The Marine Insurer. Issue 10. June 2022

ISSUE 10

| JUNE 2022

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

e c n as n a r ic tio u s er di n I m lE A cia e p S

Decarbonisation and climate change continue to drive shipping

ADR rises: Singapore steps up as arbitration centre l

Climate change: New risks must be factored into insurance

l

Sailing away: Is a return to sailing ships a possibility? l

Bad weather: l P&I Clubs: Container losses A new shape continue to mount of the market emerging l

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www.energyinsurancelondon.com 14 October 2022

CONTENTS | EDITORIAL

Comment

Highlights a

Shipping: an industry on the move

A MERICAS INSU RANCE SPECIAL EDIT ION

04 Contingency planning

Why the marine insurance industry needs to take contingency planning more seriously

06 The future of P&I

2022 has proved to be an interesting year for the P&I market and is raising big questions about the future of the mutual system

10 Cargo casualties

Collective action is needed to address the challenges faced with container ship casualties

12 Marine decarbonisation

Making the marine cargo sector more environmentally sustainable

FE ATURES 26 From deep freeze to hurricanes

How the risks associated with climate change are ever increasing

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14 Cargo digitalisation

Digital transformation in the logistics and marine insurance sectors is leading to new opportunities to collaborate more effectively

16 Sustainable shipping

How the industry is shaping its strategies for more sustainable shipping

20 Wind risk

Climate change: The risk for blue and brown water marine insurance markets

24 A new golden age of sail?

Could the answer to improving the global shipping industry’s carbon footprint be blowing in the wind?

30 Dispute resolution

Why Singapore has the tools and structure to global shipping industry resolve disputes

34 Future fuels

Expert View: Charlotte Røjgaard, Global Head of Bureau Veritas’ Marine Fuel Services

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

BACK IN MARCH, as I wrote this comment piece, the situation in Ukraine was far from certain.

Sadly, I can cut and paste that sentence now. The situation remains uncertain, with Mariupol in ruins and some 96 vessels still stuck in Ukraine ports with little chance of escape.

The Ukraine war has focused many minds on global trading patterns, not least as exporters work to send millions of tons of Ukrainian grain around the world, particularly to emerging markets where the threat of starvation is very real.

The trading pattern for energy supplies is also set to change as Europe, in particular, looks to reduce its reliance on Russian gas. And, of course, we cannot forget Covid-19, still hampering China and its ability to resume normal supply chain service.

All of this impacts the shipping industry and is likely to have a marked impact for years to come.

So, it is extremely important that the shipping industry remains in a fit and healthy condition itself.

In this issue we explore the continuing pressure from consumers for the shipping industry to decarbonise and become carbon neutral. It is clear that all sectors within the industry are working hard on this and also that changes will not necessarily come overnight but will be an evolution.

As North explores in its article on p16, this is not a case of one size fits all. There are likely to be myriad solutions tried and tested and owners are likely to consider plenty of differing options to suit their fleets.

Could reverting to sailing ships be the answer? Hiscox takes a look at the new style of sailing ships on p24 to explore why new sailing ships are far removed from the sailing vessels in the days of yore. It will be interesting to see what emerges but what is clear is that standing still is not an option.

In the meantime, shipping has other challenges to overcome.

Climate change and what that will mean for weather patterns are also a growing concern. This year alone, there have been too many lost containers at sea – not as a consequence of bad stowage but simply because of the winter storms.

We certainly live in interesting times and I hope you enjoy reading this issue to explore that in a little more depth.

Liz Booth Editor, The Marine Insurer Published by Cannon Events and Publications © Cannon Events Limited 2022 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 | June 2022

04

MARINE | Contingency planning In association with AIG

From the grounding of the Ever Given in the Suez Canal to the continued congestion at major ports in China, the last two years have shown multiple instances of supply chain disruption around the world.

A stitch in time…

Jack Gould, Inland Marine, Transportation & Logistics Practice Leader at AIG in the US, argues that the experience of the last couple of years means that we must all take contingency planning more seriously as we await the arrival of the next ‘black swan’ If we have learnt anything from the past two years, it is that major disruptions to supply chains can and do happen. Now is the time to leverage those lessons and build in the right contingencies for the next shock that comes our way.

From the grounding of the Ever Given in the Suez Canal to the continued congestion at major ports in China, the last two years have shown multiple instances of supply chain disruption around the world.

The complex and interconnected nature of global trade means that an event in one part of the world can ripple through supply chains in ways that may not have been anticipated.

We have seen such disruptions time and time again, most recently when a global shortage of semiconductors – in part driven by the restrictions of the past two years - hit automotive production.

It has caused companies worldwide to question their supply chain risk management and the inherent vulnerabilities of practices such as just in time (JIT).

NON-PHYSICAL DISRUPTIONS

The last two years have also revealed that sources of disruption are not always physical in nature, as has often been the case historically.

The Marine Insurer | June 2022

There is currently a macroeconomic strain on logistics capacity because of the shift to greater consumption of physical goods within some sectors and among some consumers fuelled by robust household balance sheets.

We see that supply chain disruption can also be caused by labour shortages, price fluctuation due to supply and demand, cyber-attacks, and contingent business interruption (CBI), among other things. We are in an increasingly risky and unpredictable world, where the source of shocks cannot always be anticipated.

STRIKING THE RIGHT BALANCE

A balance must be struck between the price efficiencies of lean manufacturing and the need to ensure robust contingencies are in place, including some stockpiling of goods. Business continuity and long-term stability and profitability depend on ensuring that this balance is right.

Recent events have shown some of the pitfalls of excessive reliance on suppliers in concentrated geographies.

Many popular global manufacturing hubs are exposed to natural catastrophes, can be prone to political instability or are simply more likely to be impacted by disruptions to transportation and logistics. They may also be more difficult to monitor and audit on a regular basis.

MARINE | Contingency planning In association with AIG

As a result, a growing number of companies are reassessing their supply chains, identifying their critical partners and asking whether it is feasible to source goods and components from suppliers closer to home with onshoring and near shoring increasing.

Again, there is a trade-off. In Western service economies it generally costs more to source onshore, but, there is less risk of disruption and more flexibility in designing effective business continuity plans. Despite these growing intentions, inventories remain at historically low levels, representing the legacy of JIT and continued vulnerability.

TAKING A HOLISTIC APPROACH

Despite growing headwinds, many organisations remain in a profitable position. Now is the time to prepare for the shocks that may come down the line, and to build in buffers that will enable companies relying on multiple inputs sourced from around the globe to better absorb future disruptions.

While it is not always possible to predict where such disruptions will arise, many economic experts have stated that in the near term we will see continued inflationary pressures, commodity price volatility and pricing fluctuations caused by supply and demand.

So, what should companies be doing now to prepare?

AIG’s approach includes the following: > Take a more holistic approach to your supply chain risk management. Map out your suppliers and identify critical path exposures, going beyond the second and even third tier. > Understand where the pinch points are, what alternatives you have and whether you need to adapt some aspects of your business model. The key is being nimble, taking a wide-angle view of your supply chain in its entirety and having the operational resilience to adjust as circumstances change. > Recognise that choice of transport and logistics partners remain important. Larger organisations have the benefit of critical mass and purchasing power, facilitating access to ongoing capacity even when there are pronounced mismatches in supply and demand (as evidenced by the shortage of truck drivers, for example). From 2020, current contracted freight volumes have been consistent from year to year, while irregular shippers depending on the spot market have seen themselves competing among postings, volumes which are increasing by 30-50% per year—and securing that capacity comes at a price. There is also more onus on mid-market companies to ensure they have workable contingencies in place and maintain strong relationships with transportation partners.

SEIZING THE UPSIDE

As the world becomes increasingly complex and unpredictable, the need to partner with global, stable, and committed insurance carriers has never been more essential. Seasoned

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insurers and brokers have a wealth of claims data and risk expertise they can draw on to assist insureds as they address and aim to reduce the vulnerabilities in their supply chains.

This includes provider analytics and access to risk management and risk engineering services that can quantify physical or financial exposures, as well as strategies to transfer or reduce such exposures to minimise cost of risk.

Risk engineers can offer practical advice on where to locate facilities and how to mitigate the impact of physical risks, such as fires and natural perils. While large organisations have access to internal risk management resources, the help and advice of brokers, underwriters and claims adjusters can be particularly useful for medium-sized firms as they consider what potential disruptive scenarios may arise.

Scenario planning can be helpful, including sitting down with insurer and broker partners to plot out potential disruptive events and stress test how risk management frameworks and insurance programmes would respond in different circumstances.

Are logistics providers appropriately capitalised to respond to changing business conditions? Are your business inputs commoditised, exposing you to market rate risk, or specific enough to reflect supplier risk? Is that supplier risk geographically concentrated in a way that gives exposure to natural catastrophe or political risk? Do you have adequate backups in place and a risk transfer programme to cover the delta in costs?

As recent events have shown, it is important to think beyond physical loss or damage and consult with your insurance partners to assess and address the full extent of your risk exposures.

“We see that supply chain disruption can also be caused by labour shortages, price fluctuation due to supply and demand, cyber-attacks, and contingent business interruption (CBI), amongst other things.”

Jack Gould, AIG

The Marine Insurer | June 2022

06

MARINE | Future of P&I In association with Ed Broking

Winds of change blow through P&I sector The year 2022 has proved to be an interesting year for the P&I market and is even raising big questions about the future of the mutual system in the international shipping insurance market.

