was among the first to devise standards for spill reporting, containment and cleanup. It also implemented precursor organizations to the National Response Team and Regional Response Teams that oversee spill response efforts today.

In 2004, inspired by prior decades of work to improve collaboration among local, state and federal agencies, the Federal Emergency Management Agency (FEMA) introduced the National Incident Management System (NIMS).

NIMS established an integrated, nationwide incident management approach based on standard structures, terminology, processes and resources. Similar systems exist elsewhere in the world. All of them continue to evolve and make use of advances in technology, which in turn can make incident response even more effective.

LESSONS FROM MARINE CLAIMS Much has changed in oil spill management since the Torrey Canyon, as evident in more recent spills, including the Exxon Valdez in 1989 and the Deepwater Horizon in 2010. Each of those events ultimately led to additional pollution regulations, including the Oil Pollution Act of 1990, and improved spill management techniques.

One of the key lessons the marine insurance industry has taken from these unfortunate events is the importance of response planning and preparation.

The most effective spill responses are conducted through a cohesive, integrated management structure comprising command, operations, planning, logistics and finance, as prescribed by NIMS. Each of these functions has a defined role and tasks that facilitate incident response.

Experience has shown that it is easy to overlook the tasks of validating and containing costs of the response and management of third-party claims. Left unmonitored, incident response costs can easily multiply, and third-party claims can quickly turn into class-action litigation.

In addition to the direct costs of defending lawsuits, responsible parties can be exposed to reputational damage, loss of customer confidence, reduced employee engagement and productivity, and loss of goodwill with their communities.

Taken individually and together, these consequences touch

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“ESG is much more than a nice-to-say set of principles.

Growing numbers of corporations of all sizes, in countries around the world, see ESG programs as strategically important to their growth and resilience.

On a planet that is 71% covered by water, applying ESG values to marine activities is imperative.’’

Kip Radigan, Global Risk Solutions Group environmental, social and governance issues.

Ineffective response increases the risks for all stakeholders, not just responsible parties. To manage the risks, it is important to consider the following questions, ideally before a pollution event arises: • How will the spill be cleaned up and at what cost?

• What are the current and potential claim exposures and legal liabilities?

• What is the company’s financial exposure in the short term and long term?

• Is there insurance in place for such an event and when is coverage triggered?

• How will costs be incurred?

• Are resources being tracked and estimated in a timely way?

• What is the third-party claim exposure? How will claims be initiated, tracked, handled, processed and paid?

• How will the company communicate with local authorities and the public?

Because marine pollution incidents do not recognize borders, an international response plan is needed that takes into account local laws, customs and languages. Working with knowledgeable and experienced adjusters, legal representatives and other partners can make a huge difference in effecting claim settlements locally.

Good risk management and incident response plans also consider technology resources that can support collaboration and communication. Cloud- and web-based tools exist that simplify documentation and accounting for the people, equipment, vendors and expenses related to the response. When these technology resources are secure, accessible and backed up, they can provide an important component of legal defenses in the event of litigation.

Just as risk management programs must evolve to meet changing risks, so too should incident response plans. Marine incident response plans or strategies should be a living document that responsible parties can review and revise often, as circumstances warrant. A strong risk management program is rooted in effective governance, not just in identifying, evaluating and mitigating risk, but also in reporting. This enables an organization’s leadership to make informed decisions, enhance preparedness and improve resilience.

The Marine Insurer Claims Edition | September 2021

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MARINE CLAIMS | The Ever Given case In association with 7KBW

Richard Sarll, Barrister, 7KBW, reviews the many complex legal and insurance implications facing all those with interest in the containership that famously blocked the Suez Canal

The “Ever Given”: Not your average dispute As long ago as 1 April, the BBC news website reported that a Crazy Golf Course in Cambridgeshire was awaiting a model dinosaur that was languishing aboard the Ever Given, the containership which notoriously blocked the Suez Canal. The dinosaur had been scheduled to arrive in early April and was to form the centrepiece of the course. It had probably been loaded in China, reportedly the origin of more than 70% of the cargo on board.

At the time of writing in late July, the wait may soon be over. On 29 July, the ship berthed in Rotterdam to discharge around half of its contents, before carrying on to Felixstowe to unload the remainder. After blocking the Canal for six days, she was arrested at the suit of the Suez Canal Authority and spent the next three months at anchor in the Great Bitter Lake.

A settlement having finally been reached, she proceeded to the Port Said anchorage, where a damage inspection occurred.

Whilst the survey reports have not been revealed, the vessel was allowed to continue on her voyage, albeit at slow speed, indicating that some repairs will be required.

As for the amount paid to the SCA by way of settlement, this is still shrouded in secrecy. Initially, the authorities said they were “seeking around $1bn in compensation for the grounding”. According to Lloyd’s List, the payment was reportedly in the region of $450m - $550m, but it could be lower.

The golf course will, however, only be able to obtain The Marine Insurer Claims Edition | September 2021

delivery of their dinosaur if they furnish security in relinquishment of the shipowner’s possessory lien. To that end, they will have received from RHL, the appointed average adjusters, an average guarantee for signature by their marine cargo insurers.

So long as they are insured, provision of the guarantee should present no difficulty. Not all of the cargo, however, will have insurance. A sizeable proportion - perhaps as much as a quarter or more - will not. Especially if they are due to pay general average out of their own pockets, consignees may wish to know to what expenses they are expected to contribute.

TYPICAL PATTERN “Ordinary groundings” in the Suez Canal follow a fairly typical pattern. There is often damage to the steering gear or rudder which requires the stricken vessel to be towed to a local anchorage for inspection. Following inspections, the vessel may be towed to a repair yard where repairs can be carried out that are necessary for the safe prosecution of the voyage.

In order to carry out those repairs, cargo may be discharged with a view to its being placed in storage, before being reloaded once repairs have been completed. As an alternative to being placed in store, the cargo will often be transhipped and forwarded to destination aboard substitute tonnage, leaving the stricken vessel to perform the repairs without the cargo returning aboard.

In the ordinary situation just described, the principal allowances under York-Antwerp Rules 1994 will typically

MARINE CLAIMS | The Ever Given case In association with 7KBW

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comprise (i) cost of towage to the local anchorage for inspections, considered to the Great Bitter Lake where she was necessary for the common safety; then detained for three months? It is “There is, however, nothing “ordinary” (ii) cost of towage to the repair yard, by perhaps hard to perceive such actions way of removal expenses to a second as being undertaken for the common about the grounding of the “Ever Given”, port of refuge where repairs can be safety. carried out; (iii) forwarding expenses No doubt it will be contended by and it can be expected that the demands incurred in transhipping the cargo, in ship interests that detention expenses substitution for the storage expenses incurred in the period whilst the s made of cargo interests for contribution in which would otherwise have been ettlement sum was negotiated down necessary while repairs were should be allowed in substitution for general average will be hotly contested.’’ carried out; and (iv), detention the amount by which the settlement Richard Sarll, expenses, including crew wages and sum would otherwise have been greater, 7KBW bunkers, incurred by the shipowners in emulation of the Supreme Court after the forwarding of the cargo under decision in The Longchamp, which so-called non-separation agreement concerned the negotiation of a provisions. pirate’s ransom.

There is, however, nothing “ordinary” about the grounding But this argument would only be viable if the greater of the Ever Given and it can be expected that the demands amount of the settlement sum would have qualified as made of cargo interests for contribution in general average will a general average expense – about which there may be be hotly contested. The following matters, in particular, may doubt for the reasons given above. attract controversy.

Finally, it is the effect of Rule D of York-Antwerp Rules 1994 that all remedies or defences are preserved. Hence, if the grounding was caused by initial unseaworthiness in POTENTIAL CONTROVERSIES respect of which the carrier had failed to exercise due First, the settlement figure agreed with the SCA may prove diligence, there would ordinarily be a contractual defence difficult to adjust, especially if it is a global figure without any to the claim for a contribution. The reasons for the detailed breakdown. There is little doubt that the cost of grounding are not yet known. But the systems implereasonably engaging salvors is allowable in general average under mented onboard for ensuring the safe navigation of the York-Antwerp Rules 1994, so too is any liability arising from vessel may well come in for scrutiny. damage to a waterway during re-floating attempts. But what For any consignees of uninsured cargoes, there is one amount of the settlement figure can be shown to be related to cause for reassurance, even if it does not appear, based such items, rather than to compensation for loss of profit, for on reports of the settlement sum, that the amount of example? the expenditures will exceed the contributory values.

As for the whole settlement sum being allowed in general According to Lowndes & Rudolf, ordinary common sense average, on the basis that it was only by such payment that and commercial logic dictate that cargo interests could ship and cargo were extricated from Egypt, it is likely that any never be obliged to contribute in general average in an such argument (made by analogy with piratical ransoms) will amount more than the contributory value of the goods, be resisted on the grounds that ship and cargo were in a state except perhaps in respect of interest. In other words, the of safety in Egypt. Besides, any claim to compensation for loss golf course would not, according to Lowndes & Rudolf, be of revenue would flow from the original grounding, rather than exposing themselves to any liability greater than the value from the re-floating. of their dinosaur by furnishing average security and taking Moreover, Lowndes & Rudolf, the leading commentary delivery. on general average, makes the potentially pertinent remark No doubt there will be controversies. Whether we hear that “where the conduct of the authorities appears to have a about them is another matter. One novel feature of the punitive aim it is suggested that the matter has to be looked average guarantee distributed by RHL was that it included a at carefully, since fines are the concern of the liability insurers choice of forum clause in favour of confidential arbitration. rather than general average.7” More fundamentally still, it is Presumably this was because of the greater enforceability of ordinarily a requirement that the general average act must arbitral awards in China, by comparison with English court be voluntary. Where, however, decisions have been imposed judgments. by third parties, such as governmental agencies, Lowndes & But without any effective way to conjoin arbitral Rudolf suggests that the relevant expenses may be allowed in proceedings except consensually, it also means for a very general average, but only if the action or intention falls within high number of arbitrations, what with the 18,000 containers the broad terms of Rule A, which sets out the requirements of that are reportedly onboard. Shipping arbitrators with a general average act.But can this truly be said of the actions general average expertise may be in high demand. of the Egyptian authorities, for instance in shifting the vessel The Marine Insurer Claims Edition | September 2021

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MARINE | Claims technology In association with Ed.

Upgrade time Technology kept London claim payments flowing during lockdown, but it’s time for an upgrade. Antiquated systems need replacement.

Cross-market input into the design of a single solution will be key to its success argues David Jones, Divisional Claims Director, Marine at leading London broker Ed. It is often said that technology saved the London insurance market during Covid lockdowns. Invariably that talk is about systems supporting placement, including PPL, and popular third-party or broker systems like Whitespace and our own TradEd. Technology also came to the rescue of claims – the part of insurance that clients really care about – but here the market relied on old systems. In tech terms, they’re positively geriatric.

