The Marine Insurer. October 2020. Issue 4

ISSUE 4

| OCTOBER 2020

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

0 n 2 o i 0 t I 2 Edi M l U I cia e p S

IUMI 2020: Marine market looking resilient through turbulent times

l Cargo: Digitalisation: l Covid-19 : Will it take over A rapidly changing The ongoing consequences human underwriting? market in 2020 l

l Energy: War risks: The growing threat Climate threat remains on uncertain routes unchanged by Covid-19 l

ISSUE 2

| MARCH 2020

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

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Membership includes access to our ground-breaking online Marine Insurance Community with LIVE NETWORKING PLATFORM!

Covid-19: The threat to the shipping sector

MONTHLY VIRTUAL EVENTS Salvage sector needs to raise trust and profitability

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l Sanctions: Between a rock and a hard place

Piracy on the rise in the Gulf of Guinea

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Marine Insurer cover-Issue2-FINAL.indd 2

Decarbonising shipping: The challenge ahead

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l Cyber threat to Asian marine sector

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CONTENTS | EDITORIAL

Comment

Highlights F E AT U R E S

IUMI 2020

28 The future of loss prevention

The shipping industry embracing technology to minimise losses

30 Wreck removal

What insurers need to know about the wreck removal convention

32 Cargo Misdecleration of dry dock cargo

34 Litigation Maritime contracts in the fifth circuit subsequent to the Doiron decision

04 Interview: Richard Turner and Lars Lange

The IUMI president and seretary general review the key topics worrying marine insurers

07 Cargo

36 LOI guidance

The rapidly changing cargo market

On the requirements of a standard letter of indemnity

10 War risks

38 Data democratisation The future of insurance value chains post Covid-19

40 Ports and terminals The evolution of shore based cranes

42 IT project failure How to prevent It failure in a major IT project

44 P&I survey Marine insurers are responding to the pandemic but can do more

50 Navigation Old style methods still key despite increased use of technology

52 Cruise shipping The current state of the cruise line operationsduring Covid-19

55 Global Maritimes issues Monitor 2020

Economic and geo political issue still high on agenda

58 Detentions Problematic detentions in central America set to challenge the market

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The growing threat from marine war risks

12 Facts and Figures

Dave Matcham from the IUA on how the claims statistics will help insurers

14 Loss prevention

Loss prevention – a clear conscience?

16 Data & Digital

Will digital take over human underwriting?

18-19 Yachts

The US and Gulf yacht market

20-23 Salvage

General average security and Lloyd’s Open Form (LOF)

24 Energy Why climate change must stay on the agenda

60 Casualty

The challenges of dealing with a major casualty

62 Salvage

A close look at claims in the Turkish straits levels of customer relations pandemic on the global economy Editor Liz Booth liz@lizbooth.co.uk tel: +44 07713 873237 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

Climate change taking centre stage post-Covid While we all hoped Covid-19 would produce a V-shared dip in the economy, with the world bouncing back quickly, that has not been the case and now the marine insurance sector is adapting to a new operating environment.

There have been challenges along the way as we explore through this issue, from managing casualties to the ever-present threat of war risks, but also plenty of successes and the marine insurance sector remains optimistic for the months ahead.

Following the first virtual International Union of Marine Insurance (IUMI) annual conference (and they hope the last), the market reports premiums on the rise, more disciplined underwriting and a sector rising to the challenge of the post-Covid world.

Technology is playing a huge part in the transformation from underwriting to claims and at all stages of the shipping sector. In many ways it has been seen as the saviour of many businesses through the Covid-19 lockdowns, allowing people to continue their day job.

But it has also had another huge benefit. As Richard Turner, president of IUMI, says IUMI has the backing of its membership to be proactive in terms of climate change.

In the past the shipping sector was often accused of being a polluter, but IUMI sees an opportunity to enforce change across the sector and to rewrite the history books.

No doubt, we will be hearing a lot more about that in the months to come but the association is starting strongly with a webinar involving the UN Principles for Sustainable Insurance team, held this week.

The marine insurance industry is often accused of being reactive, but now there seems to be a new opportunity to become proactive as never before.

Enjoy the read.

Liz Booth Editor, The Marine Insurer Published by Cannon Events and Publications © Cannon Events Limited 2020 Printer: Jamm Print and Production Ltd 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 IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Interview: Richard Turner & Lars Lange

“Covid-19 is an unprecedented event.” How many times has that been said throughout 2020? But for the marine market, the impact has been felt in unexpected ways and it has not necessarily been the catastrophic event that it has been for many other sectors.

