Decarbonisation

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

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

TAKING THIS SERIOUSLY

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

PPMI makes marine insurance the first line of business to establish a sector-specific methodology to support the ambition of the Net-Zero Insurance Alliance (NZIA). NZIA members commit to transitioning their underwriting portfolios to net-zero GHG emissions by 2050, to contribute to the implementation of the COP21 Paris Agreement.

There have been various initiatives aimed at reducing the damaging emissions from using carbon and fossil fuels. Until recently, the focus within the transportation sector has been on shipping, as vessels are seen to be the main contributor to toxic emissions. This has led to a search for alternative propulsion systems for vessels, including Liquefied Natural Gas (LNG), hydrogen, wind and solar power.

between port calls, resulting in increased fuel efficiency of vessels, and a reduction in emission levels. The immediate effect of this will be to promote the further investment in so-called “mega” ports – defined by the cargo volume it handles, the economic value it represents and the land and water surface it uses.

To make ports smarter and greener requires considerable planning, both at the quayside, and also in terms of the quality of the infrastructure provided by the port to allow efficient interaction with the entire logistics chain – for example rail freight connectivity directly into and out of the port.

RENEWABLE ENERGY PROMOTION

The search and implementation of alternative propulsion systems is not restricted to vessels alone. Many ports are already well-advanced in their drive to deploy “cleaner” means of operating handling equipment, and many are using electric power.

Electric-powered trucks are increasingly being introduced into the vehicle population, though there are recognised issues with range and charging – the same problems found in domestic vehicles.

Looking at the bigger picture, there will a greater focus on the ability of ports to supply new types of power sources to all their logistics partners during their stay at the port.

Different vessel types will require different power loads whilst alongside. Imagine the different needs of a dry bulk carrier and a large cruise vessel. Whether we are talking about so-called “cold ironing” – the process of providing shoreside electrical power to a ship at berth

“We’re blessed with an industry which requires no heavy manufacturing, has efficient electronic distribution lines, has been

sufficiently regulated so as to ensure the product engenders trust within the general public, and is still relevant to other businesses.’’

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

MARITIME INSURANCE IMPACT

The potential impact of weather-related events has already started to change the nature of insured assets. According to the Organisation for Economic Co-operation and Development (OECD), global asset values in major cities in 2005 were estimated to be $3bn. By 2070, that figure is expected to rise to around $35bn. Meanwhile, extreme weather events in 2021 have caused more than $112bn in global insured losses – the fourth highest since records began, according to Swiss Re Institute’s Sigma 2021 estimates. Of this figure, $105bn was the result of natural catastrophes. In the US alone, the lag in investment in critical and ageing infrastructure stands at $500bn on average, year-on-year, through to 2040. If these issues are to be meaningfully addressed, insurers need to support their clients. This means actively incentivising those that do invest heavily in maritime decarbonisation and this can be done as simply as by recognising their efforts when rating the risk.

Specifically, within the port insurance sector, rating a risk is generally based on historical performance data. However, the introduction of smart technologies (AI, big data analysis and internet of things) on vessels is increasingly being recognised by the insurance industry as a pathway that will help the maritime world transition to green energy. Underwriters will, however, need to feel confident that these technologies work as measures to reduce the carbon footprint to be included in their rating models. As new legislation is rolled out, insurers will need to know any restrictions they will have on operations and what fines and penalties could be imposed on their clients as they form part of the cover within a port insurance policy. In short, the industry must be prepared to assess new risks and potential safety concerns. Marine insurers can now act as facilitators for decarbonisation by providing guidance and advice to their insured. Our common goal is an accelerated move towards a decarbonized industry. The movement to address maritime decarbonisation in all of its guises can offer no greater incentive for insurers to stand with their clients as they embark on their journey to a greener future.