Martin Cook, Divisional Director, Marine at Ed Broking, raises the big questions facing the market The Marine Insurer | June 2022

Worldwide, cyclone activity trends are increasing both in quantity and intensity.

Specifically, North Atlantic cyclone intensity has visibly increased in the last two decades, with eight of the ten most active years since 1950 occurring within the last 25 years.

The first truly hard P&I renewal for many years resulted in a bruising February 20 for ship owners and clubs alike.

Four days later Russia invaded Ukraine resulting in many new challenges as the shipping sector navigates through ever escalating sanctions.

Against this volatile and rapidly changing political and economic backdrop, the P&I sector is going through some major changes.

The Swedish Club will celebrate its 150th anniversary this year.

Two clubs have announced a change in the top jobs with Dorothea Ioannou taking over from Joe Hughes at the

MARINE | Future of P&I In association with Ed Broking

Under the terms of the IGA, mutual clubs are restricted in the way that they compete for each other’s business. The clubs remain effectively mono line insurers and the only way they can compete is traditionally on financial stability and service.

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only way they can compete is traditionally on financial stability and service.

Occasionally, with large enough fleets, the freedom to compete on FD&D might be enough to encourage a move for fleets looking for an immediate saving.

Cash returns or not calling the full premium on any given year has allowed some strong clubs to reward their members for the success of the club.

As a broker I have seen many occasions when owners, although pleased not to pay the full premium on the previous year, still baulked at paying a general increase again the next year.

Moving into H&M has given some clubs the ability to compete against each other on non P&I covers. For some clubs, Gard for example, this has proved very successful, but, other clubs have had their fingers burned.

More recently we have seen more clubs managing fixed premium facilities and these are now becoming closer to the mutuals with club security being used as a basis for the covers.

The ability to compete on fixed premium or H&M might benefit the individual club or management company, but, does it bring any benefits for the mutual market in total?

I would say not as it almost forces clubs to consider a move away from their core business into these areas or risk

“The most important announcement American club this summer to become the first ever female to head a P&I club. Jonathan Andrews will take over at Steamship Mutual for the next renewal.

The most important announcement has been the decision by North and Standard to merge. Once completed this will be the first successful merger of IGA clubs this century. This move would reduce the number of IGA clubs and therefore limit competition.

We are also seeing a continued expansion away from traditional P&I core covers with more clubs looking to the hull and machinery and the fixed premium markets.

has been the decision by North and Standard to merge. Once completed this will be the first successful merger of IGA clubs this century. This move would reduce the number of IGA clubs and therefore limit competition.”

MARKET UNDER THREAT?

P&I needs to evolve but do these changes secure or threaten the future of mutual P&I market?

Under the terms of the IGA, mutual clubs are restricted in the way that they compete for each other’s business.

The clubs remain effectively mono line insurers and the

Martin Cook, Ed Broking

The Marine Insurer | June 2022

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MARINE | Future of P&I In association with Ed Broking

being left behind in the rush for diversity.

Shipowner members of mutual P&I clubs rarely have a fixed entry and some still prefer to keep P&I and H&M separate. For this reason, there is arguably no real benefit to them.

MERGER BENEFICIAL?

North and Standard claim that their merger will benefit owners and provide more stability. This argument is potentially valid and a good argument but one can also ask whether a reduction in the number of clubs is beneficial to the wider market.

A lot has already been said about the way P&I clubs hold reserves and whether these are too high.

The idea of keeping small free reserves and only calling on owners for more money when it is needed is still the philosophy of some clubs that are then criticized for not being financially secure and may fall foul of the rating agencies.

But is that does not represent the true principal of mutuality. Clubs are there to serve the owner. As mutuals, they are not supposed to make a profit but rather just break even.

As at February 20, 2021 the IGA clubs were sitting on more than $5.5bn of owners’ money.

Claims costs are increasing and clubs need to keep their reserves at an acceptable level. But, in owners’ minds, this is not always easy to balance.

The clubs have a responsibility to manage owners’ money properly. If there are certain fleets generating a disproportionate level of claims compared to premium, what are they to do?

Underwriting discipline is a phrase that is often used. But, if an individual club tries to exercise this by asking for an appropriate increase that fleet may move clubs.

How then is that new club exercising mutuality for its membership by taking in business with poor records? Do they believe their claims handling is superior so that they can improve the record?

I am not claiming that brokers are blameless, but we serve the owners and we do not hold the pen.

Perhaps 2022 will be the beginning of some real changes in the P&I world. Just because the system works does not mean that it should not evolve.

FUTURE PERFECT?

My concern is that these changes need to be made without threatening the mutual system itself.

If the IGA did not exist it would be impossible to create it now.

Will there be more mergers, will clubs fail, will diversity bring security to the market?

After more than three decades in P&I the only thing I am 100% sure of is that things will continue to change, and that the clubs will evolve to face the challenges and serve the The Marine Insurer | June 2022

“Russia invading Ukraine is resulting in many new challenges as the shipping sector navigates through ever escalating sanctions.’’

owners as they always have.

Shipping needs the mutual system going forward – not least for the amazing depth of knowledge and experience within the IGA clubs which is freely available to the shipping word at large.

Will the IGA look the way it does today (not counting the North/Standard merger) in five years’ time? Almost certainly not.

Is there a better solution than the IGA Clubs? Not one that is easily imaginable.

Despite all the changes, uncertainly and threats (both external and internal) to the mutual P&I clubs, who better to prepare, react and adapt to these challenges than the clubs and their shipowners boards? If not them then who?

MARINE | Cargo casualties In association with Gard

Partnership needed to tackle container casualties Frank Gonynor, (left) Senior Claims Adviser, Lawyer, Gard (North America) Inc. and Are Solum, (below) Senior Claims Adviser, Lawyer, Gard AS present the challenges faced with container ship casualties. Collective action is needed they argue.

When discussing the challenges that container shipping casualties represent, two important factors that play their part are the speed of the market and the rapid development of the ships.

Even in the current challenging times of supply disruption, container shipping markets are moving faster than ever. Ships are maximizing capacity and larger vessels are being built and delivered on a running basis. This drives the creation of such challenges.

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FIRES – SIZE MATTERS

There are several ways to interpret cargo-related fire statistics. One observation is that the number of cargo fires seem to be relatively stable while the frequency of large fire casualties seems to vary as matter of luck.

But size does matter. Logically, a higher number of containers on one keel will increase the risk of one container of dangerous cargo catching fire. More cargo onboard, with higher stacks of containers, and ever larger ships, will furthermore have an impact on how dangerous situations are handled.

Cargo fires are not easy to detect and many containers on large container ships are not reachable. Crew members are not trained fire-fighters and the minimum standard of fire-fighting equipment set out in the IMO-rules (the SOLAS Convention) and ships’ safety management systems often prove inadequate.

An additional element of the ship congestion we now see in both Asia and North America is prolonged transportation which adds to the probability of dangerous goods reacting, self-heating and/or combusting as inhibitor chemicals meant to control such reactions lose their efficacy in time.

Lately, there have been a number of cases where interaction between ships on one side, and port authorities, shoreside firefighters and terminal operators on the other, have been challenging.

Much may depend, therefore, on where the given container ship is located, as well as the equipment and competent personnel available to deal with the situation.

If there is a leakage of highly flammable or corrosive liquid

Wreck removals such as the X-press Pearl (above) or the SSL Kolkata show quite clearly the damage to the environment and not only because of air pollution or leakage of different cargo substances into the ocean.

The Marine Insurer | June 2022

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MARINE | Cargo casualties In association with Gard

cargo onboard, will terminals and shoreside decision makers be able to correctly assess the situation and deal with the problem? Will shore-based entities be able to carry out the procedures and handle the situation before it escalates into a fire scenario?

Regrettably, there are examples of reluctance and bad interdictions taken from the shore, leading to escalating situations and sometimes fatal accidents on-board.

The fact that container ships enter smaller ports with less experienced first responder agencies may mean less adequate responses and lack of availability of fire-fighting equipment such as tugs equipped with water cannons.

And in major ports, even with highly trained and experienced shoreside responders, the vast myriad of products carried aboard containers on container ships will mean that sometimes a novel situation will be presented that will challenge even highly experienced personnel.

SHIPPER’S PERSPECTIVE

Container shipping starts with selling and buying cargo which triggers the need for transportation. Generally, shippers and receivers have an interest in making transportation work smoothly.

However, profit margins can be improved if transportation costs are reduced and yet packing, securing and declaring cargo correctly is a complicated issue, with all steps presenting essential costs and demands.

Shippers making errors, deliberately or not, when loading dangerous cargo into containers is one of the biggest challenges for container shipping. This comes inherently with how the trade works. Container carriers rely on shippers to load, secure and declare cargo correctly and thereby make it safe for carriage. Mistakes and shortcuts are made too often, and in some cases, the consequences are severe.

Research has revealed that alarmingly high numbers of dangerous goods, like batteries and chemicals, are shipped with inadequate securing and with the wrong cargo declaration provided to the carrier.

In such situations, carriers are unable to designate safe stowage positions to mitigate the risk of exposure to heat sources or external physical impacts in these scenarios.

STACK COLLAPSES

Mis-declaration of cargo weights and securing of heavy cargo inside containers represent a great risk to the stability and integrity of the stow on board.