London’s company market insurers had claims technology back in the 1980s. ‘CLAMS’ and ‘ELASS’ were merged in the 1990s to create the Claims Loss Advice and Settlement System (CLASS), a data storage platform which still provides the backbone of London claims IT. About twenty years ago Lloyd’s and the IUA began working on digital claims processing. They launched Electronic Claims Filing (ECF) in 2004, upgraded it in 2011, and introduced ECF Write Back in 2019, which allows carriers (but not brokers) to use ECF from within their own systems. Now ECF is used for more than 95% of Lloyd’s claims, and 85% of company-market claims.

The system works. It kept the indemnities flowing during lockdown, and, because we’ve had ECF and CLASS for so long, claims practitioners were already more geared to electronic dealing than our colleagues on the placing side.

UPDATE NEEDED Although they work, London’s claims management systems need updating, crisis or no crisis. For one thing, The Marine Insurer Claims Edition | September 2021

Lloyd’s is now talking about the introduction of a brand-new system for claims.

In its Blueprint 2 plan for market modernisation, Lloyd’s said: “We will deliver a platform that will lead to a seamless customer experience designed to meet their expectations.”

although they’re united in theory, in practice we must enter each and every cross-market claim separately for each bureau, into loosely linked, discrete processing systems. That increases the chances of error and wastes huge amounts of time.

London suffers another issue. Once a claim is agreed, the broker must wait three days for the indemnity payment to arrive in the relevant bank account. I have sometimes received settlements from following markets located overseas before the money has arrived from the London lead, that may be located just around the corner.

That’s crazy. Payment time is critical to compete with markets around the world. In practice, placement decisions by retail buyers are typically price-driven. But when our clients are other insurance professionals, they notice such differences, since their clients are likely to blame them for any delay.

Happily, Lloyd’s is now talking about addressing these challenges through the introduction of a brand-new system for claims.

In its Blueprint 2 plan for market modernisation, Lloyd’s said: “We will deliver a platform that will lead to a seamless customer experience designed to meet their expectations.

Claims technology In association with Ed Broking

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“The Lloyd’s Market Association (LMA), for one, has done great work to advance the cause of claims modernisation in London. Gemini, its claims-experts management and settlement platform, has created the potential for much greater efficiencies in the relationships between syndicates and adjustors, surveyors, solicitors, and other experts.. ’’ David Jones, Ed.

Straightforward claims will be resolved automatically (or with limited manual touch points). More complex claims will be supported by greater use of collaboration and workflow solutions. All claims will be supported by better data driven from placement as well as by a suite of centralised support functions. The key to delivery will be a new claims platform to replace the existing ECF platform. This new platform will be available to support the whole London market.”

The last point is key. For any efficiency gains to be realised in marine claims, the company market must have not only access to a new claims platform, but the desire to use it.

VITAL CONSENSUS That means the input of the companies will be required from the initial stages of development, but that’s bound to be a challenge. Reaching agreement even within Lloyd’s alone always seems to involve protracted discussion, let alone when the company markets, with their multiple different perspectives, are brought into the mix. But this it is vital for success.

The time needed to gain consensus may lengthen, but company market involvement in development is essential if

all London risk carriers are to use the same claims infrastructure. Brokers should have their say too. If the universal London market goal of cost reduction is to be achieved in the area of claims, brokers surely should be able to deal with all the syndicates and company markets in one go.

The point about replacing the ECF platform is also crucial.

The technology at its core is very old. It has been bolted-onto and patched-over again and again.

It is time to start from scratch with hands-on claims people – including brokers – leading the development of that process, rather than business managers and consultancy firms informed by consultation responses. We should at very least have input on functionality, since we have some hands-on experience in this area. With Ed’s in-house systems, for example, we’ve been using electronic claims files internally for more than a decade.

The Lloyd’s Market Association (LMA), for one, has done great work to advance the cause of claims modernisation in London. Gemini, its claims-experts management and settlement platform, has created the potential for much greater efficiencies in the relationships between syndicates and adjustors, surveyors, solicitors, and other experts. Similarly, colleagues involved in binder business have spoken well of the LMA’s work on DA claims.

That progress makes me optimistic, but I have seen claims get left behind before. The success of ECF in getting London through lockdown must not be viewed as an endorsement of inaction. Any other areas of technological improvement we may implement are worthwhile too. But developing a claims infrastructure which is truly world-leading and marketinclusive will have the most important impact of all: happier customers.

The Marine Insurer Claims Edition | September 2021

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MARINE CLAIMS | SCOPIC clause In association with brand MARINE CONSULTANTS

The positive impact of SCOPIC on salvage Mark Hoddinott, Senior Adviser, brand MARINE CONSULTANTS, explains the benefits brought by the SCOPIC Clause for the whole salvage market Prior to the introduction of the SCOPIC Clause into Lloyd’s Open Form (LOF) contracts, the role of the marine consultant was very singular.

Every party involved in a collision, salvage and/ or pollution case was entitled to appoint its own representative, a marine consultant, which led to numerous appointments for a single incident.

Each marine consultant acted in the best interests of their client, whether the client was the shipowner, hull insurer, charterer, P&I insurer, or cargo owner. In cases where there were numerous cargo owners, the number of cargo representatives could, and did, become unmanageable. The large number of representatives inevitably led to disagreements and disputes amongst the various parties involved which often hindered operational progress and put the success of the operation at risk.

The incorporation of the SCOPIC Clause into Lloyd’s Open Form in August 1999 introduced a fundamental shift in the way in which salvage cases were represented. Where SCOPIC cover is provided by or agreed with the P&I insurer, a special casualty representative (SCR) is usually appointed. In practice, this appointment is normally made by the P&I insurer, who pays the SCOPIC costs, on behalf of the shipowner. The primary role of the SCR is the same as that of the salvage master ie to use their best endeavours to salvage the property and to prevent or minimise damage to the environment. Essentially, the salvage master and the SCR are on the same side with broadly the same contractual obligations. The SCR represents all salved interests, namely, shipowner, cargo owner(s), charterers and their insurers, The Marine Insurer Claims Edition | September 2021

but does not represent the salvor. In summary, SCOPIC drastically reduces the number of representatives involved with a salvage operation, although only when SCOPIC is invoked as part of an LOF contract.

RIGOROUS PROCESS For a marine consultant to become an SCR he or she must apply to Lloyd’s to be added to the list of approved SCRs. There is a rigorous approval process whereby the marine consultant must demonstrate relevant, recent experience, medical fitness and proper insurance cover. The SCR list consists of about 50 marine consultants, all leaders in the field of marine salvage consultancy.

Since 1999, SCRs have developed and honed their skills in being the single representative for multiple interests. They have also gained experience in working more closely with salvors, particularly with the salvage master and have embraced the concept of a collaborative working relationship in order to achieve contractual success. That is not to say that there are not disagreements between the salvage master and the SCR, human nature dictates that there will be from time to time, however, the good SCR will resolve disagreements on site rather than refer them back to their client(s) for action.

What SCOPIC has done is to develop a culture of cooperation, rather than confrontation, between the salvor and the various parties involved, and between the various parties themselves. This culture has, in my view, been carried over into other, non-LOF salvage cases and wreck removal.

MARINE CLAIMS | SCOPIC clause In association with brand MARINE CONSULTANTS

For a marine consultant to become an SCR he or she must apply to Lloyd’s to be added to the list of approved SCRs. There is a rigorous approval process whereby the marine consultant must demonstrate relevant, recent experience.

Inset: Captain Dennis Brand – Co-founder brand MARINE CONSULTANTS

The SCR list has become the ‘go to’ list for property owners and insurers when seeking an experienced marine salvage consultant, not just for LOF cases but for all other non-LOF salvage cases and for wreck removal. There is a choice of around 50 SCRs, from a variety of geographical locations and, although a small number have yet to receive an SCR appointment, they all have salvage experience.

The use of modern technology has considerably improved reporting and communication during salvage cases.

Strangely there is an obligation on the salvor working under SCOPIC to provide a daily salvage report (DSR) but there is no such obligation when working under LOF without SCOPIC invoked. In practice the vast majority of salvors provide a DSR regardless of the contract. The DSR is submitted to Lloyds and distributed to all salved interests.

For many years, cargo owners and their insurers have complained about lack of information during a salvage case, however, once cargo owners have registered their interest with Lloyds they receive the DSR.

COMPREHENSIVE FORMAT SCOPIC recommends a standard DSR format, a comprehensive format that obliges the salvor to produce reasonably detailed information on the state of the casualty, changes in condition, progress to date, key events, sea and weather conditions and forecasts to name but a few. The format is now used in non-LOF and wreck removal cases and has been well received by property owners and their insurers.

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The secondary role of the SCR on a SCOPIC case is cost control, monitoring the daily ‘burn rate’ of the salvor and the cumulative costs.

All SCRs use spreadsheets which are forwarded to the P&I Club. The discipline in cost control introduced through SCOPIC has also carried over into non-LOF and wreck removal cases, a welcome bonus for insurers.

The use of a spreadsheet in order to forecast future daily ‘burn rates’ and final costs is very limited. My own company has spent considerable time and money on developing a solution to assist owners and insurers to predict final costs of a salvage case with greater accuracy. Earlier this year bMC launched its SalvageApp (www.salvageapp.com), a web-based software package dedicated to salvage and wreck removal operations’ cost control and forecasting, also incorporating reporting and risk assessment elements. SalvageApp is managed by one of bMC’s consultants during a salvage case and will provide detailed actual and forecast costs.

SalvageApp can run multiple ‘what if’ scenarios to cover all possible routes of progress and final outcomes. It is proving to be very accurate and of considerable help to insurers when making provisions for the cost of a particular case. During an LOF / SCOPIC salvage case, SalvageApp can be viewed by the interested parties online on a 24 hour basis giving all parties easy access to the latest reporting.

In summary, what SCOPIC has done for all salvage and wreck removal cases is introduce a culture of cooperation between those tasked with successfully resolving a salvage case, establish standard reporting to all salved interests and with the aid of modern technology greatly improve communication and cost control.

“What SCOPIC has done is to develop a culture of cooperation, rather than confrontation, between the salvor and the various parties involved, and between the various parties themselves.’’

The Marine Insurer Claims Edition | September 2021

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MARINE CLAIMS | Turkish straits In association with Cavus & Coskunsu

Trouble in transit Caglar Coskunsu, partner at Istanbul-based specialist law firm Cavus & Coskunsu, provides a guide to navigating through the often complex world of marine claims in the Turkish straits

The Ever Given incident reminded us all of how important strategic trade routes are and the consequences when a main shipping route is disrupted.

Strategic and narrow passages providing passage through or to another region are called as choke points. In shipping, choke points may refer to straits or canals with high density of sea traffic because of their geographical positions and their optimal use in maritime trade.

Long before the Ever Given incident, alternatives to carriage of goods by sea had been explored. The “New Silk Road” was offered as an alternative for carrying goods with freight trains. In the oil and gas industry, there are major pipelines which are designed to distribute oil and gas economically and safely and also to save time and avoid some risks in maritime choke points.