That was the view of Richard Turner and Lars Lange, respectively president and secretary general of the International Union of Marine Insurance (IUMI).

Talking on the eve of IUMI’s first totally virtual event, the pair were not seeking to downplay the overall impact of the crisis on insurers.

As Mr Turner said “Every so often there is an event which impacts the insurance sector in such a significant way that all product lines are affected.” He points to the World Trade Center attacks as an example of that.

However, he added “When we look at the marine insurance sector in relation to Covid-19 we are really not expecting much in terms of directly attributable claims.”

There were examples of cargoes being stuck in the wrong place and ships unable to dock, but not an apparent pan-sector rise in claims, he said.

Having said that, Mr Turner acknowledged that the marine market will not be able to avoid the wider fall-out. “The marine insurance market had been losing money for the past few years and there was a pre-Covid push to increase rates to more sustainable levels. There has been an acceleration of that trend because Covid-19 has put more pressure on for the short term.”

Mr Lange added that the impact of Covid-19 may well be felt by a shipping industry faced with changing trading demands.

“The shipping industry is a key client and any changing patterns for them will be reflected in their insurance needs,” he said, adding that it was too early to tell whether the Covid lockdowns and economic fallouts will have a lasting effect on trading patterns.

As Mr Turner added “Our role in relation to changes with manufacturing bases and changing trading patterns is as interested and engaged spectators, but we can’t influence what happens.

“This is not just a Covid question. There has been growth in geopolitical instability and the friction that exits would suggest we could see some changes. Look at the US, for example, they would no doubt like to manufacture more at home. If they do, they will still need cargo insurers to protect the movement of goods” He also pointed to the example of oil tankers. Now that the price of oil has fallen, more shippers are carrying oil round the Cape of Good Hope to avoid costly fees at the Suez Canal – for their insurers it is simply a question of assessing the changing risk but the ship will still need cover, stresses Mr Turner.

Marine market proving resilient even in face of Covid-19 Richard Turner, (right) president and Lars Lange, (far right) secretary general of the International Union of Marine Insurance (IUMI) respectively review the key topics worrying marine insurers with Liz Booth remains the Gulf of Guinea rather than the Gulf of Aden.

An industry coalition, fully supported by IUMI has recently launched best management practice West Africa, taking a holistic approach to the risk and providing some guidance in dealing with the risk.

“We always have to adapt to the threat with our support,” he said. “And it will always depend on the individual contract and what is insured. For example in the Gulf of Aden it was mostly about ransom payments whereas in the Gulf of Guinea it is about the cargo and then the vessel and finally some elements of kidnapping.”

Another risk that rarely disappears altogether is that of stowaways, although the pair admit that rarely becomes a major issue for IUMI’s members. Mr Lange said “It can become an issue for us if an incident results in deviations or delays, but is usually something facing the P&I clubs rather than our members.”

PIRACY

CARGO

Any conversation about the Suez Canal almost inevitably leads to one about piracy in the neighbouring Gulf of Aden. As Mr Lange said, piracy has been an issue for marine insurers since insurance was invented.

However, the risk does change and, for now, the hotspot

The issue of cargoes (and dangerous ones in particular) came into focus globally in the most tragic of ways with the Beirut explosions, but it is something that has concerned marine insurers for years.

In the immediate aftermath, Mr Turner said “The proper

The Marine Insurer IUMI 2020 Special Edition | October 2020

IUMI 2020 REPORT | Interview: Richard Turner & Lars Lange

handling and storage of potentially dangerous goods, both at sea and in port, is a long-standing concern for marine underwriters; as is the growing accumulation of risk present in many port areas. The tragic incident at the port of Beirut and the similar explosion suffered at the port of Tianjin in 2015 clearly demonstrate a need for enhanced risk mitigation measures, which IUMI fully supports.

“In our opinion, two points are important for future loss prevention measures: First, dangerous goods, such as ammonium nitrate, should be stored in smaller amounts and in such a way that, in a case of reaction, the potential impact is lessened. Second, the storage locations of dangerous goods such as oil, gas and hazardous chemicals should be distanced so that residential areas would not be affected in the event of an incident.”