It is a fact that 2020/21 was a bad season for stack collapses and containers lost at sea. Several of the largest incidents we have seen happened within a matter of a few months. In 2022 so far, we have not seen as severe a level of individual accidents. But, the number of cases concerning containers being lost in stack collapses at sea has been The Marine Insurer | June 2022

high again.

Causative factors range from heavy weather to malfunction of securing equipment, wrongfully secured cargo within containers, error in weight and stability calculations and lack of maintenance of boxes or container sockets.

The state of the container shipping market may affect this type of occurrence. We have also seen ships losing boxes overboard while waiting at anchorage or when slow steaming to avoid/time congested ports. Also, a relatively new feature of this year’s portfolio of lost containers at sea cases is bulk ships fitted to carry containers that are also losing boxes.

ENVIRONMENTAL CONSIDERATIONS

The environmental impact of a large-scale container ship fire may be quite obvious, but, perhaps these impacts are not reported and reviewed in as much detail as they should be.

Wreck removals such as the X-press Pearl or the SSL Kolkata show quite clearly the damage to the environment

MARINE | Cargo casualties In association with Gard

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and not only because of air pollution or leakage of different cargo substances into the ocean.

However, certain cargoes are more problematic once they escape the container.

Several stack collapse cases have caused difficult cargo spills of seemingly inert products in different places of the world. Floating pieces of cargo such as plastic toys, garments or sneakers will easily follow the ocean currents and be difficult to sort out before they end up on shore.

Plastic nurdles illustrate this issue well. Plastic nurdles, or pre-production plastic pellets, is the raw material for almost everything made of plastic. One single shipping container may carry 1 billion of these small lentil-sized plastic items and once they escape after an incident, it is impossible to locate and clean all of them. Some will end up spread throughout an entire ecosystem.

Following the total loss of the container ship X-press Pearl off Sri Lanka, billions of nurdles were lost and partly ended up on the Sri Lanka coastline – a disastrous spill of microplastic.

Several flag states have now submitted proposals to the IMO for stricter regulation for safe transporation of this particular cargo. It is positive to see that regulators seem to be willing to address this issue, but it will take time.

Voluntary, market-driven solutions by the commercial parties involved in this trade should be initiated and explored in more depth, to come up with more urgent interim solutions to reduce the risk of spills.

LOOKING AHEAD

It is a fact that 2020/21 was a bad season for stack collapses and containers lost at sea. Several of the largest incidents we have seen happened within a matter of a few months. In 2022 so far, we have not seen as severe a level of individual accidents.

But, the number of cases concerning containers being lost in stack collapses at sea has been high again.

Supply chains, which affect people’s everyday lives, are vulnerable to disruption and casualties, with shipping and container logistics playing an important part as the transportation link.

Risks and challenges for the container shipping must be identified and dealt with now.

Safe transport of dangerous cargo in containers is key, but ships will have to be prepared to deal with difficult situations like fires and losses of cargo at sea.

Regulators and authorities play an important part. But it is arguable that results can be achieved more quickly by way of voluntary agreement for adequate response and cooperation taken between vessel, salvors, terminals and onshore decision makers.

The Marine Insurer | June 2022

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MARINE | Decarbonisation In association with IGI

Green logistics in the US: making the marine cargo sector more environmentally sustainable The US government wants to make a tangible difference to its country’s carbon footprint and has implemented a number of environmentally friendly initiatives for the logistics sector. Mark Trevitt, Class Underwriter, Marine, at International General Insurance (IGI), explains the impact this has on the marine cargo sector in America, and how insurers can actively encourage greener freight transportation At first glance, the maritime world and environmental initiatives do not necessarily mix.

However, there is an ever-increasing demand for transport that is sustainable in terms of the impact it has on society, our environment and the climate – and the maritime industry has a significant part to play in reducing global emissions.

Many of these environmental concerns lie in the transportation of goods via the shipping industry, which is heavily reliant on fossil fuels. Although transporting goods by ship is less environmentally damaging than the equivalent journey by road or air, the colossal scale of global shipping means that change is needed. This amount of movement on a global scale demands an extraordinary amount of energy, consuming billions of barrels of oil every year.

The Marine Insurer | June 2022

According to the US Environmental Protection Agency (EPA), US freight activity continues to expand significantly.

It said the US transportation system moves a daily average of more than 51 million tons of freight or about 57 tons of freight per capita. And freight’s contribution is expected to increase. E-commerce sales increased 20-fold between 2000 and 2019 and projections are that by 2025, as international commerce increases and supply chains become more global and complex, shipments of US goods will grow another 23.5%, and by 2040, a total of 45%. Also, experts project that by 2050 global freight transport emissions will surpass those from passenger vehicles.

LEGISLATION FOR LOGISTICS OPERATORS The US government is actively implementing sanctions to

MARINE | Decarbonisation In association with IGI

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changing the current trajectory of climate damage and become a key player in the journey towards zero carbon emissions – and marine insurers should be supporting any move to green logistics.

THE ROLE OF THE INDUSTRY

Marine insurance is having to evolve and adapt in a changing world that is becoming more focused on being environmentally friendly.

That may be facetious to say when many marine insurers still insure coal shipments and similar environmentallyunfriendly modes of transport. As an industry, while we are mindful of the move towards a greener future, we have to remember that there is a journey to get there. We cannot abrogate responsibilities that we have to our existing clients.

That said, we have an obligation to engage regularly with our clients, brokers and partners in terms of their intentions further down the line in terms of their ultimate goal – and to actively encourage the route to a net zero world.

While there are signs that positive progress is being made, the shipping sector’s path to achieving sustainable practices is unlikely to be linear. It will require multiple stakeholders to participate and collaborate across the sector to overcome challenges and adapt to ever-evolving landscapes.

Marine insurers should be working with their clients and encouraging environmentally friendly initiatives. The financial and economic support and backing for the green transition by the insurance industry is of utmost importance. It is not about insurers imposing restrictions on shipowners, but rather about helping them to understanding the opportunities that exist so that they can act now. improve and streamline shipping operations so that they can use less fuel and generate less pollution. Since entering into office in 2021, President Biden has initiated several legal protocols that mandate laws to be enacted governing all elements of cargo movements – including land, sea and air within the US, to be in place within the next three years.

Meanwhile, the EPA has said it believes that the companies involved in production, distribution, and |transportation of goods can make a difference. It states that the business community can reduce the risks we will face from air pollution and health effects caused by freight transportation. By measuring, benchmarking, and assessing freight transportation activities and strategically making better choices that reduce emission, the EPA believes that companies can make a significant impact on the contribution of freight to cleaner air.

These new environmental rules mean that all transportation and logistics companies need to take proactive steps to reduce emissions. That said, the move to sustainability in logistics will not be an easy one – and there will be a huge cost burden. Environmental initiatives in the past have often been viewed as a compliance burden, however logistics companies can play a significant role in

“President Biden has initiated several legal protocols that mandate laws to be enacted governing all elements of cargo movements – including land, sea and air - within the US, to be in place within the next three years.”

Mark Trevitt, IGI

The Marine Insurer | June 2022

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MARINE | Cargo digitalisation In association with Marsh Specialty

The digital transformation in the logistics and marine insurance sectors is leading to new opportunities to collaborate more effectively and deliver innovative products and solutions argue Matthew Yeshin (above) and Herman Brito, Marsh Specialty Managing Directors in the group’s Marine, Logistics and Transportation Practice in North America

Full speed ahead for cargo insurance digital transformation Digitalisation in logistics has accelerated because of the pandemic-fueled boom in e-commerce and customer expectations for fast delivery, as well as aggressive competition driven by advances in technology.

Similar trends are accelerating digitalisation in insurance, creating a convergence for both industries that has led to innovation in cargo insurance and claims to meet the expectations of the logistics industry and its customers.

Developments that are driving change in logistics and insurance include: > Sharp reduction in the cost of technology, expanding access to digital tools that improve efficiency, mitigate risk, and enhance the customer experience; > Evolving consumer expectations for delivery of goods and products, as well as heightened demand for information and service in real time; and, > Increasing competition from technology-enabled startups. During the fourth quarter of 2021, for example, more than 250 supply chain startups attracted nearly US$11bn in venture capital in the US and Europe, according to PitchBook. That represented a year-over-year increase of almost 8%.

The Marine Insurer | June 2022

CONSUMER EXPECTATIONS CHANGING

Ongoing supply chain disruptions have increased the impact of delivery delays across the global manufacturing and retail industries. At the same time, consumers are becoming increasingly willing to seek alternate suppliers that can deliver goods and products faster.

Buyers simply are no longer willing to wait a few more weeks to receive deliveries, particularly if they can find another supplier.

Consumers’ and corporate shippers’ expectations changed radically during the Covid-19 pandemic that began in 2019.

Since that time, advancements in technology have accelerated e-commerce trends and growth in business-to-business (B2B) and business-to-consumer (B2C) commerce.

Even though B2B has long been the core focus of the logistics industry, global supply chain revenue growth is seeing opportunities in B2C. As a result, new digital providers with B2C experience are entering the logistics and supply chain industry. These entrants are placing pressure on traditional players to create new business models and provide innovative products that meet the rising expectations of consumers.