However, given the current carrying capacity of ships, it is difficult to say that the dominance of shipping will end in international trade soon.

TURKISH CHOKE POINT The Turkish Straits are one of the major choke points in the world that is a unique system of waterways consisting of two narrow channels, Bosporus and Dardanelles and an internal sea, Marmara, connecting the Black Sea to the Mediterranean Sea. The Turkish Straits are the main trading routes for countries in Black Sea region. The passage of ships through the Straits is governed by the Montreux Convention, signed on 20 July 1936.

This convention is not only about the passage of merchant vessels, but for the purpose of this article, it is important to The Marine Insurer Claims Edition | September 2021

mention that it provides free passage to merchant vessels.

However, the Montreux Convention does not include regulatory provisions for safe navigation during passage through the Turkish Straits. For this reason Maritime Traffic Regulations for the Turkish Straits were implemented in 1994 and later traffic separation schemes of the Turkish Straits were approved by the General Assembly of International Maritime Organization (IMO) in November 1995.

To enhance the maritime traffic and the environmental safety against risk and dangers, Vessel Traffic Services became fully operational on 30 December 2003.

Today, there is one-way traffic in the Bosporus and the navigation in the Turkish Straits is safely operated by the VTS that is a department of The Directorate General of Coastal Safety. However, the former does not mean that the Turkish Straits are a “claim free zone”.

COMMERCIAL LOSSES Salvage and collision claims cost millions to the insurers and the ship and property owners suffer from substantial commercial losses.

In 2021 alone at least 21 vessels are reported to have experienced engine problems in the Turkish Straits. In most cases the engine power of those vessels was restored within a short period of time, in some cases within minutes. But the Directorate General of Coastal Safety, a state-owned company that has monopoly rights in the Turkish Straits for salvage operations, made salvage claims based on the percentage of the value of ships and properties on board and disproportionate

MARINE CLAIMS | Turkish straits In association with Cavus & Coskunsu

salvage rewards were compared with what was rendered as a salvage operation.

When the insurers were recommended to challenge these unreasonable salvage claims, they were faced with exaggerated and excessive demands for securities which had to be a bank guarantee from a Turkish bank.

It is the claims management approach of the Directorate General of Coastal Safety to demand excessive securities and then to offer 30% -40% of the security amount as a settlement to avoid litigation. Even if 30%-40% of the security amount was still unreasonable in many cases where the total “salvage” operation was finished less than an hour without significant risk and expenses, the insurers were left in a difficult position. In most of the cases, they settled the exaggerated salvage claims.

Why we have seen so many engine problems and whether those claims could have been prevented are other questions.

In some parts of the Turkish Straits large course and speed alterations are required because of sea traffic and geographical conditions. From a loss prevention perspective, it is recommended to check everything, including engine operations, before entering the Turkish Straits because a small engine problem may lead to substantial salvage claims.

CONFLICTING SITUATION

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“The Turkish Straits are the main trading routes for countries in the Black Sea region. The passage of ships through the Straits is governed by the Montreux Convention, signed on 20 July 1936.’’

boats that are allowed to fish all year.

There is no doubt that transit vessels in the Turkish Straits proceeding in the traffic separation scheme have priority over local vessels and a boat engaged in fishing shall not impede the passage of any vessel following a traffic lane.

On the other hand, collision cases which cause loss of life may change claims management. Loss of life after a collision will inevitably trigger criminal proceedings and should the incident cause multiple deaths and injury, Article 85/2 of the Turkish Penal Code requires imprisonment up to 15 years.

During the criminal proceedings, there is a risk of detention in prison for masters and the relevant crewmembers while in some cases judicial restrictions such as prohibition to leave Turkey and to report to the police station frequently are applied.

Personal injury claims in collision cases establish joint and several liability for persons who died or injured in the incident. Therefore, the ship interests are faced with substantial claims even if the majority or all of the liability rests with fishing boats.

The ship interests cannot be forced to make unreasonable settlements. But, the presence of both civil and criminal proceedings may lead to early settlements to save costs and allow for better handling of criminal proceedings which will continue through the prosecution process regardless of whether the complainants withdraw the criminal complaint.

Controversial salvage claims will likely continue particularly because of the fact that the Directorate General of Coastal Safety operate salvage services, VTS and pilotage together. This conflicting situation will cause salvage claims even in the case of short engine problems. But, there are ways to avoid such salvage claims. The masters should be frequently notified that if the vessel’s position and surrounding circumstances allow there is no obligation to accept salvage services in the Turkish Straits.

Dropping anchor may be a solution to keep the vessel’s position safe in case of loss of engine.

In addition to the salvage claims, collision claims may be costly in the Turkish Straits. Thanks to one way traffic in the Bosporus, collision cases between BOSPHORUS STRAIT SHIP TRAFFIC DENSITY transit vessels are rare. The majority of collisions occur in anchorage areas of Istanbul where the traffic of anchorage areas is heavy because transit vessels enjoy one week transit time for supply and operational purposes. Also, because of the passage traffic there are many vessels awaiting entry to the Bosporus so the number of vessels staying in Istanbul anchorage is high.

Collisions with fishing boats may cause serios consequences.

In the Bosporus and the Dardanelles, there is a high number of fishing boats. Some of them are big vessels that do not operate from mid-April to early September because of the prohibition of fishing. But there are many small fishing

Source: MarineVesselTraffic.com

The Marine Insurer Claims Edition | September 2021

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MARINE CLAIMS | Marine Fires and Explosions In association with Zetetech

Need for an independent view Dr Andrew M Collins, (left) MChem, PhD Associate and Lee Masson, (right) MSc, CEng, Director at Zetetech Forensic Investigators, explain the critical role of forensic investigation following a fire or explosion on board a vessel The event of a fire or explosion onboard a vessel, even when relatively minor, can often lead to significant negative impact on a number of affiliated parties. Whether from the time lost while maintenance and repair is carried out, or the physical damage sustained by the vessel or cargo, the impact is usually substantial.

What happened, what should have happened, and what should not have happened are key questions that will be forefront. The answers will often guide insurers and legal representatives in any potential recovery matters. These include what actions, if any, should be pursued against those responsible, and whether the matter falls under criminal or civil proceedings.

The appointment of a forensic investigator can help to answer such questions, and also provide a better understanding of the circumstances surrounding the incident, including how it was managed. Following on from that, lessons can thus be applied to future operating procedures to minimise the chances of the event recurring.

In addition, when legal action is being brought onto a party, the appointment of a forensic investigator by that party can provide an unbiased, neutral opinion of the case to guide insurers and legal counsel as to how best to proceed in the matter.

SCIENTIFIC METHOD Investigators use a rigorous set of proven techniques employing the ‘Scientific Method’ in order to gather their information and develop hypotheses.

Maritime fires are often complex because of the involvement of an array of different parties ranging from vessel owners and charterers to consignees and passengers. Furthermore, the level of The Marine Insurer Claims Edition | September 2021

damage sustained in a single incident can often be comparably much higher for maritime cases than those on land.

A thorough investigation will not only focus on the causative event, but also examine the circumstances leading up to the event, and the activities that followed it. Such topics often include operating procedures, detailed population of a narrative timeline, detail of how the fire spread, and any contributing factors that permitted the fire to spread more rapidly than would otherwise have been expected.

Such enquiries will also determine whether any automatic firefighting equipment that may have been present functioned appropriately, any firefighting measures which were undertaken by the crew and whether those methods were adequate and in line with standard operating procedure and training.

An experienced marine investigator is always alive to the possibility of unseaworthiness or stowage related issues, the physical evidence of which, collected at the scene, can have a significant bearing as marine claims progress.

Timely inspection is essential to ensure the scene is preserved and crucial evidence is not lost or cleared away.

Prompt arrival also ensures that details of the incident are still relatively fresh in the minds of witnesses. In this regard, recollections from eyewitnesses and pertinent persons are often more reliable when conducted sooner, rather than later.

Furthermore, in most cases the loss of evidence from a scene is often the result of well-intentioned clearing of an area. But there are some circumstances where parties may attempt to deliberately alter or remove evidence. Early scene inspection serves to limit the opportunity for this to take place.

MARINE CLAIMS | Marine Fires and Explosions In association with Zetetech

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“Maritime fires are often complex because of the involvement of an array of different parties ranging from vessel owners and charterers to consignees and passengers. Furthermore, the level of damage sustained in a single incident can often be comparably much higher for maritime cases than those on land.’’

DATA COLLECTION Data collected from any forensic scene is referred to as empirical data because it is not based on opinion or experience, and is able to be verified by other parties or investigators. It is not simply limited to the areas directly affected by the incident, and includes witness statements, ship’s logs and navigation charts, cargo documentation, VDR data, electronic records and CCTV. An investigator will often start their inspection looking at general details of the scene, and initially these observations will be quite removed from what is perceived as the ‘centre’ of the events.

This is in order to establish an overall picture, and observe how the incident has spread, which can often give insightful information on the circumstances surrounding the event.

The investigator then starts to move inwards, documenting information along the way. In the process they will also note in particular any areas of more severe fire damage, the location and position of hatches that may limit fire spread or indicate personnel movements; and whether firefighting equipment was deployed. This information is then used to build a narrative of what was happening as the fire was occurring, as well as corroborating events as recalled by witnesses.

The investigation of the scene is meticulously documented with photographs and contemporaneous notes. These photographs also serve to document ‘before and after’ images if the scene needs to be disturbed by the investigator, for example when conducting excavation or removing samples or due to necessary operations, for example vessel discharge.

Scientific method requires all data collected to be analysed as a whole. Analysis builds upon the simple collection and cataloguing of evidence, and is based upon the knowledge, training, experience and expertise of the individual investigator.

Where needed, the knowledge of the investigator can be

augmented by subject matter experts. However, an investigator who has experience in a site-relevant field (for example a maritime or engineering background in the case of a marine fire) will always be preferred as they will be competent in understanding the scene and its context, while providing a balanced assessment of the event itself.

HYPOTHESIS DEVELOPMENT Once all the raw data have been gathered, the investigator develops a hypothesis based solely on the empirical data and observations to explain the sequence of events and patterns of damage.

It is often the case that multiple hypotheses may be proposed, and each is then ‘played through’ and tested against the empirical facts of the case to determine which is the more likely scenario. These are all fully documented in the final report for consideration and this is often of particular benefit where legal proceedings are undertaken.

The early appointment of a forensic investigator is essential to ensure the comprehensive investigation of maritime fires and explosions, with a view to providing insurers with in-depth answers to the crucial questions of what went wrong, and why.

The holistic nature of the investigator’s work will also establish circumstances leading up to the event, as well as provide comment on how the incident unfolded and any pertinent observations of events in the immediate aftermath.

Ultimately, the report provided by a forensic investigator can guide insurers to understand more fully the mechanism by which the event occurred and provide unbiased assessment of the situation to legal experts in cases where action is being taken against other parties.