Almost two months later, he said it is sad to see how often such incidents repeat themselves. “If you think about it, there are parallels between the Titanic and the Costa Concordia incidents – both ships had their hulls ripped into and sank. For all our advances in technology, accidents still occur.”

Mr Lange said the overwhelming lesson from Beirut is the danger of certain cargoes and therefore the need to correctly declare all such cargoes. “In the case of Beirut, people knew

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what was involved but didn’t seem to care. This is also about having the right controls in place.’’

This brings the pair to the subject of training – something they both passionately endorse, while acknowledging that Covid-19 has produced some challenges in this area.

They have also been keeping a close eye on crew welfare issues.

“It seems many shipping companies have had to negotiate state by state in terms of Covid-19 lockdowns. It is an ongoing issue but one of concern,” said Mr Lange.

Keeping crew up-to-date with training and also ensuring

“The shipping industry is our client and any changing patterns for them will be reflected in their insurance needs.’’

Lars Lange, IUMI

The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Interview: Richard Turner & Lars Lange

“If you think about it there are parallels they are working the correct hours is all part of reducing the risk of accidents, the pair agreed. They acknowledge that accidents will continue to happen but firmly believe that the shipping industry has made huge strides in reducing the likelihood and frequency of accidents “If you look at the safety record of shipping across a long period, you will see there has been a material improvement.

However, accidents are still happening and the response needs to get better still. Just a few incidents could call into question that long term trend so we cannot take our eye off the ball,” warned Mr Turner.

POLLUTION AND SUSTAINABILITY Any major incident, such as the MV Wakashio’s grounding off the coast of Mauritius makes international headlines. A month after the incident, when the owners Mitsui OSK Lines announced it would spend US$9.4million in restoration of the mangrove and coral reefs, it was still making global headlines.

The IUMI pair acknowledged that such events are extremely emotive and do have an impact on the public perceptions about the marine sector.

The drive towards a greener and more sustainable industry continues unabated, exemplified by the sulphur cap introduction at the beginning of 2020. There had been concerns about the introduction of the new rules and then of the impact of Covid-19 on shipping’s ability to deliver, but the pair report that so far, so good.

That is not to say they can rest on their laurels. Mr Turner said “When I think of the environmental challenge, the impact on shipping and on us as marine insurers, we know that climate change is affecting the frequency and severity of claims, predominantly because of natural catastrophes.

“But it is also important to remember that the sustainability of industries that we support is going to change. Some industries will reduce, if not disappear. You only have to look at the coal industry, as an example of a sector that the insurers are finding more and more difficult to justify supporting any more.

The Marine Insurer IUMI 2020 Special Edition | October 2020

between the Titanic in the Costa Concordia incident – both ships had their hulls ripped into and sank. For all our advances in technology, accidents still occur.’’

Richard Turner IUMI “We should view these changes as both a risk and an opportunity. While some sectors slow down or disappear, others will emerge.”

Turning to the sulphur cap, he said “No-one can argue with the need for the cap but it is an example of changes to the regulations that in turn change the risks for us as insurers.

Around 40% of the claims we pay in the hull sector are related to engine damage and the sulphur cap had raised concerns about potential engine damage, so we are watching closely.”

As Mr Lange adds “When it comes to climate change, our role is in supporting our clients as they move towards a more sustainable future.”

That is not to say that IUMI is taking a passive approach – far from it. Mr Turner points to a poll of members earlier this year which revealed that they wanted IUMI to do more in this space. As a first step, Mr Turner said IUMI has signed up to the UN’s Principles for Sustainable Insurance.

“We are in a very good position to talk on behalf of the global marine insurance sector. We are able to co-ordinate a position and articulate that to affiliates, governments, the IMO and other interested entities.”

This is an important first step they say. As Mr Turner says “The shipping sector has longevity in every way. If you think about the vessels themselves, they will often be at sea for 25 years or more, so changes introduced now can take a long time to filter across the whole sector.

“But we at IUMI have a clear mandate on this and we will be doing much more in the future.”