MARINE | Cargo digitalisation In association with Marsh Specialty

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CARGO INSURANCE EVOLUTION

In 2022, digital cargo insurance is no longer an aspiration. It is now a reality. There are several reasons for this. Traditional barriers of global trade are breaking down partly because of the acceleration of investment in supply chain technology and the rise of e-commerce.

As a result, the logistics industry is serving new customers, that expect greater transparency and a more streamlined and digital experience to ensure they receive efficient service.

The future of insuring goods in transit increasingly appears to be shifting to logistics companies. This shift is propelled by the evolution in customer expectations and the operational efficiencies that digitalisation affords.

First, customers are less likely to accept standard conventions and limitations when it comes to damage to cargo in transit. Second, a digitalised logistics industry is a more efficient distribution channel for cargo insurance.

Insuring cargo is becoming further integrated with booking and arranging freight, and more goods are being shipped “on-demand” worldwide.

The launch of digital freight platforms by forwarders, ocean carriers, air freight carriers and online freight marketplaces offers an untapped distribution channel for cargo insurance products. Digital cargo insurance allows cargo owners to select the shipments they want to insure and shop for price, in an efficient digital environment.

DIGITAL PRICING

“Ongoing supply chain disruptions have increased the impact of delivery delays across the global manufacturing and retail industries.

At the same time, consumers are becoming increasingly willing to seek alternate suppliers that can deliver goods and products faster.”

It is notable that a pricing strategy long used in the transportation industry is also helping to modernise cargo insurance.

While transportation businesses have used dynamic pricing for years to optimize their capacity, and freight pricing models to boost margins through alternative routing and timing, the same technology-enabled approach is influencing cargo insurance pricing.

As logistics providers standardise shipment data, implement blockchain, and assimilate smart contracts, digital technology is driving transformation in cargo insurance.

The combination of high-quality data insights and predictive analytics that is enabling the logistics industry to improve its efficiency and meet consumer demands will also bring benefits to cargo insurance. The ongoing digital transformation will enhance cargo risk management, improve underwriting, and facilitate claims mitigation.

Working with the right partners to deploy digital cargo insurance technologies will provide the opportunity to improve the customer experience as well as create new revenue growth channels.

The future success of logistics businesses in a digitally transforming marketplace will depend on their ability to select, manage and leverage the risk created by these new opportunities.

The Marine Insurer | June 2022

16

MARINE | Sustainable shipping In association with North P&I Club

North lays out multiple routes to sustainability The recent launch of North P&I Club’s Member Decarbonisation Journey’ series on strategies for more sustainable shipping sees the first two plans confirm that no ‘one size fits all’ writes North P&I Club Loss Prevention Executive, Mark Smith As North P&I Club Members make firm choices on the routes that they believe will lead towards net zero shipping, the marine insurer has launched the ‘Member Decarbonisation Journey Series’, a set of briefings offering transparency on the available options.

Through the Navigating Decarbonisation initiative, North is sharing its expertise with the Member Decarbonisation Journey series, in the spirit of mutuality.

In the interests of industry transparency, it has been devised to offer harmonised insights into the way members plan to meet the International Maritime Organization targets for shipping to reduce CO2 emissions.

The Marine Insurer | June 2022

First to report have been longstanding North members, d’Amico International Shipping (DIS) and Eastern Pacific Shipping (EPS). Instantly, two well-known shipping organisations have provided an example of the way that operational considerations can drive companies that adhere to the highest quality standards to arrive at different |conclusions.

TRANSITION THROUGH LNG

Capt. Anil Singh, Chief Operating Officer of Eastern Pacific Shipping (EPS), explains the ship manager’s approach to decarbonisation as a “holistic alternative marine fuel programme.

“Nobody knows yet which technologies or alternative energy sources will lead us to net zero, but we do know that today there are already proven solutions available to lower emissions. LPG, ethane, ammonia and methanol are going to be the way forward for EPS’ dual-fuel fleet,” he says.

In the immediate term, however, Singh adds: “LNG is widely available in the market and proven to lower carbon dioxide, sulphur oxide, nitrogen oxide and particulate matter levels.”

In what is believed to be a world-first for a vessel of its type, EPS has chosen dual fuel engines including LNG as a fuel to power a Long Range -2 (LR-2) tanker.

EPS’ submission to the North Decarbonisation Journey series highlights LNG for its transitional role as a marine fuel that helps reduce carbon footprint per ton-mile of cargo transported. “It’s a step in the right direction towards the IMO goal of reduced emissions and positions EPS as a transportation provider of choice in the shipping industry whilst attracting charterers,” the company says.

The ABS-classed LR2 tanker Atlantic Jade (110,000 dwt), delivered in the first half of 2022, features two ‘Type-C’ LNG

MARINE | Sustainable shipping In association with North P&I Club

“EPS notes that bunkering LNG takes longer than traditional fuels, also highlighting safety as paramount. The necessary mitigation is also provided by alarms, trips and emergency shut down devices, plus full crew training and certification for LNG.” Mark Smith, North P&I Club

fuel tanks to enable transits of up to 18,000 miles.

With fuel tanks positioned on deck to prevent reduction of cargo carrying capacity, LNG fuel is pumped to the main engines via a pump vaporiser unit (PVU), while three |generators and two auxiliary boilers feed off compressed boil-off gas (BOG) from the LNG tanks. The auxiliary engines could also run on distillate, residual fuels, or biofuels/biodiesel blends.

EPS notes that bunkering LNG takes longer than traditional fuels, also highlighting safety as paramount.

The necessary mitigation is also provided by alarms, trips and emergency shut down devices, plus full crew training and certification for LNG as a fuel.

Longer term, EPS also says its dual fuel strategy will allow ships to be powered by other liquid marine fuels “including - but not limited to - biofuels, distillates, and residual fuels”, with switching between fuels achieved “without loss of speed or power”. However, broadly speaking, Singh earmarks biofuels as “reserved for legacy tonnage, which are still being phased out”.

Where North’s member Decarbonisation Journey is concerned, the position has special piquancy because product tanker owner DIS has committed to a sustainable biofuel blend as its preferred candidate for use aboard its LR1 Tankers.

17

benefit to the environment with very low investment.”

The entire DIS fleet of LR1 product tankers has now been certified for operation on a ‘B30’ biofuel blend, the formulation of which includes 30% biofuel derived from renewable feedstock.

The DIS Decarbonisation Journey document has ship personnel reporting biofuels as easy to handle during trials carried out with Trafigura, engine makers and classification societies on the DIS vessels Cielo di Rotterdam and Medi Roma.

The trials also showed the blend achieving CO2 emission reductions of up to 30%, and 24.4% gains in terms of the Carbon Intensity Indicator (CII) developed by the International Maritime Organisation (IMO).

It is important to note that these calculations are based on the impact of biofuels ‘well to wake’, where the IMO’s CII scale is currently based on ‘tank to wake’ impacts. However, DIS also notes that biofuels provide a viable solution to comply with the Fuel EU regulation entering into force in 2025.

Tank cleaning and fuel system flushing are necessary. Care is advisable on cylinder oil injection rates, but, no specific recommendations are made on lubricant selection. The potential for microbial growth is also manageable, whether through regular testing or biocide dosing if necessary.

PROVEN STANDARDS

Based on proven standards for quality and testing (respectively, EN and ISO), the blend’s characteristics mean that, subject to a full risk assessment and modified fuel handling, it can be dropped in without any adjustment to engine parameters, DIS says.

For ship owners and managers today, there is no ‘one size fits all’ solution. There are many variables involved in owning and operating different ship types, and that means different companies will inevitably choose the option that best suits their operational requirements when seeking to meet IMO targets.

In time, a range of different operational technologies and fuel choices will emerge as our industry transitions to a low carbon future.

DROP-IN BIOFUELS

Salvatore d’Amico, d’Amico Fleet Director, says: “While we closely monitor the development of alternative fuels of the future and new propulsion technologies, and invest in innovative digital designs, we believe that using biofuel blends can speed up decarbonisation of existing tonnage with immediate effect. Drop-in solutions bring an immediate

The ABS-classed LR2 tanker Atlantic Jade (110,000 dwt), delivered in the first half of 2022, features two ‘Type-C’ LNG fuel tanks to enable transits of up to 18,000 miles.

The Marine Insurer | June 2022

20

MARINE | Wind risk In association with Envista

Climate change: Risk for blue and brown water marine insurance markets Oceangoing international and inland shipping continues to increase, both in cargo volume and dollar value, as consumption and inflation rises. Additionally, given the surge in ocean and inland trade, climate change related risks must be properly accounted for. Michael Venturella, Practice Leader-Marine Group, of Envista Forensics examines the shared risk factors that exacerbate the risk and size of these losses, discusses engagement of retaining the right experts, and technology solutions that can help to prevent many losses, reduce risk exposure and reduce the financial size of losses The Marine Insurer | June 2022

Worldwide, cyclone activity trends are increasing both in quantity and intensity.

Specifically, North Atlantic cyclone intensity has visibly increased in the last two decades, with eight of the ten most active years since 1950 occurring within the last 25 years.

The US Environmental Protection Agency (EPA) concludes that the increasing sea surface temperatures caused by climate change is a key factor influencing cyclone formation and behaviour and is impacting tropical cyclones. Globally, based on observations since 1980, the intensity and rate of intensification of tropical cyclones has increased similarly. (Source: news.sciencebrief.org) Inland river navigation can be difficult even without negotiating the complications of strong river currents or storm winds. Larger tows may require a half mile or more to stop in ideal conditions and have blind areas forward of the barges pushed ahead because of line-of-sight problems.