The Marine Insurer Claims Edition | September 2021

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MARINE | Deepwater risk In association with Envista

The new frontier: Deepwater exploration

The market for deepwater and ultra-deepwater exploration and production is forecasted to continue growing rapidly over the next several years. These projects require technological and infrastructure advancements from this new frontier. Michael Venturella, Practice Leader-Marine Group, (Top left) and Guillermo Ramirez, (Bottom left) Principal Engineer-Major Loss, of Envista Forensics provide an analysis of potential risks for insurers to consider Deepwater offshore oil and gas exploration and production takes place at depths of 1,640 feet or more. Ultra-deepwater activities involve depths over 4,921 feet. Deepwater operations present unique challenges involving changes to offshore rigs, support vessels, and technology, which become further complicated in an ultra-deepwater environment.

MARKET SUPPORTS GROWTH The US Energy Information Administration Short-Term Energy Outlook produced in June 2021 demonstrates that world fuel consumption, which dipped slightly during the COVID-19 pandemic, will continue to increase beyond pre-pandemic numbers by the year 2022.

The Marine Insurer Claims Edition | September 2021

The 2022 forecast of 101.31 million barrels per day will increasingly come from deepwater production. Global deepwater production has grown 13% annually since 1990, as the depth of unexplored fields gets deeper.

Wood Mackenzie, a global research and consultancy business, forecasts that by 2023 more than half of the deepwater production will be ultra-deepwater, with Brazil, Guyana, and the US leading the way. Through cost-cutting and efficiency gains, deepwater projects experienced cost reductions of approximately 30-40% between 2014 and 2017 per Mordor Intelligence, a market intelligence organisation. Oil prices have rebounded and, combined with this cost reduction, has made additional deepwater projects viable options.

MARINE | Deepwater risk In association with Envista

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“The 2022 forecast of 101.31 million barrels per day will increasingly come from deepwater production. Global deepwater production has grown 13% annually since 1990, as the depth of unexplored fields gets deeper.’’

EVOLUTION OF OFFSHORE RIGS The technology first developed in the 1950s for the extraction of oil in shallow waters cannot be fully translated to deep and ultra-deepwater without major modifications.

For example, fixed platforms and jackup rigs would be cost prohibitive to develop and implement at such depths, not to mention the technological challenges that would come with those systems. This, in addition to necessary modifications to the topsides for production in this environment, created the need to develop new approaches for exploration and extraction.

Mobile systems became the new holy grail of deepwater exploration starting in the early 1960s with Shell Oil Company recognizing the advantage of Mobile Offshore Drilling Units (MODUs) for fields in the Gulf of Mexico with its deeper waters and harsh weather.

Shell converted a first generation submersible MODU to a semisubmersible unit for work in the Gulf. However, even this system showed its limitations as the water depth increased.

This new MODU saw several modifications and improvements from the 1960s to the late 1990s. Today, this technology continues to improve and adapt to the increasing water depths, in addition to the use of ship and barge systems for drilling and compliant systems, such

as Floating Production Storage and Offloading (FPSO), Tension Leg Platforms (TLP), and Single Point Anchor Reservoirs (SPAR). These are creating new viable opportunities in deepwater exploration and production.

The oil industry has had success drilling in water depths over 10,000 feet and operating in the most severe environments. Originally, all of this came at a very high cost that ran into hundreds of thousands of dollars per day.

Ultra-deepwater wells costing more than $50m have become common, and some wells have reached more than $100m.

However, costs went down between 2014 and 2017, making these conditions more attractive to producers. For insurers, it would be difficult to justify wells at a steep cost without appropriate handling of the risks involved in drilling at these depths.

DEEPWATER EXPLORATION RISKS Exploration in deep and ultra-deepwater results in new challenges and consequently brings about new risks for the industry. For example, the Gulf of Mexico deepwater wells are at more than 5,280 feet in depth, with some wells extending past 20,000 feet.

Plans to explore in deeper and more hazardous regions in the US and around the globe are in development and the success will depend on continuing technological advances.

With greater depth comes higher pressure and temperature demands on the materials and technologies used for downhole operations. These increased physical demands of the environment, and the necessary changes to the systems used, result in an increase in risk for operators.

“The use of compliant systems, such as TLPs, guyed towers, SPARS, FPSO’s etc., which present significant motion due to the action of wind, wave, and current loads, also bring about the use of new materials and control and The Marine Insurer Claims Edition | September 2021

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MARINE | Deepwater risk In association with Envista

operating systems, materials like advanced composites and alloys, due to their force demands and their dependance on weight reduction for increased storage.”

Other operating risks include the need of precision from a distance, contact with the subsea floor and drilling conditions, all of which bring about more opportunities for weak links in the business chain.

Regulatory entities, such as the US Bureau of Ocean Energy Management (BOEM) and the US Bureau of Safety and Environmental Enforcement (BSEE), assign leases and regulate energy activities on the Outer Continental Shelf (OCS) where deepwater fields exist.

Other federal agencies contribute biological, geological, environmental, and security expertise, as well as regulatory authority. However, currently neither BOEM nor BSEE have extensive experience with the new environments that will come into play.

With these new variables, insurers must consider the typical risks of operating offshore facilities, not only at the structure level but also in the production systems used.

New extraction conditions may result in product variations previously unseen by operators and may have a detrimental effect on the production infrastructure. Proper inclusion of qualified professionals in the decision-making process will be essential for carriers to determine risk and coverage.

These new areas of production will result in more complex infrastructure, requiring revisions to policies and coverages.

With the proper inclusion of risk safeguards, the increasing push for deepwater and ultra-deepwater oil installations will continue to open a lucrative market for energy policy carriers.

SUPPORT VESSEL REQUIREMENTS The traditional offshore supply vessel (OSV) carries goods, supplies, offshore workers, and equipment including belowdeck cargo, such as dry bulk, liquid mud, freshwater, and excess fuel.

With the increasing exploration and production in deepwater fields, OSVs are required to provide support for specialty services not provided by the original OSVs. These vessels are substantially larger, have more endurance, and have more advanced technology onboard. Until the Coast Guard Authorization Act of 2010, US statutes limited OSVs to less than 500 gross tons domestic or 6000 gross tons under the International Tonnage Convention (ITC).

Per the Coast Guard’s 2014 interim rule, demand existed for “larger, multi-purpose OSVs capable of operating at greater distances from shore and for more extended periods, using more advanced propulsion or machinery systems and carrying more cargo and more people on board.”

There are currently nine US flag OSVs over 6000 gross tons ITC currently operating that were built since 2010.Their operating descriptions include multi-purpose supply vessel, subsea construction support vessel, multi-service vessel, and The Marine Insurer Claims Edition | September 2021

“Mobile systems became the new holy grail of deepwater exploration starting in the early 1960s with Shell Oil Company recognizing the advantage of Mobile Offshore Drilling Units (MODUs) for fields in the Gulf of Mexico with its deeper waters and harsh weather.’’

well stimulation vessel.

The deepwater environment is driving this change in service capabilities, which now includes Remotely Operated Vehicle (ROV) operations, flowline, umbilical, and pre- and post-mat installation, hydrate remediation, subsea pumping, well stimulation and intervention, inspection, maintenance, and repair (IMR) activities, tree installation and removal, well abandonment and wireline services, and heavy lift cranes enabling delivery of loads to water depths up to 12,000 feet.

As the depths get deeper and OSVs become larger with more multi-service platforms, the risk of accidents, spills, fires, and personnel injury or death significantly increases.

The complex equipment, automation, advanced dynamic positioning, and related crew inexperience, especially at extreme depths, make these vessel operations more challenging and a risk to the vessel itself, personnel onboard, and the environment.

CONCLUSION The new frontier of deepwater and ultra-deepwater exploration and production is a unique opportunity for innovation in offshore rigs, support vessels and involved technology. Recent success in deepwater is driving operators to drill in deeper depths despite the significant challenges economically, technically, and environmentally. The risks involved will continue to increase until experience and technology with the new depths catches up. Energy and marine insurers must consider these new risks when underwriting related energy and ocean marine insurance.

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MARINE | Admiralty assumptions In association with Galloway

Admiralty assumptions alive and well in US

Frederick “Billy” William Swaim (left) and Spencer Swaczyk (right) of leading maritime insurance New Orleans based law firm Galloway review the important rules concerning allisions and collisions in navigable waters The UScourts employ a series of presumptions and burden-shifting principles for determining liability for allisions (the running of one ship upon another ship that is stationary) and collisions on navigable waters.

Generally, a claimant in an admiralty action bears the burden of proving that negligence or unseaworthiness was the proximate cause of the damage. Maritime law in the US recognizes several presumptions, the application of which shift the evidentiary or persuasive burden onto the defendant.

Notably, while the US continues to use presumptions of fault in collision cases, Article 6 of the 1910 Brussels Collision Convention abolishes all presumptions of fault in cases of collision. Although at least 85 jurisdictions have ratified the convention, the US is not yet a signatory.

These presumptions continue to be applied after the Supreme Court replaced admiralty’s rule of divided damages with comparative fault. Allied Chem. Corp. v Hess Tankship Co. of Delaware, 661 F.2d 1044 (5th Cir. 1981) (“This rule still floats, in the wake of U.S. v. Reliable Transfer, supra, which only The Marine Insurer Claims Edition | September 2021

overruled The Pennsylvania on the point of allocating comparative fault.”)

These may seem like a judicial relic, however, they continue to be applied by courts throughout the US. As such, it is essential to have an understanding of their operation.

THE PENNSYLVANIA RULE The so-called “Pennsylvania Rule” was established by the US Supreme Court in 1873 when it decided The Pennsylvania. 86 U.S. 125 (1873). This rule is the most commonly applied maritime presumption. It operates when a vessel involved in a collision violates a statutory rule intended to prevent collisions.

Once a court has determined that a vessel has violated a statute, the presumption shifts the burden of persuasion as to causation from the claimant to the violating vessel. The Court explained its reasoning in the following paragraph: [A] ship at the time of a collision is in actual violation of a statutory rule intended to prevent collisions, it is no more than a reasonable presumption that the fault, if not the sole cause, was at least a contributory cause of the disaster. In such a case, the

MARINE | Admiralty assumptions In association with Galloway

“The so-called “Pennsylvania Rule” was established by the United States Supreme Court in 1873 when it decided The Pennsylvania. 86 U.S. 125 (1873). This rule is the most commonly applied maritime presumption. It operates when a vessel involved in a collision violates a statutory rule intended to prevent collisions.’’

burden rests on the ship of showing not merely that her fault might not have been one of the causes, or that it probably was not, but that it could not have been. Such a rule is necessary to enforce obedience to the mandate of the statute.

This rule does not establish fault, but is only limited to causation, and while the burden is strict, it is not insurmountable. See Superior Const. Co. v Brock, 445 F.3d 1334 (11th Cir. 2006) (quoting Compania De Maderas De Caibarien, S. A. v. The Queenston Heights, 220 F.2d 120 (5th Cir. 1955)). The Court intended to shift the burden of proving of causation on the theory that if a statutory violation is proven, the violating vessel will have a greater knowledge of the facts and circumstances involved.