IUMI 2020 REPORT | Cargo

At the recent International Union of Marine Insurance (IUMI) annual conference, Sean Dalton, chair of IUMI’s cargo committee, reported on a rapidly changing ocean cargo insurance market

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Cargo underwriting in 2020

The majority of cargo markets geographically changing environment. Prior to the global pandemic, can best be described as “hard” or “improving” very few underwriters in any line of business worked amid significant change. The challenges facing from home on a full-time basis and most professionals cargo insurers are many and include addresshad limited experience working in this manner. Marine ing the impact of the Covid-19 pandemic on insurance professionals adapted quickly using new their business, continued changes in exposures ranging from technology. increased accumulations to unprecedented shipboard fires and new and evolving exposures such as cyber. At the same CHALLENGING TIMES time, underwriters continue efforts to improve results and Cargo insurance professionals including underwriters, return to profitability. brokers, claims, and risk engineering experts, as well as The Covid-19 pandemic has caused an unprecedented account support, have all performed well during these disruption to the global economy and world trade affecting challenging times. Across the value chain, marine manufacturing, supply chain and demand. This has a direct insurers continue to deliver on their promises and impact on insured exposures, including shipment volumes provide the requisite services that this specialty line and accumulations in port and aboard vessels. To date, there demands. Brokers have done an incredible job in has been minimal loss activity as cargo insurance policies providing outstanding service to insureds. It provide coverage for physical loss or damage; most do not is important to keep in mind that brokers were also provide coverage for delay, loss of market, or inherent vice. dealing with addressing many of the same skill gaps as In considering the challenges of the underwriters and also working to keep impact of Covid-19, one would be remiss abreast of a rapidly changing environin failing to acknowledge the human ment. toll and suffering. In a market that saw Changes in the cargo insurance a number of colleagues displaced as market include a return to exposure a result of insurance carriers exiting underwriting, which has resulted in “The Covid-19 pandemic has caused the cargo line of business before the underwriters improving technical pandemic, the situation has become rate adequacy and doing a better job an unprecedented disruption to the even more difficult. One of the benefits in matching coverage offerings with of working in a small specialty line like exposures. Insurers are more judicious global economy and world trade marine is that you have the opportunity in deploying their capacity as they seek to build personal relationships with better balance in their portfolios. The affecting manufacturing, supply other marine professionals. We quality and relevance of information is benefit from the happiness but feel markedly improved. chain, and demand.’’ great sadness when our friends and Most marine industry carriers colleagues suffer. acknowledge that what had existed Sean Dalton, Most practitioners have been working prior was simply not sustainable in IUMI remotely for more than six months the 18+ years of a soft cargo market and doing a remarkable job in a rapidly as underwriters pursued top-line The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Cargo

OPEN CARGO INSURANCE MARKET CONDITIONS AUGUST 2020

Extremely Soft: Rates /

Soft: Rates / premium below

Stable: Rates / premium flat.

Improving: Rates / premiums

Hard: Rates / premiums

Extremely Hard: Significant

premium significantly below

technically adequate (risk

Results marginal (premiums

increasing. Loss affected

increasing across majority of

increases in rates / premiums

technically adequate (risk

adequate) levels. Results

adequate to cover loss and

accounts addressed w/

cargo classes. Loss affected

across majority of cargo classes.

adequate) levels. Following

unprofitable.

expenses but not cover cost of corrective action. Results

accounts addressed w/

Multiple years of rate increases

multiple years of reductions

capital and required returns).

marginal and outlook

significant corrective action.

need to attain technically adequate

and broadening of coverage

.

improving. Appetites / capacity Results improving (C/R below

levels. Challenging classes (auto,

results unprofitable and

deployment restricting.

100%) and outlook improving.

temp sensitive phama, retail STP)

unsustainable. Outlook poor.

.

Further restriction in appetite /

unable to be completed on expiring

capacity deployment.

structure. Outlook promising.

Sources: Survey input from IUMI Cargo Committee members, ALSUM, Munich Re Marine Underwriters, IUMI 2020 Cargo Committee Workshop Chair Report

strategies. The expansion of delegated underwriting authority, coverage terms, static risk extensions including NAT CAT coverages not available in the property markets, broker facilities paying extremely high commissions (some in excess of 30%) and creative “loss rating� of business all contributed to a toxic combination. If an underwriter has good security, growth is relatively easy. However, profitability and providing a sustainable offering is much more challenging.

PORT OF BEIRUT In the past 12 months there have been a number of large cargo losses. These include the tragic explosion in the Port of Beirut, a significant loss to a distribution facility impacted by the Nashville tornadoes, Hurricane Laura, Typhoon Haishen, and the total loss of 4,200 vehicles aboard the Golden Ray. This comes after the record number of cargo vessel fires in 2019.