MARINE | Wind risk In association with Envista

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HEAVY WEATHER ROUTING

There has always been pressure on ship masters to provide a timely and economical delivery of cargo. As the timeliness of cargo is often the priority of many vessel operating companies, masters are put in difficult positions in which they often choose to proceed through the path of a storm or on a dangerously high river to avoid delaying the timely arrival of cargo at the next port of call.

The US Coast Guard (USCG) is aware of this risk, which is a causal factor in many of the largest marine casualties and accidents, such as the SS El Faro sinking in Hurricane Joaquin, with the loss of 33 lives in October, 2015.

Flag state guidance was released in 2018 by the USCG that vessel safety management systems should evaluate the risk of heavy weather and provide ships routing procedures related to heavy weather. When it comes to heavy weather routing of ships at sea, it is important to understand that hurricane forecasts can have large-scale track and intensity errors. Weather routing strategies must include frequent weather forecasts from multiple sources and a strategy for storm avoidance.

Storm avoidance strategies often employed by mariners include the 34 Knot (KT) rule and the Mariner 1-2-3 rule.

The 34 KT rule is the plotting of ship tracks outside of the 34 KT wind field forecast for the storm. The Mariner 1-2-3 Rule assumes a 100-mile error radius for a 24-hour forecast,

“Given the impact of climate change Navigation is typically restricted to narrow marked channels which is further constrained during lock passages.

Rivers often have sharp, blind turns which prevent obtaining early visuals of oncoming traffic.

Given the impact of climate change on frequency and intensity of storms, river levels are reaching record highs from the dangerous flooding of heavy rainfalls.

Unpredictable and swift river currents brought on by high river levels can be dangerous when near locks and dams.

The undercurrents that develop near locks and dams are so strong that they can pull vessels under the water.

The same high water river currents will also result in dangerous moving debris like logs or pieces of damaged docks. The swift currents or storm winds can result in barges breaking free from tows or from fleeting areas causing additional damages through allisions with structures or collisions with vessels on the rivers.

on frequency and intensity of storms, river levels are reaching record highs from the dangerous flooding of heavy rainfalls. Unpredictable and swift river currents brought on by high river levels can be dangerous when near locks and dams.”

Michael Ventruella, Envista Forensics

The Marine Insurer | June 2022

22

MARINE | Wind risk In association with Envista

200-mile radius for a 48-hour forecast, and a 300-mile radius for a 72-hour forecast. These two methods can combine to ensure plotted tracks account for forecast error and ensure the ship stays outside of the 34 KT wind field.

For inland rivers traffic, this technique cannot be used, as navigation is constrained within the river and locks. Inland rivers traffic may have to wait out a storm to safely avoid the risk of transiting through higher winds but should also watch and plan for heavy weather.

INLAND RIVER ALLISIONS

Dating back to 2019, the US averaged 25 individual vessel marine casualties involving a lock or dam each year. The high came in 2019, when the Upper Mississippi River, Arkansas River, and Missouri River flooded, all of which drain into the Lower Mississippi, resulting in multiple records for the length of time river levels remained at major flood stage.

The correlation between flooding and allisions, especially when combined with pressure to ensure cargo arrives at its destination on time, is evident.

CONTAINER SHIP CARGO LOSSES

Container losses at sea often occur during passage of the ship through heavy weather. Heavy weather can result in propulsion loss because of severe rolling that puts many systems beyond their operational limits prescribed by international regulation.

Any loss of propulsion in heavy weather may worsen the rolling by subjecting the vessel to winds and seas directly on the beam. Heavy weather also provides a test for the securing of containers with lashings, often in high stacks.

The forces acting on the containers in a storm provide longitudinal, transverse, and vertical accelerations that may exceed anticipated conditions if storm lashings were not applied.

Between 2008 and 2019, there was an average of 1,382 containers lost at sea each year. (Source: World Shipping Council Containers Lost at Sea 2020 Update) Between late 2020 and 2021, the number of containers lost dramatically increased with several larger incidents including One Apus, which lost 1,816 containers in late 2020, Maersk Essen, which lost 750 containers in January, 2021, Maersk Eindhoven, which lost 260 containers in February, 2021, and Zim Kingston, which lost 109 containers in late 2021, among others.

TECHNOLOGY SOLUTIONS

As vessels and their crews become more reliant on computers used for stability, cargo securing, loading, navigation, and machinery monitoring and control, the paper manuals heavily relied on during classification and flag state reviews may no longer be applicable.

Operators must ensure that requirements are being met, without reduction in safety factors, by use of these The Marine Insurer | June 2022

Masters are put in difficult positions in which they often choose to proceed through the path of a storm to avoid delaying the timely arrival of cargo at the next port of call. This risk, is a factor in many of the largest marine casualties and accidents, such as the SS EL FARO (inset) sinking in Hurricane Joaquin, with the loss of 33 lives in October, 2015.

technology tools without their respective manuals. This may mean consideration of human factors in software design and eventual changes to international and domestic regulation based on this approach.

Weather routing software is used and often heavily relied upon by vessel masters. Investigations of past weatherrelated marine casualties found that some weather routing software relies on delayed or inaccurate weather forecasts.

Given the inherent track and intensity errors in forecasts, which increase with time, reliance on delayed weather reports can result in failed weather routing in which a vessel transits a high wind field.

While reliance on a sole source of weather information is not advisable, a human factors approach would assume that crews would rely more heavily on the tool that provides the best visual display of the weather and routing which is often the weather routing software.

Development of weather routing software that incorporates multiple weather models with real time forecast delivery will reduce risk for the ships and their cargo. In addition, shoreside personnel should also monitor the tropical forecast and offer maritime support for the master’s storm avoidance decisions.

FIND THE RIGHT EXPERTS

Vessel allisions with locks and dams can quickly become complicated, as the damage to the vessel and the impacted structure can present difficult and costly repairs with settlements negotiated with the US Army Corps of Engineers (USACE).

It is essential for those involved in vessel allisions with locks and dams to identify and engage early naval architects and marine engineers, civil/structural engineers and building consultants experienced with the process.

Early engagement of these experts will ensure the process is understood, agreed-to and controlled to ensure the cost of repairs is kept to a fair and reasonable amount.

For major container losses, it is essential for insurers to identify naval architects, marine engineers, and digital forensics experts that can properly identify causal factors in the loss, while protecting critical electronic evidence.

The Grand Hotel, Malahide, Dublin

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24

MARINE | Green shipping In association with Hiscox

A new golden age of sail?

As the marine team at Hiscox argues the answer to improving the global shipping industry’s carbon footprint could be blowing in the wind Sailing ships plying their trade across the high seas could once again become a familiar sight as the global shipping trade attempts to tackle its carbon emissions in the fight against global warming.

With global shipping accounting for around 3% of the world’s greenhouse gas emissions, the shipping industry is looking to reduce its carbon footprint.

There is also a financial incentive for shipowners, that are feeling the pinch from rising fuel costs which on average already account for two-thirds of their operating costs.

Scientists and engineers are going back to the future by looking again at the ancient technology of sails that have been powering ships since the time of the Ancient Egyptians.

BLAST FROM THE PAST

Today’s sails are not the kind that we would recognise from the Cutty Sark or HMS Victory. Michelin, the French tyre manufacturer, has designed prototype giant inflatable sails that can be hoisted and inflated by pressing a button, while sensors will automatically trim the sails according to the wind speed and direction, rather than needing dozens of sailors to tend them, as in the golden age of sailing ships.

The company says it hopes to test the technology on a commercial freighter this year.

There are also hard sails which effectively act like upright wings to propel the ship forwards. UK company BAR Technologies has signed a deal with Cargill, the US chemicals giant, to retrofit its 150-foot-high steel sails onto one of its bulk carriers.

Then there are rotating sails, which use the Magnus Effect, The Marine Insurer | June 2022

whereby differences in air pressure created around a spinning object are used to push a ship forward.

Maersk, the Danish shipping giant, has fitted 30-metre-high spinning cylinders to one of its tankers to test the concept. If successful, it says it could fit them to around half of its fleets.

There are also other ideas being worked on by researchers, ranging from rigid sails that suck in air, to kites and wind turbines that would generate both power and propulsion.

There’s even an idea to turn ships into sails, by designing hulls that are tall but thin that can be sailed directly into the wind and generate pull to move forwards, just like an airplane.

“The future of ship propulsion is hybrid,” Gavin Allwright, Secretary-General of the International Windship Association (IWSA) recently wrote. Retrofitting wind propulsion systems to vessels could deliver savings in fuel consumption of 20% or more, he states.

This would represent the equivalent to thousands of tonnes of fuel for the biggest container ships, while also allowing them to sail at the same speeds as before. If sails and other wind systems are integrated into the design of new ships, the savings could be much higher.

Apart from helping the shipping industry to cut emissions, wind-propulsion champions point to other benefits of adding sails to ships including reducing the wear and tear on engines and other machinery and increasing the vessels’ stability. They could even allow shipping routes to reopen that were previously thought to be uneconomical.

ALL HOT AIR?