Thus, it should be required to adduce the facts relating to causation rather than the innocent claimant. The rule applies to allisions, collisions of vessels underway, and collisions between a vessel and a stationary object. Candies Towing Co. v M/V B & C Eserman, 673 F.2d 91 (5th Cir. 1982) It is important to note that although the Court spoke strictly of statutory violations, the rule also applies to regulatory violations. See Belden v. Chase, 150 US 674 (1893).

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The rule requires the following conditions: (1) proof by a preponderance of the evidence of a violation of a statute or regulation that imposes a mandatory duty; (2) the statute or regulation must involve marine safety or navigation; and, (3) the injury suffered must be of a nature that the statute or regulation intended to prevent.

Courts frequently apply this rule to violations of the navigational rules. See Allied Chem. Corp. v Hess Tankship Co. of Delaware, 661 F.2d 1044 (5th Cir. 1981).

A violating vessel can rebut the Pennsylvania Rule by showing the folllowing: (1) that the statutory violation was not a cause of the incident; (2) that the fault was caused by an error in extremis as the vessel was placed in a situation, through no fault of her own, where a collision was imminent; or, (3) the violation could not have been the proximate cause of the incident.

THE OREGON RULE The Oregon Rule is a presumption of fault against a moving vessel. It applies when a vessel under its own power allides with a stationary vessel or object. The rule places the burden of proving the absence of fault or causation with the moving vessel.

The Supreme Court articulated this rule in its 1895 holding in The Oregon. 158 US 186 (1895). A moving vessel may rebut the burden by showing that it was either without fault, that the allision resulted from the fault of the stationary object, or was the result of an inevitable accident. Carr v Hermosa Amusement Corp., 137 F.2d 983 (9th Cir. 1943). The moving vessel has an onerous burden to overcome, as “[s]uch accidents simply do not occur in the ordinary course of things unless the vessel has been mismanaged in some way.” Bunge Corp. v M/V Furness Bridge, 558 F.2d 790, 795 (5th Cir. 1977).

THE LOUISIANA RULE Similar to the Oregon Rule, the Louisiana Rule dictates that when an unmoored, drifting vessel allides with a stationary vessel or object, the drifting vessel is presumptively at fault. The Louisiana, 70 U.S. 164 (1865).

The presumption under the Louisiana Rule may be rebutted in the following instances: (1) the allision was the fault of the stationary object; (2) the moving vessel acted with reasonable care; or, (3) the allision was an unavoidable accident. Fischer v S/Y NERAIDA, 508 F.3d 586 (11th Cir. 2007).

Crucial to rebutting the Louisiana Rule is the “act of God” defense. See id. at 595. Courts apply this defense to superseding causation, not negligence. Thus, a vessel owner may be found negligent yet exonerated from liability if an act of God would have produced some damage, irrespective of negligence. Id. These accidents are “unavoidable” or “inevitable.”

The Marine Insurer Claims Edition | September 2021

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MARINE | IMO 2020 In association with Integra Technical Services

Tom Wilson, Senior Adjuster, Integra Technical Services explains the evolving industry response to IMO 2020, the rule introduced in 2020 that limits the sulphur in the fuel oil used on board ships operating outside designated emission control areas to 0.50% m/m - a big reduction from the previous limit of 3.5% Commitments to cut climate-altering pollution has, and continues to, stimulate new fuel oil regulations, particularly for the marine industry. IMO 2020 was one such regulation, introduced on 1 January 2020 that affects not only the marine fuel market but also the petrochemical refinery industry.

On 1 January 2020, the global limit on sulphur content for marine fuel oil was cut from 3.5% to 0.5% by weight, representing the largest reduction in sulphur content for transportation fuel ever. The aim of this limit was to reduce the emission of sulphur oxides (SOX), leading to far-reaching environmental and human health benefits.

The marine sector is responsible for roughly half of global

IMO 2020 in 2021: An evolving response The Marine Insurer Claims Edition | September 2021

fuel oil demand. As such, the new limit had an immediate and direct impact on oil refiners. Much of the “bottom of the barrel” heavy fuel oils typically used in shipping were no longer compliant. Refineries were therefore required to adapt their processes to meet the increased demand for compliant fuels such as distillates and Very Low Sulphur Fuel Oil (VLSFO).

Throughout 2019 the global shipping and refining sectors were awash with speculation about how IMO 2020 would affect fuel markets when it came into force.

In normal times, the shipping industry was estimated to consume about 4 million barrels per day of marine bunker fuels, accounting for about 2.2% of all greenhouse gas emissions and 2.1% of CO2 emissions. IMO 2020 had a potential impact on

MARINE | IMO 2020 In association with Integra Technical Services

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relating directly to fuel compliance, scrubber performance and scrubber wash water issues. While there have “Eighteen months on from the been disputes and insurance claims, the volume is surprisingly small, because of introduction of IMO 2020, widely the unexpected Covid-19 improvement in bunker quality, with reported figures would suggest that the better streams coming ex-refinery and less blended fuels. shipping industry’s compliance with Quality issues pre-IMO 2020 tended to relate to excessive catalytic (cat) BLACK SWAN EVENTS the regulations has surpassed all expecfines in the fuel or contaminants such As soon as the new rules commenced, as fatty acids, phenol, styrene, excesthe market had to urgently confront two tations, with VLSFO currently sive asphaltene or other non-petrosimultaneous black swan events. The leum contaminants. The introduction Russia–Saudi Arabia oil price war emerging as the preferred solution.’’ of IMO 2020 has had little or no effect triggered a sheer drop in the price of crude Tom Wilson, on these. oil, followed by the world being gripped by Integra Technical Services There have always been claims the deadly coronavirus pandemic, which regarding the quality of marine interrupted global trade flows and caused a rapid decline in demand for refined petroleum products. bunkers, particularly for heavy fuel oils (HFO) derived from This initially resulted in many refineries simply blending the residue left at the end of the crude oil refining process. high sulphur fuel oil (HSFO) with distillates fuels to achieve the As the refining process has improved in efficiency over the 0.5% sulphur content that IMO 2020 demanded. This also had years, extracting more of the valuable lighter hydrocarbons, the effect of keeping the cost of VLSFO low. so the quality of the HFO supplied to vessels has decreased Before these events, there were large order lists for exhaust as the “bottom of the barrel” residue consists of less of the gas scrubbers to be retrofitted to vessels. According to a recent lighter hydrocarbons. The introduction of IMO 2020 demands report published in March 2021, the scrubber payback period increased fuel quality and has, to an extent, reversed this trend. ranges from one to three years for a large vessel based on a The result has gone some way to reducing claims relating to light-heavy fuel oil price differential of between US$15 and bunker quality.

US$23 per barrel. However, the difference between the cost of VLSFO and non-compliant HSFO collapsed in early 2020.

THE DEBATE CONTINUES Also, many of the scheduled retrofits were impacted as shipEighteen months on from the introduction of IMO 2020, wideyards closed because of COVID-19. Combined, this resulted in ly reported figures would suggest that the shipping industry’s many shipowners abandoning plans to install scrubbers and compliance with the regulations has surpassed all expectations, instead move to usage of VLSFO. with VLSFO currently emerging as the preferred solution. This How things change in the space of 12-18 months. The spread is mainly because of the narrow spread of VLSFO/HSFO between the cost of VLSFO and non-compliant HSFO is now prices and concerns over the availability, cost, and compliance about US$ 100 per tonne on average (approx. US$ 10 per barrel) of scrubbers. which, although still below the US$150 differential often cited The fuel oil debate, however, is far from over with the IMO as the minimum necessary in terms of scrubber payback, again Green House Gas (GHG) strategy aiming to cut CO2 emissions makes scrubbers a possible worthwhile investment. for vessels by 40% by 2030 and by 70% by 2050 from the 2008 New regulations, however, have been introduced covering levels. scrubbers and many ports worldwide have now banned the use Many shipping companies, engine manufacturers, of open-loop scrubbers. Much debate remains regarding the classification societies and regulators are already looking into disposal of the sulphur and other contaminants (residue) from alternative fuels for the maritime industry such as liquefied the holding tanks of closed loop scrubbers. natural gas (LNG), liquified petroleum gas (LPG), methanol, Scrubber manufacturers of course have met these challenges hydrogen, ammonia, biofuels, fuel cells and fully electric. by designing improved, or hybrid, closed loop scrubbers, but All these alternatives have a mix of advantages and it all simply adds to the cost borne by the shipowner. Latest disadvantages with regard to their production, availability, energy figures show the number of scrubber installations as less than density, ease of storage, bunkering infrastructure, and not least, cost.

4,000 – equating to the approximate equivalent of just 3.9% of Cost will inevitably be the key driver/barrier for the uptake the worldwide fleet. of any alternative fuel and, as the debate goes on, it is unlikely that any major uptake of expensive alternative fuels with significant GHG reduction can be expected until either AVALANCHE OF CLAIMS mandated or heavily incentivised.

IMO 2020 was predicted to lead to an avalanche of claims 50,000 merchant vessels globally.

These regulations meant that the shipowners that were impacted had to carefully select their strategy. Do they install exhaust gas scrubbers to remove the sulphur content from an engine’s exhaust if high sulphur fuel (HSFO) is used; switch to alternative fuels (for example LNG), or use low sulphur fuels?

The Marine Insurer Claims Edition | September 2021

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28

MARINE | Real-time data In association with Concirrus

The influence of real-time data on active risk management cannot be understated.Understanding behaviour as it happens allows underwriters to have an ‘always on’ approach to risk management.

Data can be interpreted as soon as it is received, providing an ongoing understanding of asset behaviour.

This changes an insurer’s approach to policy structure, helping create new products that better serve the market. Sam Mellett, Senior Product Manager, Concirrus, explains Real-time data and improved visibility of insured assets enable the creation of products such as ‘connected policies,’ that follow a flexible structure based on supporting technology.

Connected policies compliment the timely view of risk that dynamic data aggregation and analysis platforms provide.

The information used in policy creation for marine accounts can be derived from various sources. The more accurate the data, the more appropriate the policy.

At Concirrus, we aggregate vast proprietary and third-party datasets to monitor vessels globally. This data underpins our active risk management capability within Quest Marine, providing a simple solution to assess vessel activity. active risk management is important because it can improve loss prevention efforts and accelerate response times.

Stakeholders can use Quest Marine to track the location and path of vessels, monitor accumulation within self-determined zones, identify specific port activity and set custom alerts.

NET LOSS REDUCTION Alerts and location monitoring form the backbone of connected policies. Alerts are automated based on predefined criteria and can be sent to those in other departments.

This means a response can begin as soon as a breach in policy criteria occurs. Reacting quickly reduces net loss by ensuring adequate changes are made to the policy or behaviour during unforeseen activity.