The Beirut Port explosion is troubling on many fronts, and it is important to note that this is the second time in five The Marine Insurer IUMI 2020 Special Edition | October 2020

years (since the 2015 Port of Tianjin explosion) that a port had been destroyed by an explosion involving hazardous materials. These incidents underscore the important work that IUMI is doing to drive for improvements in the transport of dangerous goods and firefighting capabilities aboard large container ships.

To address emerging exposures, 2020 has seen the introduction of new cargo coverage wordings including clauses for cyber and also wordings for communicable disease. Market associations including the Joint Cargo Committee (JCC) in London and the American Institute of Marine Underwriters (AIMU) have promulgated wordings in the past year that are available for use. As underwriters take action to address potentially uninsurable exposures, these wordings introduce challenges in the form of contract uncertainty.

Another area marked by significant improvement is the provision of compliant global cargo insurance programmes.

This involves writing locally admitted policies in countries where this is required by law. Underwriters and brokers have

IUMI 2020 REPORT | Cargo

been addressing this challenge for a number of years. It is a complex problem that, if not addressed properly, can result in premium tax issues as well as the inability to pay claims locally or provide the services “in country” that are necessary.

Challenges are plenty, ranging from remediating portfolios to addressing skill gaps. The environment will get more difficult with lower interest rates and investment losses putting more pressure on underwriting results.

However, opportunities are also on the horizon as cargo returns to specialized underwriting. There will be an economic recovery and global trade will play a major role. Cargo insurance is a key enabler and insurers in this line will emerge healthier and in a position to provide solutions to customers. Behaviours are improving and

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these will drive better results.

One of the greatest advantages for a marine insurer is the technical expertise of their staff. While this is greatly undervalued and, perhaps, underappreciated in a soft market, it is vital to providing solutions and running a sustainable business. IUMI and the local market associations have delivered in helping build these skills.

Looking forward our efforts are directed towards solving problems to meet the needs of our customers and key stakeholders. It is not about going backwards but finding a way ahead professionally and personally. To this end, the 2020 IUMI Conference theme of “Navigating changing climates: Delivering expertise to shape the future” could not have been more appropriate. In a specialty line such as marine and cargo specifically, one must be adding value.

LARGE CARGO LOSSES 2012 TO 2020 (AUGUST 2020) Event Beirut Port Explosion

Year 2020

Nashville Tornadoes

2020

Golden Ray

2019

Grande America

2019

Estimated Gross Cargo Loss $250 million (damage to ships, goods, and the port ) $ 300 million

Comments

Source Claims Journal

Losses stemming from a Dell storage facility which was damaged in March 3, 2020 tornadoes Vessel capsize. 4,200 vehicles lost.

The Insurer

Vessel fire. 2,210 vehicles and 365 containers lost.

PCS, Freightwaves

Sincerety Ace

2018

Typhoon Jebi Macy’s Contents / Storage Loss

2018 2018

$ 100 million ($ 654 million total including H&M, P&I and Cargo) $ 100 million total including H&M, P&I and Cargo $ 150 million fire at Jim Beam $ 190 million ($ 40 million Cargo loss, $ 150 million GA and Salvage. $ 85 million. ($ 137 million total including H&M, P&I and Cargo) $ 400 to 500 million $ 78 million

Maersk Honam

2018

$ 350 to $ 500 million

2017 NAT CATs (HIM)

2017

Cargo specific loss amount unknown

Space X

2016

$ 285 million

Hanjin Insolvency Vermillion

2016 2015

$ 250 million $ 430 million

Tianjin

2015

$ 2 billion

MOL Comfort MSC Flaminia

2013 2012

$ 500 million $ 150 million

of oil in Morocco Cargo losses resulting from port explosion Hull / cargo Hull / cargo

Superstorm Sandy

2012

$ 2.5 to $ 3 billion

Post tropical cyclone

Jim Beam Contents / Storage Loss 2019 Yantian Express 2019

Vessel fire. 320 containers total loss, Large GA. Vessel Fire. 3,500 vehicles lost.

Fire at distribution center in West Virginia.

Vessel fire. Expected to be largest general average in history.