Many of these designs are still only in the prototype stage, but some shipping experts are sceptical. “There’s a decade of (wind propulsion) designs that look good, that save money, that in theory pay for themselves, that haven’t materialised into action,” Tristan Smith, associate professor and head of the

MARINE | Green shipping In association with Hiscox

25

Hybrid propulsion and hard sails (inset below) which effectively act like upright wings to propel the ship forwards, and then there are rotating sails, which use the Magnus Effect, whereby differences in air pressure created around a spinning object are used to push a ship forward.

Shipping Group at University College London, told CNN. “It’s not because they don’t save fuel, but clearly because they don’t save enough fuel relative to their cost.”

Also, the firm chartering the ship pays for its fuel, not the shipowner. This means that owners may be unwilling to pay for an expensive fuel-saving wind-propulsion system to be retrofitted, while the charterer might be reluctant to lease a hybrid-powered ship as it might not hire it for long enough to see the benefit of it having sails, added Smith.

But new regulations could encourage the use of sails. The International Maritime Organization (IMO) has mandated that carbon emissions from international shipping should be

“Today’s sails are not the kind that we would recognise from the Cutty Sark or HMS Victory. Michelin, the French tyre manufacturer, has designed prototype giant inflatable sails that can be hoisted and inflated by pressing a button”

at least halved by 2050 from 2008 levels. Also, several lenders and capital providers funding global ship operators have adopted the Poseidon Principles, to help the shipping industry meet the IMO’s targets to become cleaner.

UK government has been very bullish about the future for sail ships. Its Clean Maritime Plan (which it published in July 2019) forecasts that the wind propulsion industry would grow from £300m a year in the 2020s to around £2bn annually in the 2050s.

Research backing this forecast expects to see wind propulsion systems fitted on as much as 45% of the global fleet by the 2050s – roughly 40,000 vessels.

“Wind has the potential to turn a supposedly ‘hard-to-abate’ industry into a decarbonisation pioneer,” the IWSA’s Allwright wrote.

“It is great to see the maritime industry investing in new technology that may enable a faster transition to lower carbon emissions,” says Emily Taylor, Marine and Energy Liability Line Underwriter at Hiscox London Market.

“The industry is acutely aware of the importance of reducing its carbon footprint and we look forward to working with our customers to provide innovative insurance solutions that can enable that evolution,” she adds.

The Marine Insurer | June 2022

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MARINE | Climate risk In association with Falvey Cargo Underwriting

From Deep Freeze to Hurricanes Mike McKenna, CUO of Falvey Insurance Group, looks at how the risks associated with climate change are ever increasing Risks associated with climate change appear to be on the rise as weather events become more frequent, increasingly severe, and less predictable. During the opening session at the Marine Insurance Americas event, panelists Michael Venturella, Practice Leader – Marine Group, Envista Forensics, Sean Dalton, Executive Vice President, Head of Marine Underwriting, Munich Re, and Peter Sousounis, Vice President/Director of Climate Change, Verisk EES, alongside moderator Mike McKenna, Chief Underwriting Officer, Falvey Insurance Group, examined the weather impact on the marine insurance market, and how climate change might affect the landscape going forward. Additionally, how technology and modeling may play a greater future role. Pat O’Neill of Aon was unable to attend the panel, but contributed his written comments to the discussion.

PREDICTABILITY VS. UNPREDICTABILITY

Climate change and weather-related events have recently become more frequent, severe, and dangerously unpredictable. The impact of this unpredictability has been experienced by all sides of the insurance market.

Michael Venturella pointed out 8 of the 10 most active years for cyclone intensity have been in the last 25 years in the North Atlantic, plus record high river levels with higher currents which lead to additional exposures and loss incidents. The marine industry is also seeing the growing capacity of TEUs per containership which contribute to aggregation risk. Increased intensity and frequency of storms, increased river levels and increased size of vessels all can contribute to outsized risk. Michael also spoke to the singular and coupled container loss events.

The Marine Insurer | June 2022

Sean Dalton spoke to the inarguable reality of cat losses, and what the marine industry can learn from the property market. Sean also acknowledged the significance of the losses on the market results, and the effect of the unpredictability of these events on pricing and coverage options.

Peter Sousounis, from a modeling perspective, explained that an integral part of his model updates now includes evaluating to what extent climate change has played a role on perils they model and then accounting appropriately for that change in building the models. After the model is built, released, and being used by clients, immediately following an extreme event often times provide a near real-time estimate of losses and importantly demonstrate that the event was captured appropriately in terms of exceedance probability.

Pat O’Neill contributed two things the marine insurance market should consider: things we do not know and things we do know, with a focus on what we know. From a broker’s perspective Pat says the risk associated with climate change is obviously a concern for first-party businesses who experience interruptions and marine insurers need to better educate the end policyholder. Pat recommends a solution made up of three parts – risk transfer solutions, risk management solutions, and sharing industry best practices.

INFLATED CLAIMS

Mike quizzed the panel on the following; the increase in severity and frequency in climate change and weather-related events has direct correlation to weather-related claims. What further exacerbate these loss outcomes is inflation. As a result of the supply chain disruptions throughout the pandemic, the cost to repair or rebuild structures following a loss have vastly increased, and labor shortages and issues have also increased costs. Concurrently, the prices of common building materials have doubled in some cases

MARINE | Climate Risk In association with Falvey Cargo Underwriting

“As the insurance market continues to experience the effects of climate change, the insurance industry is facing the unsettling truth: the unpredictability of severe events that produce significant loss is real. ”

due to supply shortages.

Sean described inflation as “not a short-term phenomenon” and as a first and third-party driver of loss. He also explained how partial losses are getting more expensive in ocean marine coverage, and within certain marine lines of business, inflation comes through in exposure and rating. Sean also pointed out that inflation has not been of significant concern since pre-2008.

Pat says inflation is a growing problem for the industry and its clients, and that brokers are alerting clients to these increasing costs and costs of goods sold and recommending frequent reviews of the schedules of values to reflect inflationary concerns.

Peter commented that EES leaves it up to the client to best account for the value of the exposure. Peter noted that EES does account for demand surge in its models – temporary increases in the cost of building materials and labor in regions that have been hit exceptionally hard either because of a very large area being impacted or because of a very active season. More generally, economic inflation from a clients’ point of view is accounted for through their own portfolios – how building values change, how premiums change, etc.

Michael spoke to other areas affected by inflation including increased regulations on vessel emissions. He also discussed that storm-related incidents are now total losses and how the agreed values are surpassed as materials to reconstruct a vessel are more expensive than when the policy was underwritten due to inflation.

ARE SEVERE EVENTS THE NEW NORMAL?

As the insurance market continues to experience the effects of

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climate change, the insurance industry is facing the unsettling truth: the unpredictability of severe events that produce significant loss is real. Recent events like the “Texas Freeze” Storm Uri, severe European wind and flood events, US and global wildfire instances, and more, continue to occur on a regular basis. The panel discussed how they envision these types of events shaping the industry going forward from their respective organizations.

Peter shared that clients are expressing increasing concern regarding the possibility of unpredictable events because of climate change. The 2004-2005 hurricane seasons were the first to trigger that concern but then it was somewhat suppressed till 2017-2018. The industry wants to be more prepared for such events. While regulatory requirements are still being sorted out in the US, insurers in Europe have already engaged in exercises via CBES most lately to demonstrate that they have sufficient capital reserve for what a 100-year event will look like in the future.

Michael discussed the pressure on captains of more difficult choices of storm avoidance that may result in delay or proceed forward and inherit risk. As events become more regular, a shore-supported and proactive safety management plan should be a must.

Sean added from the reinsurance perspective that when facing severe events, marine insurers should take a wholistic approach of looking at experience, exposure, and modeling altogether for better predictability and preparedness.

ROLE OF TECHNOLOGY

There is no doubt that across the industry, technology is transforming the very way we do business – from the way we interact with brokers, the way we share data with clients, the way we share data with our service providers, the way we pay claims and more. Knowing what we know today about climate change and the impact it is having on loss activity the panel discussed some of the ways in which technology is being utilized to help mitigate risk.

Michael emphasized how technology is heavily relied upon aboard vessels, and how there is a disconnect between the software and operating manuals. The solution he recommends is ensuring that the software can standalone and ensure safe voyage as technology is the preferred method of the user.

Peter explained various technologies are being implemented on both sides of the resiliency front. Insurers are engaging with cat modelers to request tools, products, studies, reports, etc. of how they can expect climate change to affect risk from events like hurricanes and wildfires in the next 10-30 years primarily (in some cases longer). The provided information is courtesy of cat modelers developing climate change conditioned catalogs or other tools to quantify that risk. The catalogs in turn are informed from global climate models and other climate change information. Insurers use that information to make decisions on how to mitigate risk including providing a discount on premiums for adding resiliency measures (eg., fire wise, elevating buildings’ infrastructure and more).

The Marine Insurer | June 2022

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www.marineinsuranceasia.com Friday 24 June 2022

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www.marineinsuranceasia.com

24 June 2022 Singapore

All Times in Singapore Time (SGT)

Friday 24th June 2022, Singapore

08:15 - 9:00 : Delegate Registration and Refreshments

09.02-09.40: PANEL DISCUSSION: Box Overboard!