Sanctions, war and piracy zones are all strong examples of when alerts are used. New areas of risk can be defined ad hoc within Quest Marine as soon as they emerge. This ensures activity and accumulation can be assessed within selfspecified areas of interest.

The Marine Insurer Claims Edition | September 2021

Real-time data as an enabler of active risk management If a vessel moves into an area of interest, its activity can cause an automated response to update its policy. Automation improves the delivery time of necessary changes, reducing inadequate cover and therefore exposure. Automated workflows also free up more time to manage client relationships, driving competitive advantage.

‘ALWAYS ON’ RISK MANAGEMENT Underwriting with the benefits of a big data analytics and insight platform offers a number of benefits. Using the same platform as brokers gives underwriters access to the same datasets and an equal view of risk. Understanding behaviour as it happens allows underwriters to have an ‘always on’ approach to risk management. Therefore, when negotiating business, underwriters are more informed before writing a policy and remain informed throughout the life of the policy.

When deciding to write a piece of business or not, the conversation with brokers fundamentally changes. Real-time analysis ensures the visibility of behavioural trends over time, ensuring judgements are based on correlations over snapshots.

This includes trends based on initiatives a broker may have regarding improvements to client risk profile.

Policies can take shape around set initiatives. Automated updates can initiate new terms and conditions that align with agreed milestones. A new structure to policies can broaden the scope of what types of risk an underwriter is prepared to write.

MARINE | Real-time data In association with Concirrus

This can improve broker relations through increased policy uptake. It also filters out high risk brokers by rewarding those who can demonstrate a consistent improvement in risk through time. Digital tools that monitor vessel activity enable underwriters to enforce such terms, thereby reducing exposure.

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CUSTOM ZONE MONITORING

NEW GROWTH OPPORTUNITIES Monitoring the insured’s asset(s) is key to an ‘always-on’ approach. If a vessel were to display adverse behaviour, underwriters could act. For example, turning up the engine while trying to make up for lost time during a delivery.

The act of increasing speed may put additional stress on the engine. If there is an increased potential of a fault, the underwriter can look at the relative cost of making the delivery against paying the late cost. If the late cost is lower, an underwriter can offer to cover it instead.

Doing so would avoid the high maintenance costs associated with being on time.

Real-time weather monitoring can also ensure geographical risk profiles are up to date. As geographical areas see increased rates because of meteorological risk, policies can adapt automatically to ensure the right coverage is in place.

Such data directly influences pricing models, with rates in place that correlate to ever-changing, high-risk geographies.

As vessels enter and leave zones, they can either incur a fixed increase in premiums or opt for a flexible approach. Again, this provides a new product that adapts to the needs of specific operators.

Vessel positions 30 March 2021

The Ever Given incident is a high-profile example of why aggregations are important. The graphic shows the simplicity of monitoring accumulation in the region by creating a custom zone.

“Monitoring the insured’s asset(s) is key to an ‘always-on’ approach. If a vessel were to display adverse behaviour, underwriters could act. For example, turning up the engine whilst trying to make up for lost time during a delivery.’’

Sam Mellett, Concirrus

AIS monitoring area Zone 1 Suez Canal region

Geographical monitoring does not, however, only apply to asset behaviour. A connected approach to accumulation can also provide benefits for reinsurance. If you see a peak in accumulation, an extra reinsurance layer can be adopted automatically. This introduces further capital for the duration required.

In fact, improvements in reinsurance may be seen through more effective segmentation. With digital tools, underwriters can effectively segment areas of a policy they may find too risky and only write the segments they are comfortable with. This approach can also be applied to the reinsurance market, in which insurers package segments of risk to further insure. The value comes from the level of segmentation and analysis now available. This allows new capital sources to be selected, such as ILS markets.

Drawing new capital provides further growth opportunities for businesses that adopt new digital tools.

Better tools enable underwriters to adapt to new market pressures through automation and understanding. for those in the maritime industry. If a vessel is deemed unseaworthy, because of its owner’s failure to obtain an IEEC when required to do so, insurance policies covering the vessel, and the charterer’s liability, may be seriously affected. This could then precipitate concerns for vessel financiers, who normally mandate that adequate marine hull and hull war insurances and P&I cover is maintained at all times, for the vessel they are financing.

The Marine Insurer Claims Edition | September 2021

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MARINE | Arctic Shipping In association with MFB Solicitors

Balancing risk and reward

Matthew Montgomery, (left) partner, and Adam Vrahnos,(right) at London-based shipping law firm MFB Solicitors review the complexities, challenges and opportunities surrounding the opening up of the Northern Sea Route The shipping industry remains in the spotlight when it comes to climate change and emissions, with much of the recent focus being on compliance with the IMO 2020 regulations. Less talked about, however, is how melting ice sheets are opening up new transport routes in previously inaccessible Arctic regions.

This is being explored by some of the largest maritime operators, and nation states, that are seeking to establish whether these regions are now commercially viable for their operations. As well as China and Russia, that both have a vested interest, this has also been considered in detail by the UK government to identify important future trends, challenges and opportunities for the UK from the sea.

THE NORTHERN SEA ROUTE When it comes to a discussion on Arctic shipping, the Northern Sea Route (NSR) is particularly important and provides a good benchmark of the increasing activity. The NSR is a shipping lane between the Atlantic and the Pacific that tracks along the Russian coast of Siberia and the Far East.

Only four vessels sailed the NSR in 2010, but the numbers have increased dramatically in recent years. In 2018 Russia stated that its target was 80 million tons of goods shipped on the NSR in 2024 and, although that it still some way off, 32 million tons of goods were shipped on this route in 2020.

China has also invested significantly in infrastructure along Russia’s Arctic Coast, as part of these developments.

The Marine Insurer Claims Edition | September 2021

The efforts to develop the NSR are well understood when one considers that the route is around 40% shorter than the equivalent journey via the Suez Canal. That translates into reduced operating costs, including reduced fuel consumption. That has to be balanced, however, against additional insurance premiums as a result of the increased risks to vessels and their cargoes.

THE RISKS Although there is increased interest in the NSR, it is important to note that the route remains blocked by impenetrable ice for most of the year.

In fact, there are currently only around three or four months a year during which navigation is possible and, even then, operators will need specialised vessels to pass through the unpredictable Arctic seas. Passage during these periods still comes with heightened risk, of course.

According to the Allianz Shipping Review of 2021, there were 58 reported incidents in Arctic Circle waters during 2020, which was 17 more than in 2019. When these incidents do occur, the costs of incident response and salvage are likely to be significantly higher.

The 2018 wreck removal of the fishing vessel Northguider, successfully completed by Smit Salvage, is an example of how complex these salvage operations can become.

Efforts to remove the wreck were made more challenging by the remoteness of the location, the difficulties involved with mobilising assets, limited operational windows and ice floes.

This all translates into increased costs for the insurers that are

MARINE | Arctic Shipping In association with MFB Solicitors

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holds. Precautions such as ventilation or dehumidifiers may be needed to guard against these risks, thereby avoiding cargo claims.

CHARTERPARTIES

“When it comes to a discussion on Arctic shipping, the Northern Sea Route (NSR) is particularly important and provides a good benchmark of the increasing activity. The NSR is a shipping lane between the Atlantic and the Pacific that tracks along the Russian coast of Siberia and the Far East.’’

responsible for covering the losses.

Safe navigation in polar regions is also particularly challenging because of the scarcity of cartographic information.

Added to that, limitations to radio and satellite communications can be expected during any voyage. This makes detailed passage planning all the more important, including identification of safe (and no-go) areas, surveyed marine corridors and preparing contingency plans for emergencies, knowing that limited support is likely to be available. Consideration also needs to be given as to what type of ice may be encountered in any voyage.

Different types of ice (for example sea water ice or glacial ice) have different risk profiles.

There are also more mundane risks that arise from operating in some of the coldest and most inhospitable regions on earth. These include the effects that the extreme cold will have on the crew’s ability to carry out their daily checks and maintenance.

Ensuring that vessels are properly maintained is particularly important in Arctic conditions, where damage is more common for deck mounted equipment, the rudder, propeller and hull. Vessel owners and operators will need to take all of these risks into account when planning for voyages in these regions.

Aside from the vessel itself, there are also risks to cargoes, including ice and snow entering the holds during loading, which need to be protected against. Another risk that can arise is where condensation causes damage to the cargo when its temperature is lower than the dew point of the air in the

When it comes to charterparties for transit through the Arctic regions, an owner will want to ensure that an ice clause is incorporated to allocate liability for the risks involved. The BIMCO ice clause is the most common wording and includes provisions whereby: a) The vessel shall not be obliged to force ice but, subject to prior approval from owners, may follow ice breakers; b) The vessel shall not be required to enter or remain in any icebound port or area if the Master considers that the vessel will not be able to safely enter and remain at the port (or remain after completion of loading or discharging); c) Any delay or deviation shall be for charterers’ account and the vessel shall remain off hire; and, d) Any additional premiums and/or calls required by the vessel’s underwriters because the vessel enters or remains in any ice bound port or area shall be for the charterers’ account.

Irrespective of the wording, owners and charterers should ensure that the additional risks of trading in Arctic waters are properly dealt with in relevant charterparties. This needs to be done to ensure that all potential liabilities have been addressed and that responsibilities between owners and charterers are properly articulated.

For ships that operate in Arctic regions, a Polar Ship Certificate is mandatory for ships certified under SOLAS Chapter 1 (which covers the vast majority of trading vessels).

The Polar Code covers all manner of matters, including navigation in Arctic and Antarctic waters, ship design, vessel equipment, operational and training issues, search and rescue and the protection of the environment. The introduction of the Polar Code has put a more robust regime in place for those vessels operating in Arctic and Antarctic waters.

CAUTION REQUIRED In view of all of the heightened risks, and particularly the remoteness and limited salvage capabilities, owners and underwriters will need to exercise caution when planning voyages through polar regions. Matters for consideration will include the suitability of the vessel involved, crewing arrangements (including the experience of crew members), the timing of the voyage, ice breaker and escort arrangements and any permissions that may be required.

On the other hand, with a growing incentive to undertake voyages through these regions, the increased traffic will lead to more opportunities but also more (and unique) risks that need to be considered, including the significant challenges for salvage operations for those vessels that find themselves in difficulty.

The Marine Insurer Claims Edition | September 2021

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MARINE | Northern Sea Route In association with AIG

Investment needed to unlock NSR potential

The LNG is transported from Sabetta with very large LNG DAT (Double Acting Tankers) with a huge icebreaking capacity and (inset} the Yamal LNG gas production plant under construction.

There are few indicators that use of the Northern Sea Route (NSR) through the Arctic will grow dramatically for larger goods and logistics flows in spite of the potential for it to be the fastest route for Asia-Europe liner traffic. Today’s absence of substantial container liner traffic will probably remain the case for the next decade or two, unless there is a big effort to make a change says Mårten Sandblom, Regional Marine Loss Control Manager, AIG The Marine Insurer Claims Edition | September 2021

MARINE | Northern Sea Route In association with AIG

The Northern Sea Route (NSR) is a shipping route connecting Asia to Europe, offering the shortest way between East and West. It runs through a series of passageways from the Barents Sea to the Bering Strait where the Arctic weather is harsh and ice formations are unpredictable. However, for the NSR to become a realistic alternative option for liner traffic, investment is needed.