Worst NAT CAT year in history of P&C insurance industry Satellite pre-launch cover written in cargo market Container leasing cover Cargo claim for misappropriation

PCS, Business Insider

Inside Fac, Insurance Insider, Forbes, Bloomberg Insurance Marine News, Shipping and Freight Resource, AIMU Marine Insurance Day Presentation (10/2019) PCS, Automotive Logistics GIAJ Market Survey Insurance Journal, Insurance Insider Lloyd’s List, Insurance Marine News, gCaptain Lloyd’s List, Insurance Marine News, gCaptain Lloyd’s List, Insurance Marine News, gCaptain Insurance Insider, Insurance Marine News, PCS, Insurance & Risk, Artemis, PCS CNBC, Fairplay IHS, PCS CNBC, Fairplay IHS, PCS Business Insurance, Maritime Executive, PCS Maritime Executive, PCS American Shipper, World Maritime News, Shipping and Freight Resource Insurance Journal, Advisen Source: IUMI 2020 Cargo Committee Workshop Chair Report

The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | War risks

Marine War Risks: A growing threat on the oceans Frédéric Denèfle, a member of IUMI’s executive committee, discusses the growing threat from marine war risks Europe and its inhabitants have experienced for more than 60 years a peaceful history.

Nevertheless, there is one insurance segment which cares for war and this is the marine insurance market. War risks are largely uninsured in the insurance industry except when it comes to the various marine insurance markets for hull and cargo interests.

Such coverage is the consequence of historical risks encountered by ship-owners sending their vessels on uncertain ocean routes without the benefit of any protection as then being confronted with piracy attacks and/or foreign power threats to their assets, cargo on board and crews.

Back in the late 18th century various insurance markets in Europe felt able to cover such losses to the benefit of the vessels’ owners or shippers. Since the end of WWII, regional conflicts and territorial extension on ocean and marine space have accelerated to become a major issue. In turn this creates political uncertainties for private shipping interests.

Through time, Marine insurers have increased the scope of their insurance coverage to encompass all kind of war risk or war-like situations. Through the centuries, marine insurers have also built a better contractual and legal framework to cover the consequences of war or war related situations.

The Marine Insurer IUMI 2020 Special Edition | October 2020

The world is facing increasing geopolitical motives which can tempt any public policy leader to claim ownership of marine zones, only in using national navy forces against privately owned ships. in exceptional circumstances, such as when vessels owners were authorized to embark armed guards to stop pirate attacks off Somalian coasts, (inset) can a standalone merchant vessel defend herself from attack.

But what are the current risks facing the marine insurance sector? Various modern policies, in use in the marine insurance markets today, identify specifically risks covered according to the named perils principle.

These are numerous and include regular war, contact with derelict mines or explosives, civil strife or rebellions, as well as all kinds of political situation, which are summarized under the expression “Fait du Prince” causing harm to the vessel and the cargo on board.

Perils related to war or political situation are not uncommon nowadays. Marine war insurers have been facing resurgent geopolitical crises in countries such as Libya, Syria and Ukraine, with heavy consequences for their maritime trade.

Furthermore, as a retaliation against US embargo policy measures, European and Asian ship-owners have suffered attacks or detainments on their tankers in the strategic Arabian gulf area in May and June 2019, with costly financial impacts. This echoes the so-called “tankers war” which occurred between Iran and Iraq in 1984 and lasted for several years.

Currently, the world is facing increasing geopolitical motives which can tempt any public policy leader to claim ownership or control of marine zones, using national navy forces against privately owned ships and threatening innocent marine passage in a bid to claim sovereignty rights on those maritime areas.

ARMED GUARDS Only in exceptional circumstances, such as when vessel owners were authorized to embark armed guards to stop attacks off Somalian coasts, can a standalone merchant vessel defend herself from any attack.

Indeed, ships are a very easy target with a minimum risk

IUMI 2020 REPORT | War risks

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against those extreme risks.

Shipowners and cargo interest should consider insurance seriously – private shipping interests cannot manage war and political risks on their own.

However, the way to handle such risk exposure does not fit with the usual marine risks tools, which would normally include a classification society or skilled people at the helm.

Marine war insurance is a so-called “niche”, carved out of the skills of dedicated peoples able to professionally assess the risk and underwrite it according to defined market standards.

CLOSE COMMUNICATION

for the perpetrators and maximum publicity, all benefiting governments who implement decisions without having to face a real war.

Such behaviour does not cost a lot for a public authority looking for a quick win to attract support from a nationalistic population. The recent Turkish attitude in the Mediterranean or the China position on Taiwan strait during this last summer are very good reminders of the risks linked to geopolitics, but which can disrupt private shipping activities.

But this is only the tip of the iceberg. Other political violence occurs on land. Various west and central African countries are now suffering from terrorist attacks and several analysts consider that such attacks are expected to destabilize inland areas and then jump to coastal countries.