Panellists: Captain Siddharth Mahajan, Senior Loss Prevention Executive Asia, Gard, Captain Nitin Chopra, Senior Risk Consultant, Marine Risk Consulting Asia-Pacific, Allianz, Mats Segolson, Vice President, Head of Claims – Singapore, Skuld 09.40-10.00: PRESENTATION: Around the World in 80 Days Presenter: John Sullivan, Managing Director, V.Scope Risk Management 10.00-10.50: PANEL DISCUSSION: Can the Asia Pac Insurance Market Remain Relevant?

Moderator: Surani de Mel, Claims Manager, Shipowners’ Club Panellists: Jonathan Ranger, Head of Marine APAC, AIG, Chris Coupland, Senior Vice President, Regional Marine Asia, Marsh, Surani De Mel, Claims Manager, Shipowners, Rama Chandran, Head of Marine, Asia, QBE Insurance (Singapore) Pte Ltd, Paul Hackett, Joint Global Head of Marine, Canopius

12.50-13.50: LUNCH BREAK AND NETWORKING

13.50-14.35: PANEL DISCUSSION: Alternative Fuels – What Next for the Marine Market?

Panellists: Ansuman Ghosh, Director Risk Assessment, Thomas Miller P&I Ltd, Akshat Arora, Senior Surveyor, Standard Club, Capt. Jagadeesan Natarajan, General Manager Chartering and Operations, Orient Marine Co., Ltd. (Singapore Branch), Capt. Jon Elliott, Head of Risk Management, SeaQuest Intermediaries (L) Ltd 14.35-15.20: PANEL DISCUSSION: Making the Most of Your People Panellists: Benjamin Fong, Director Marine, Gallager, Kenneth Cheong, Marine Underwriting Manage, HDI Global SE Singapore, Nick March, Senior Vice President, Head of Singapore, Skuld

15.20-15.40: NETWORKING BREAK

10.50-11.10: NETWORKING BREAK

15.40-16.20: PANEL DISCUSSION: Technology – The Good, the Bad and the Ugly

11.10-11.50: PANEL DISCUSSION: Is the True Cost of Covid-19 Materialising in Claims?

Moderator: David Cox, Chief Executive Officer, MatthewsDaniel Panellists: Cedric DeClercq, Practice Leader & Claims Manager APAC Specialty Lines AXA XL, Amanda Hastings, Legal Counsel, Western Bulk, Senior Representative, The Standard Club

Panellists: Kenneth Lim, Assistant Chief Executive, Maritime and Port Authority of Singapore, Andy Yeoman, Chief Executive Officer, Concirrus

11.50-12.10: CASE STUDY: A Clear Example Presenter: Jan-Eege Klop, Manager Commercial APAC, SMIT Salvage 12.10-12.50: CASE STUDY: How Green is Your Shipping?

Panellists: Ms Wan Jing Tan, Senior Lawyer, Gard, Jacob Damgaard, Associate Director Loss prevention, Britannia, Michael Walls, Managing Director, Marine and Cargo Leader – Asia, Marsh

16.20-16.40: PANEL DISCUSSION: Hands Off My Booty!

Panellists: Daniel Ng, Head of Shipping Engagement, Information Fusion Centre, Ravi Muthusamy, Head Legal Claims and Insurance, X-Press feeders

16.40-17.00: PANEL DISCUSSION: War and How Sanctions can Play a Role in Reducing the Risk Presenter: Mike Gerasymov, Risk and Insurance Manager, Swire Shipping Pte Ltd

17.00 - 18.00: Drinks Reception

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MARINE | Dispute resolution In association with SCMA

The Singapore maritime cluster: Arbitrate, mediate, or settle?

John Martin, member of the Singapore Chamber of Maritime Arbitration’s Promotion Committee and Managing Director, Gard Singapore explains why Singapore has the tools and structure to help the regional and global shipping industry resolve the inevitable disputes that occur in this dynamic sector The Marine Insurer | June 2022

In recent years Singapore has emerged as a major global maritime centre.

Singapore has the considerable benefit of “strategic geography”, located at the base of the Straits of Malacca, and has for more than acentury also served a gateway to Asia.

Many other locations can boast favourable geography, but Singapore’s early planners recognised that to leverage on Singapore’s location, they needed farsighted policies designed to promote the long-term development of the maritime sector.

MARINE | Dispute resolution In association with SCMA

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“The Singapore hub also depends on strong and well-regulated support services in the form of financing, legal, shipbroking and all the other myriad services that support a healthy maritime sector, not least for insurance.’’

the Singapore maritime hub.

The success of this strategy is proven by the growing shipping and trading sector. The offshore oil and gas sector has also been an integral part of this development.

Singapore has emerged as a center for oil companies, drilling and other contractors and related industry services.

Singapore’s technologically advanced shipyards and other services to industry have naturally complemented this growth.

CRITICAL SUPPORT SERVICES

STRONG INSTITUTIONS

Singapore’s Maritime and Port Authority, or MPA, is charged with development of Singapore’s maritime cluster through its International Maritime Centre and its vision could not be clearer: “To develop and promote Singapore as a premier global hub port and an international maritime centre, and to advance and safeguard Singapore’s strategic maritime interests”.

As a government agency the MPA recognised that it needed a bridge to the private sector and in 2004 founded the Singapore Maritime Foundation (SMF). Together these institutions have been the key drivers in the development of

The Singapore hub also depends on strong and wellregulated support services in the form of financing, legal, shipbroking and all the other myriad services that support a healthy maritime sector, not least for insurance.

When Gard Singapore was established in 2014, less than half of the international group (IG) P&I clubs were represented in Singapore. Today with the imminent arrival of the Swedish Club, 11 of the 13 IG P&I Clubs will be represented in Singapore.

Add to this hull & machinery and marine property insurers, insurance brokers, English and other foreign law firms, as well as shipbroking houses; all are well represented here.

This is a testament to Singapore’s planning, marketing and implementation of policies that support the maritime industries, aided by a solid legal system and a stable political environment.

ADDRESSING RISK

We all know that shipping is a tough commercial business in which those involved take on excessive risk at their peril.

This not only relates to risks associated with the physical operation of ships, but also counterparty risk, and wordings of contracts and commercial agreements.

Ideally these are founded in law and established wordings, but even the best risk officers and engineers cannot anticipate the myriad of complexities in international trade The Marine Insurer | June 2022

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MARINE | Dispute resolution In association with SCMA

and the potential for disagreements that can arise even from the most innocuous of cargoes and destinations.

How then to settle these disputes? The title to this article provides a signpost to the options available to parties.

Although we in the P&I Clubs are providing legal liability insurance, we understand that it is nearly always in the best interests of the parties to reach compromise settlements that reflect the strengths of the parties’ respective cases.

In practice, this is nearly always what happens. However occasionally it is not possible to reach a negotiated settlement and the parties must commit to a more formal process.

MEDIATION IN SINGAPORE

When parties are in serious dispute, and negotiations have not worked, the parties can consider a formal mediation as a next step. Singapore’s institutions provide a strong framework in the form of the Singapore Mediation Centre, or SMC, that includes an experienced maritime panel.

We at Gard have been directly involved in mediations under the auspices of these institutions and can attest to their effectiveness both from a time and cost perspective.

Mediation originated in its modern form in Australia for the settlement of family disputes. It then became popular in the construction trades, in which often commercial parties would need help from trained mediators to resolve highly entrenched positions. However, if mediation should then fail, the next option prior to court proceedings is arbitration.

ARBITRATION IN SINGAPORE

Arbitration has been around for centuries and the preeminent forum for maritime disputes since 1960 has been the London Maritime Arbitration Association, or LMAA. This is because of its flexibility, the experience of its panel of arbitrators, and the longstanding and well understood rules. It also reflects the longstanding tendency for shipping contracts to incorporate English law, given its depth and substantial body of maritime case law.

However, LMAA is located in London, and distance can often translate to added administration and cost.

Singapore recognised that parties based in Asia may prefer an Asian based service, and in 2009 established the Singapore Chamber of Maritime Arbitration, or SCMA. SCMA is emerging as an attractive alternative to LMAA and is designed to be flexible, modern and cost-effective in its approach. The principal advantages include: > Geography: The parties are based in Asia, so the evidence usually resides here too, which is fundamental in formal arbitration; > Panel: An experienced panel of arbitrators encompassing all the maritime charter parties, commodities, offshore oil and gas, bunker disputes and shipsale/build/ repair disputes, and that reflects the diversity inherent in the international shipping industry; The Marine Insurer | June 2022

“We all know that shipping is a tough commercial business in which those involved take on excessive risk at their peril. This not only relates to risks associated with the physical operation of ships, but also counterparty risk, and wordings of contracts and commercial agreements.”

John Martin, Gard Singapore

> Rules: Regularly updated after extensive industry consultation, most recently in January 2022. The rules also have a clear and user-friendly layout, along with a do-it-yourself manual to the process. This equips the parties with the tools to manage arbitration as cost effectively as possible; > Various recent improvements including a new provision to ensure that there is no delay in appointment of the tribunal because of a non-responsive respondent (a common issue), plus additional expedited procedures for small claims, Singapore bunker claims, and smaller collision claims; and, > The SCMA Arbitration-Mediation-Arbitration Protocol allows the parties the flexibility to change their mind midway through the arbitration and pause it to mediate.

The parties can simply restart the paused arbitration if required.

ALIVE AND KICKING

The maritime hub of Singapore is alive and kicking and we recommend that commercial parties, particularly with a base in Asia, consider Singapore as a venue for settlement of the maritime related disputes through Singapore’s strong institutions.