Presently, the Suez Canal and the Silk Train Route are the most used Asia-Europe routes for container transit, while the NSR remains substantially unused. According to the Suez Canal Authority, nearly 19,000 ships passed through the canal during 2020.

This equates to approximately 50 vessels per day, with half of the tonnage from container ships. In contrast, there were only 64 transit voyages across the NSR last year; and just two were made by container ships. The remainder carried cargo headed to infrastructure projects or from extracted natural resources.

One key reason for the disparity between the NSR and other routes is thick Artic ice and the few ice strength container vessels that can make the voyage.

The world’s largest Finnish Swedish 1A class 3600 TEU ice-breaking vessels are already in use in the Baltic. Stateowned Russian company Rosatomflot maintains the world’s only fleet of nuclear-powered icebreakers - powerful, fast and free from the difficulty of refueling in the Arctic region.

They do help steer other ships through the NSR, but there are not enough of them.

LNG TANKER TRAFFIC Melting of the sea ice is changing the technical and economic feasibility of year-round NSR transit. Significantly, earlier this year, three Novatek LNG ships demonstrated the promise of an extended navigational season for destination traffic by making the unprecedented trip via the NSR in January, unescorted. The faster shipping time from more than 12,000 miles and 40 days to under 7,000 miles in 20 days reduces costs, and for these LNG ships, lowers carbon emissions by approximately 7,000 tons per round trip.

Destination traffic includes the eastward and westward transport of raw materials and natural resources eg minerals, gas and oil extracted from the natural resource rich Siberia. One such example is the Yamal LNG project, extracting from the Tambeyskoye gas field and processing at an LNG plant in Sabetta, north-east

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COMPARATIVE TIMETABLES ASIA-EUROPE Suez route: Shanghai–Hamburg 30-35 days, depending on ports and routing.

Silk route: Shanghai-Hamburg 20 days, depending on congestion on the rail and rail gauge transfer stations at the China–Kazakhstan and Belarus–Poland borders.

NSR route: Shanghai–Hamburg 18 days depending on the ice situation.

of the Yamal Peninsula.

The LNG is transported from Sabetta in very large LNG Double Acting Tankers (DAT) with a huge icebreaking capacity. They are double acting, meaning that they can go stern first in the ice and are equipped with propellers capable of year-round operation in the NSR. A fleet of 15 vessels transport gas from the Yamal LNG field to both east and west, more eastward in the summer and westward to Europe in the winter.

CONTAINER SHIPPING INTEREST

Translating the LNG tanker successes to container shipping will take considerable investment; however, it may be worth it. Not only is there a potentially significant reduction in time and fuel costs, the NSR is increasingly attractive because of the high freight rates elsewhere.

According to the Freightos Baltic Index (FBX): Global Container Freight Index, rates for a 40-foot container from China to Europe could cost upward of four times the amount from a year ago. These rate hikes have been fueled by an increased demand for goods, port congestion, reduced airfreight availability and supply chain “Melting of the sea ice is changing the disruptions associated with the pandemic. technical and economic feasibility of yearThe much shorter lead time via the NSR compared with the Suez Canal round NSR transit. Significantly, earlier creates a great advantage. The NSR could even compete with the Silk this year, three Novatek LNG ships Road rail route in lead time, given the increased pressure on this route demonstrated the promise of an extended because of congested border passage and the need for a mid-transit transfer navigational season for destination traffic of containers from one train to another because of a rail gauge change. by making the unprecedented trip via the

NSR in January, unescorted. ’’ Mårten Sandblom, AIG

GEOPOLITICAL INDICATORS? To tackle the shortage in icebreaking capacity, the Kremlin’s newest vision set a target for increasing the shipping The Marine Insurer Claims Edition | September 2021

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MARINE | Northern Sea Route In association with AIG

volume on the NSR to 90 million metric tons by 2030 and 130 million metric tons by 2035. Rosatomflot also cites the expansion of its nuclear ice-breaking fleet underway, adding three new nuclear ice-breaking ships.

But it’s not just Russia with interest in the NSR and the area’s rich resource deposits. Currently, the Arctic is stage to contradicting and overlapping claims among Russia, the US, Canada, Finland and Sweden. China continues to operate its rail route as a competitive option; however, with concerns for security along the Silk Route and route congestion, China’s interest in NSR could also become accelerated. It is yet to be seen how these and other factors impact investment, NSR growth and transport route dominance.

The LNG arctic gas tank under construction

HEIGHTENED RISK Any voyage has its risks. However, a voyage using the Northern Sea Route requires a different way of thinking and planning. Limited experience in the area equates to a hefty exposure for insurers, and insurance availability will most likely only be for specific individual voyages, at least for now.

Marine loss control engineers can be invaluable in helping to assess the heightened and unique risks of the NSR. The following core areas need to be considered: > Overall physical security of the ship and its contents – extreme weather, limited visibility and unpredictable ice floes all contribute to a higher risk for physical damage.

Container ship cargo securing methods and standards will now need to consider the severity of the NSR’s waters, intensifying any existing risk for container collapse or loss; > Emergency planning to minimise environmental harm will need to become a more integral part of any damage mitigation process because of the sensitivity of the area and the lack of disaster assistance resources. A good first step to ensure safety, is adherence to what is known as the Polar Code;

FORWARD-LOOKING MODEL There is a lot of work ahead for container liner shipping to become the norm in the Northern Sea Route. The following framework is one option.

Route: In a model of two ports in Asia (e.g. Shanghai and Busan) and two ports in Europe (e.g.

Hamburg and Rotterdam), a loop could be made in 36 days. On this basis, weekly sailings of a fleet of five vessels are needed. Six vessels on a 42-day loop could add ports eg Tokyo, and “spare days” for winter transit. Daily sailings can be achieved with a fleet of 35-40 vessels.

Ships and Fees: The ice classed container vessels needed would have to be built to a size larger than ever before eg 10,000 TEU and meet the draft requirements to pass shallow water in the north. In addition to new ships, stable transit and ice-breaker service fees would need to be established.

Other Considerations: Sailing in the Arctic brings new risks for the ship and crew, including heightened safety requirements, considerations regarding geopolitical issues in the area and environmental risk management guidelines. Insurers will have limited underwriting experience in this area, and will need to look at individual voyages to assess specific risks.

The Marine Insurer Claims Edition | September 2021

> During planning, the experience level, skills and roles of the crew will also need to be carefully assessed.

Consideration of the remoteness of the NSR and the scarcity of medical or search and rescue assistance can impact the human and physical resources needed for these voyages; and, > Initial delays that are almost certain to occur from the difficulties of navigation, limited visibility and the risk of equipment becoming frozen and inoperable can be disruptive to port and supply chain schedules. Owners and operators will need to be continually trained on the nuances of their equipment and the NSR to gain experience for handling potentially unique adverse events. Throughout the NSR, communication can be difficult and “help is on the way” could mean long wait times. This is likely to be the case until further development of detailed charting, communication and repair capabilities.

For container shipping to become a more viable and economically feasible option, there is a lot of work ahead for the maritime and insurance industries, with increased understanding of the risks and the rewards, as well as building out the components of a strong infrastructure.

Billions of dollars will need to be invested in shipbuilding, infrastructure and training. However, as more traction and use of the NSR develops, with predictability and economic value solidifying, the challenges may become fewer and container shipping across the NSR may become the trend of the future.

THE SHIPOWNERS’ CLUB HALF YEAR REPORT 2021 At the half year stage, we are pleased to confirm the Shipowners’ Club remains strong, through Member retention, quality growth and a robust financial position.

COMBINED RATIO (%)

TOTAL VESSELS

100.9%

33,986

June 2020: 102.2%

We strive to provide solutions, seeking to ensure peace of mind and ensuring that the Club is available 24/7 to offer our claims, loss prevention and underwriting support.

Our specialist claims teams have been focusing on all elements of COVID-19 claims, both direct claims arising onboard vessels and the indirect impact of the pandemic when responding in the event of a casualty.

To support its global claims infrastructure, the Club works with a professional correspondent network, an understanding and knowledgeable broker community and, fundamentally, is upheld by financial strength, always aiming to maintain its no surprise culture.

Dec 2020: 33,831

CAPITAL & FREE RESERVES (US$ m)

STANDARD & POOR’S RATING

394.1m

A stable

Dec 2020: 379.1m

Dec 2020: A stable

TOTAL GROSS TONNAGE

TOTAL MEMBERS

27.9m

8,203

Dec 2020: 27.8m

Dec 2020: 8,182

The Half Year Report 2021 can be viewed at:

www.shipownersclub.com/publications/half-year-report-2021/

www.shipownersclub.com

@ShipownersClub

The Shipowners’ Club

36

MARINE | Innovation In association with Noria Software

Removing barriers to innovation Organisations everywhere are under pressure to drive competitive advantage through innovation, but will fail to do so until they remove several common barriers that stifle creativity. Noria CEO Ronny Reppe shares his tips for overcoming some of these barriers and building an innovative culture The Marine Insurer Claims Edition | September 2021

What is the most painful task on your current to-do list? Perhaps it’s a challenging piece of writing, a difficult conversation with a stakeholder, or a project that you know will take weeks to complete.

Companies should not limit their understanding of innovation to the latest gadget, software, or clever algorithm.

An innovative idea can be as simple as finding a smarter way of doing something. Insurers are rife with inefficient processes that can be improved with innovative thinking.

A simple process improvement can save more money and drive more efficiency over time than a cutting-edge piece of technology. For example, finding ways to ease the burden of compliance reporting, or communicating more efficiently with stakeholders and customers can save a great deal of time.

MARINE | Innovation In association with Noria Software

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before they make their way to you.

Perhaps they are doing so out of a fear of change, or through a misguided attempt to protect you “It’s the nature of many organisations that from extra work. But quashing innovation will ultimately harm hierarchies and processes are set up to say Don’t label people as your creative or non-creative organisation’s ability to compete. a default ‘no’ to new ideas. That’s why it’s It’s the nature of many Creativity can manifest itself in many organisations that hierarchies different ways. Don’t fall into the trap important to focus on that middle layer and processes are set up to say a of believing some people (and some default ‘no’ to new ideas. That’s professions) are more creative than to ensure they are amplifying ideas rather why it’s important to focus on others. You don’t have to work in an that middle layer to ensure they advertising agency or product than discouraging them.’’ are amplifying ideas rather than development team to be imaginative. In discouraging them. fact, some of the most gameEmpower all employees – of changing, innovative ideas I have seen every level – with the authority have come from ‘non- creative’ Ronny Reppe, and responsibility to innovate. professions such as accountants.

Noria Software In practice, this means that your At Noria, the essence of innovation employees will not need to seek and creativity can be distilled into permission for implementing an idea that will drive a single term: curiosity. We hire curious people, because continuous improvement. If management is involved in we know that curiosity increases adaptability, innovation, everything that happens, change will inevitably be slower. creativity, job satisfaction, and ultimately, financial results.

Making sure all ideas are heard could involve a virtual or Anyone can be curious, no matter how much creativity physical ideas board or whiteboarding tool, or setting aside their day-to-day workload involves. time at the end of meetings where anyone can share ideas.

If an idea won’t work out, provide positive feedback to Create a safe environment for innovation explain why not, and be sure to encourage the employee to Nothing stifles innovation so much as a culture of fear. It keep being creative. only takes one negative experience, such as being criticised or mocked for sharing an idea, for someone to never want to take that risk again.

Provide a process for capturing innovation One of the key cultural shifts involves making sure Simply encouraging ideas is not always enough. Innovation managers don’t feel like their authority is being challenged needs to be captured, defined, and translated into actionable when people suggest a better way of doing things. The steps. Good ideas disappear if you don’t address and define default reaction in so many organisations is to quash new them with a structured and efficient process. ideas out of hand by saying ‘that won’t work’, ‘we can’t do Noria uses a design sprint methodology (both internally that’, or ‘that’s been done before’. and externally) for brainstorming, visualising, and testing Create a safe space for people to speak up and share new concepts before any sort of development project is innovative ideas without fear of negative consequences. All launched. innovative ideas should be encouraged and celebrated; even the ones that ultimately aren’t going to work out. The point FIVE TIPS FOR BUILDING AN INNOVATIVE CULTURE is to create a culture of innovation where your team is constantly thinking outside the box for ways to drive continuous improvement.

In summary, here are some top tips for building an innovative culture that If you really want to supercharge innovation, consider will drive continuous improvement: implementing something similar to Google’s 20 percent rule where employees can spend one-fifth of their time on a 1. Encourage and celebrate all types of innovation, ranging from new work-related project of their own choosing. technologies to simple process changes; 2. Hire curious people; 3. Empower employees to innovate without seeking permission; Make sure all ideas are considered 4. Create a safe and open environment for sharing ideas; and, If you are in a position of leadership and you’re frustrated at 5. Ensure all ideas are heard and have a process for capturing innovation. your team’s apparent lack of innovation, consider the possibility that ideas are being shut down by middle-managers

Nor should the concept of innovation be limited by size or scope. Even the smallest change should be celebrated and encouraged.

The Marine Insurer Claims Edition | September 2021

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MARINE | Carbon emissions In association with Marsh Specialty

Stephen Harris, Senior Vice President, Technical Advisor, Marine & Cargo, Marsh Specialty explains how the shipping industry stands to be heavily impacted by emissions-related regulatory changes in the coming months Amendments to Annex VI of the International Convention for the Prevention of Pollution from Ships (MARPOL), adopted in June by the 76th Marine Environmental Protection Committee (MEPC) meeting, presents the shipping industry with significant challenges.

From January 1, 2023, vessels registered in MARPOL signatory countries will have their exhaust emissions tested at the vessel’s next annual, intermediate or renewal survey thereafter, using a scale known as the Energy Efficiency Existing Ship Index (EEXI).

Testing will take place on all vessels of 400 gross tonnage (GT) or more, that are registered in MARPOL signatory countries. Since 2013, vessels under construction have undergone testing using a similar regime – the Energy Emissions Design Index (EEDI).

The aim of these allied initiatives is to drive the shipping industry towards the International Maritime Organization’s (IMO) target of a 40% reduction in carbon emissions – compared to 2008 levels – by 2030.

Further action may be needed, as the European Union (EU) stated recently that for all vessels visiting ports or sailing within its waters, a tougher 55% reduction in carbon emissions, compared to 1990 levels, will be required by 2030.

ENERGY EFFICIENCY CERTIFICATES A vessel’s emissions will have to meet the targets set out in the EEXI at testing, in order for it to receive a certificate of compliance, called the International Energy Efficiency Certificate (IEEC).

Under EEXI standards, vessels will be tested on an emissions scale of A to E. Those in the A to C group will be issued with the IEEC. In order for vessels in the D and E categories to qualify for the certificate, their owners will have to state the actions they are going to take, to achieve an A to C emissions rating.

Such statements must be acceptable to the testing authorities — simply promising to reduce speed, or to reduce the distance traveled, will not be regarded as sufficient action.

It is important to realise that, prior to entry, ports may start requiring to see evidence of a vessel’s IEEC from the first vessel survey date after January 1, 2023.

Vessels without the necessary certification on board may The Marine Insurer Claims Edition | September 2021

Shipping industry faces new standards on carbon emissions increasingly encounter difficulties in being allowed to proceed into a port or to a terminal. Ultimately, this could have consequences for a vessel owner’s obligations under a charterparty agreement, if the vessel is unable to proceed to ports, nominated by the charterer.

Furthermore, failure to obtain an IEEC could be viewed as a breach of the MARPOL convention and, as such, may render the vessel technically “unseaworthy”.

Such a charge could have unfavorable implications, not only for the vessel operators, who are usually contractually obliged under the terms of a charterparty agreement to provide a “seaworthy” vessel for their charterers, but also for individual cargo owners, under the terms of the affreightment or bills of lading contracts.

INSURANCE ISSUES The method a ship owner chooses to achieve EEXI certification, and the alternative fuel type they decide to adapt their engines to run on, will be largely up to them.

However, the failure of an owner to achieve EEXI certification for a vessel and to obtain an IEEC, could have implications for insurance cover. Voyage policies often require the vessel to be seaworthy at the commencement of the voyage.

Under a time policy, the vessel is required not to set to sea if the insured knows it to be in an unseaworthy state.

While vessel charterers do not choose the fuel type, as vessel owners and operators make that decision, the new requirements, nonetheless, present them with a number of challenging decisions to make. As they often hire a ship for

MARINE | Carbon emissions In association with Marsh Specialty

several years at a time, the end date of a charter agreement might fall after the new MEPC rules come into force.

Charterers need to consider what action they would take, if, for example, the vessel they hire is considered to have become unseaworthy, on account of the owner not being able to obtain an IEEC at its first survey following the vessel’s next annual, intermediate or renewal survey on or after January 1, 2023.

Depending on the terms of a charterparty agreement, a time charterer may be able to cancel the contract, if the vessel owner fails to acquire an IEEC. The time charterer could face potential issues with any voyage sub-charters they enter into on that vessel, if the owner fails to obtain the certificate.

However, if a time charterer is contractually permitted to cancel a charterparty agreement, they would then need to find and hire another ship to fulfill their obligations to sub-charterers, possibly at increased charter hire rates, prevailing at that time.

ALTERNATIVE MARINE FUELS Another major consideration for time charterers is how they will supply the energy sources, as under the terms of most time charterparty agreements, they not only pay for the fuel (commonly called bunkers), but also have to supply it.

Aware of increasing environmental concerns, ship owners are currently considering the various options for alternative fuels and propulsion methods for their vessels. Time charterers will need to consider carefully which vessels to hire. The less established, and in some cases not yet available fuel types, may present sourcing, storage, and supply challenges.

There will be supply issues, even if the alternatives are employed just as “dual fuels,” where they are mixed with heavy fuel oil (HFO) or very low sulfur fuel oil (VLSFO) in order to be able to ignite within the vessel engine cylinders. Examples of dual fuels include: > Liquefied natural gas (LNG) and liquefied petroleum gas (LPG). > Proposed alternative marine energy sources, such as methanol, ammonia, and hydrogen.

Alternative propulsion, such as sail, electrical, and nuclear power are further options that vessel owners may be considering at this time.

With the gradual arrival of alternative fuels and propulsion methods in the shipping sector, there are now more opportunities to opt for greener energy sources to cut carbon emissions. However, vessel engines may need substantial modifications in order to be able to use such fuels, even as dual fuels.

39

A charterer opting for a vessel that is using an alternative energy source will have to consider its quality, future cost and its likely availability.

Unlike the fuel that we use in our cars, there are no international quality standards for many of the alternative fuels for shipping. Time charterers opting for vessels that run on alternative fuels, will need to check whether the ports along the route are able to source and supply them and whether they will offer guarantees as to the quality of the fuel supplied. Also, ship crews need to be trained in handling these new fuels, as some are known to be more caustic and errors could lead to substantial losses and potentially to crew injury.

MORE RIGOROUS TESTING Although the industry focus has been predominantly on the sulfur and carbon emissions from commercial vessels, there are other matters on the horizon, such as the nitric oxide (NOx) and particulate matter emissions (PM) from some of the alternative fuels.

It is reasonable to assume that, as with sulfur and carbon, these will also become subject to more rigorous testing and will have their own reduction targets set, as the shipping industry strives to achieve acceptable environmental standards.

The new MARPOL Annex VI changes on vessel emissions and the growing availability of alternative fuel sources, present ship owners, operators, and charterers with a number of difficult decisions to make.

Obtaining the necessary documentation must be top of mind for those in the maritime industry. If a vessel is deemed unseaworthy, because of its owner’s failure to obtain an IEEC when required to do so, insurance policies covering the vessel, and the charterer’s liability, may be seriously affected. This could then precipitate concerns for vessel financiers, who normally mandate that adequate marine hull and hull war insurances and P&I cover is maintained at all times, for the vessel they are financing.

“There are no international quality standards for many of the alternative fuels for shipping. Time charterers opting for vessels that run on alternative fuels, will need to check whether the ports along the route are able to source and supply them and whether they will offer guarantees as to the quality of the fuel supplied.’’

Stephen Harris, Marsh Specialty The Marine Insurer Claims Edition | September 2021

Asia 2022

7 April 2022

The Marina Bay Sands, Singapore Marine Insurance Asia started life as Marine Insurance Singapore in 2019 and was the second event we launched in our marine portfolio. This event has seen huge growth and now has an Asia- wide focus, partnering with Singapore Maritime Week, The Singapore Shipping Association and the Hong Kong Ship Owners’ Association.

The event was held virtually in 2021 to allow for the pandemic and building on the previous year, now has a huge following of ship owners and marine insurers alike. We very much look forward to hosting this conference in person again in April 2022, when it will be a unique proposition for all involved.

25+ SPEAKERS

8+ HOURS OF DISCUSSIONS

Virtual attendees:

Total delegates = 1270

2.76%

1.26%

3.54% 0.55%

Global Partners: 0.08%

14.96%

15.35%

0.94%

0.55%

3.07%

6.85% 1.34% 0.63%

15.75%

21.81% 10.55%

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Association

Claims Management

Africa (1.34%) Americas (6.30%) Africa Americas Asia Europe Europe (8.11%) Middle East (1.97%) Nordics RoW UK RoW (0.71%) UK (15.43%)

Asia (61.65%) Middle East Nordics (4.49%)

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