The world is increasingly diverse and there is room for more than one system. The huge challenges that face the maritime world mean that solid and proven institutions for dispute resolution will be all the more important as we progress in the 21st century.

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Expert View - Charlotte Røjgaard In association with Alandia

Future fuels and decarbonisation Decarbonisation is a top priority in the shipping industry today and everyone is required to get onboard with efforts to reduce greenhouse gas (GHG) emissions. Without a magical crystal ball, we must rely on knowledge as the predictor for how the future will look. Nordic marine insurance group Alandia interviews widely respected industry expert Charlotte Røjgaard, the Global Head of Bureau Veritas’ Marine Fuel Services, to share her knowledge on this critical topic.

Alandia: Is our consumption of residual fuel currently increasing?

Alandia: What can you tell us about the importance of considering well-to-wake emissions?

Charlotte: No-one knows for sure how much residual fuel is supplied globally but based on port specific data it is estimated that we burn between 250 million and 300 million tonnes of marine fuel per year. The interesting thing is that this figure has remained stable for the past 10-15 years.

During this period, we had the financial crisis (2008), and many ships were laid up whilst others began to slow steam to reduce fuel consumption. We also see larger ships coming into operation, that are more fuel efficient in terms of the tonnage of goods transported. The constant figure is not because we don’t transport more, it is simply because shipping is more efficient.

Charlotte: We need to focus on what happens along the entire timeline right from the origin of the fuel until it is supplied to the ship and used. There has been much focus on tank-to-wake emissions with the methane slip from LNG providing a clear example.

Methane is a worse GHG than CO2 and we don’t want to substitute the CO2 savings with a methane slip which could make the overall situation worse. This slip can be quite well controlled and shouldn’t damage the reputation of LNG, however, we need to look back further than tank-to-wake.

Well-to-wake considers that, whilst you may have a more carbon friendly ship, using a greener fuel is counterproductive if the carbon footprint of the supply chain for producing and transporting the fuel exceeds that which you gain from running a greener ship. The importance of carrying out a full lifecycle assessment of the product is gaining traction and highlights that we cannot look only at one step in isolation.

Alandia: For how long is it likely that residual fuel will remain dominant?

Charlotte: Residual fuel remains dominant because this is what the majority of ships are built to run on while being cheap and widely available. Today biofuel is a relatively popular alternative, as it is the only fuel that can replace residual fuel without the need for retrofitting the vessel. It takes time to design and build vessels capable of running on alternative fuels. With a current global fleet of around 70,000 merchant vessels, this means that residual fuel will likely continue to be the main option for the next decade or so until the turnover of vessels changes the demand.

The Marine Insurer | June 2022

Alandia: What are the future fuels to watch out for and the potential of some different fuel types?

Charlotte: Although a niche fuel, methanol has been used for years. But the recent announcement from Maersk that it has ordered 12 methanol driven ships has spiked interest in methanol and many new ships are now being ordered for methanol. Being carbon-free options, ammonia and hydrogen are being debated a lot in the industry these

Expert View - Charlotte Røjgaard In association with Alandia

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days. Engine manufacturers and shipyards are working on the technology and the first ships capable of operating on ammonia are expected to be ready in a 3-4 years’ time.

Hydrogen is considered an alternative but primarily for inland waterways. The future will be diverse with many different fuels depending on various factors such as ship type and route, combined with different technological developments to increase efficiency.

Alandia: Is there sufficient momentum in decarbonisation efforts given the timeframe we face and where does the pressure come from?

Charlotte: There is good momentum. The legislators put pressure on the shipping industry, but it is the consumers that truly add pressure these days. There is an increasing understanding among consumers leading to an increasing demand for sustainable production and transportation of the goods we buy. Large companies such as IKEA and H&M put pressure on their vendors, tightening the timeline.

Sustainable transportation is likely to become a competitive parameter. Having said that, scientists warn that the climate is suffering, and global warming moves faster than predicted. Legislators currently discuss carbon taxes/ credits to apply further incentives to make the transition towards decarbonisation.

Alandia: How do current global events effect decarbonisation?

“Our way of life has changed over the past few years. The pandemic has taught us that many business meetings can be managed online and that we do not have to be in the office to work efficiently. This results in less road/plane transportation thereby reducing our individual carbon footprint.”

Charlotte Røjgaard, Bureau Veritas’ Marine Fuel Services

Charlotte: Our way of life has changed in the past few years.

The pandemic has taught us that many business meetings can be managed online and that we do not have to be in the office to work efficiently. This results in less road/plane transportation thereby reducing our individual carbon footprint. However, with the world beginning to open up again, there is a longing to start going on vacation far from home and the emissions savings may to some extent be offset by increased travel for holidays. There is also the geo-political situation in Ukraine and increasing inflation will impact our daily lives because of rising prices. We live in an interesting time in which things that we took for granted only thee years ago have changed. We all need to change our habits and consumption pattern, taking individual responsibility to assist in decarbonisation efforts. With regards to commodities and manufactured goods, as long as they are located or produced far from where the consumer needs them, we should focus on how to transport them most efficiently thus minimising the carbon footprint per goods. Shipping is the most efficient way to transport goods so the closer we can take the goods by ship to where they are needed, the better the overall carbon picture.

The Marine Insurer | June 2022

MARINE | PEOPLE MOVES

On the move We look back through the past month and catalogue, at time of going to press, those individuals within the marine insurance community who have moved companies or changed roles. Taken from our sister daily e-bulletin service Insurance Marine News l Risto Räty appointed

new Director, Commercial Marine for Alandia

Risto Räty has been appointed new Director, Commercial Marine for Alandia.

Alandia is an insurance company with focus on Marine, Cargo and Pleasure Boat insurance. Headquartered in Finland’s Aland islands at the entrance to the Baltic Sea, and with offices in Helsinki, Stockholm and Gothenburg, Alandia employs approximately 120 professionals.

Räty has some 30 years of broad experience in the marine insurance industry and as a leader. He has for the past 10 years worked at Zurich Insurance in various roles within Marine Cargo, Property and Engineering lines of insurance. Prior to his career at Zurich, he worked at Marsh. He also has experience working as an underwriter within Pohjola.

Räty will take up his role on June 27th, based in Helsinki. He will travel continuously to Alandia’s other offices in Mariehamn and Stockholm.

The appointment is subject to regulatory approval.

l Two from MS Amlin join Dale Lloyd’s carrier Dale Underwriting Partners is to enter the marine treaty market after recruiting MS Amlin duo Matthew Sims and Will Taylor. The pair will begin their work for Dale in November 2022. Both Sims and Taylor bring more than two decades of experience to their new roles.

l MHG names Macmillan-Bell as

Group CEO

International insurance brokerage and advisory firm MHG Insurance has appointed Alastair Macmillan-Bell as Group CEO of the MHG Group of Companies, effective May 23rd. He will be based in the Fort Lauderdale, Florida, offices. Andrew Dudzinski, Co-Founder and former Chairman and CEO, will take on new role as the group’s Executive Chairman.

l Lancashire Syndicates CEO

Woolley to depart for AIG

Emma Woolley, CEO of Lancashire’s managing agency, has resigned from the firm to take up the role of global head of marine at AIG. Woolley joined Lancashire in January 2017 as compliance director before being promoted to CEO of Lancashire Syndicates Limited (LSL) in February 2019.

l Simon Collins to leave American Club managers American Club has announced that Simon Collins will be relinquishing his role as Lead Market Liaison for the American Club and Eagle Ocean Marine (EOM) at Shipowners Claims Bureau (UK) Ltd. He will depart at the end of June.

Collins will continue as a consultant for a period after he steps down.

Richard Linacre and Chris Lowe have been promoted to new roles within the London organization. Linacre will take over as Managing Director of Shipowners Claims

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Bureau (UK), Ltd. from the end of June, with Lowe assuming the role of Deputy Managing Director at the same time. They will continue in their senior market liaison roles for both the American Club and EOM in addition to undertaking their new executive duties.

l Gard announces Chief

Operating Officer and General Counsel appointments

Gard on May 13th announced that Lars Lislegard-Bækken had been appointed Gard’s to the newly created role of Chief Operating Officer (COO). Ingvild Høgenes Nilsen has taken over as General Counsel.

Lislegard-Bækken had served as Gard’s Chief Legal Counsel since 2018.

l Everest recruits Nick Lewis

for marine in international insurance build: report

Nick Lewis has resigned from his position as head of marine, energy and terrorism at Antares Managing Agency to spearhead a launch into marine insurance at Everest Re. Lewis had been at Antares since 2013, when he joined from AGCS as a marine liability underwriter. He had been head of marine, energy and terrorism since December 2020.

l UK P&I Club appoints new

risk assessor to its loss prevention team

UK P&I Club has appointed Colin Legget as a risk assessor in its London office.

Legget had served at sea for a number of years and has managerial experience, both onshore and offshore, operating vessels in the global offshore energy sector. He previously worked in onshore positions for GC Rieber Shipping Ltd. Offshore, Legget has sailed as a Deck Officer, as well as Party Manager and Client QHSE Representative in multi-vessel survey operations. He will report to Loss Prevention Director Stuart Edmonston and is rejoining the business after spending four years at the Club from 2004 to 2008.

The Marine Insurer | June 2022

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