Once such a group of rebels is able to gain sea access, their destabilizing power might increase. Nigeria’s multipling of pirate attacks and ransom demands is certainly to be considered as an example of terrorist group gaining income and influence, without any meaningful response from local or regional authorities.

Sea access helps terrorists to import any equipment or goods and does open the way for more technical support coming from abroad. Finally, controlling sea access can influence some regional economies highly dependent on international trade.

Recently, Libya has been an example of where privately owned vessels can suffer seriously from such tactics.

Attackers have been prepared to destroy any means of transportation or infrastructure for as long as they do not control the maritime area.

Marine insurers remain prepared to offer some protection

Such professional teams gain a lot from close communication with their customers. Increased cooperation and gathering documented insights from war insurers are certainly among the first steps to manage the risk.

Other means by which any insured can build internally is through a scoring and assessment culture about war and political issues. Improving internal awareness on disputed marine space or high political risk countries within the company’s teams is a very robust starting point. It helps ensure that proper arrangements are in place to limit the potential consequences of incidents and to design the various insurance contracts to mitigate such war or political risks uncertainties.

Nationalism and selfish international policies can lead to war. The oceans are indeed, as we can see regularly, the scene of conflicts and therefore ship-owners, their crews and private property are under threat.

Unfortunately, some political leaders are not reducing their “war mood”. After centuries of services to the international trading and shipping industry marine war insurance remains a material protection against such risks and should not be ignored.

“as a retaliation against US embargo policy measures; European and Asian ship owners have suffered attacks or detainments on their tankers in the strategic Arabian gulf area in May and June 2019, with costly financial impacts.’’

Frédéric Denèfle, IUMI

The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Facts and figures

Figures telling the story Dave Matcham, ₍pic) chief executive, International Underwriting Association, and IUMI facts & figures secretary, discusses the new claims’ statistics to emerge from IUMI and how these will help marine insurers into the future This year’s IUMI conference was, for the first time, held entirely in a virtual format. Around 600 delegates registered to attend the usual array of technical marine workshops across a two-week period. The sessions, which needed to take account of multiple time zones, were well run but sadly delegates did not get the usual buzz and useful networking opportunities. There was no chance for those serendipitous business meetings or catching up with global corporate colleagues.

However, another first for the annual conference was the initial publication of some major claims’ statistics published by the IUMI Facts & Figures committee. As we all left Toronto in September last year, we did not imagine a total online 2020 conference, nor were we overly optimistic about the release of such statistics. Predictions are always challenging especially if they are about the future.

As project manager for this initiative, I was pleased to be able to present this first report and look forward to building on its early findings for the benefit of the marine community.

The six slides of cargo loss data have already attracted considerable interest from a wide range of stakeholders.

Many commentators, always hungry for new loss statistics, seized the opportunity for this first report, which could only really be supplied under the auspices of IUMI given its truly global stature.

Why choose cargo insurance? Quite simply because of its relatively even global spread of risk exposure and insurer participation. Every member association within IUMI has an active cargo market.

The Marine Insurer IUMI 2020 Special Edition | October 2020

According to this year’s IUMI premium statistics, the global premium base for the cargo market for 2019 was reported to be US$16.5 billion – a 1.5% reduction from 2018 although exchange rate fluctuations impact most heavily on this sector and so comparisons with earlier years cannot be exact. IUMI show 17 distinct cargo markets in their report, with the highest three global shares (China, Japan and Germany) accounting only for 11.3%, 9.3% and 7.2% respectively.

22 MARKETS Since beginning the project in 2018, 22 markets have supplied cargo data. For the years 2013-2019 this data equates to 6800 major loss records (defined as greater than $250k) aggregating to $10.2bn in incurred claims. The

“Other findings further illustrated predicted results, such as the fact that the highest volume of claims is at the low value end with conversely only 3% of claims above the $10m level, albeit representing 37% of all incurred loss.’’

Dave Matcham, IUA

IUMI 2020 REPORT | Facts and figures

database now provides significant volume and consistency both of which are essential to enable publication and had created initial problems with the exercise. In this third year we saw much better completed figures within our standard definitions.

Five data points are now reliable. They are loss amount, accident year, underwriting year, type of loss and mode of transport. For the first time, we had the opportunity for some permutations to measure, analyse and publish.

In reading our initial results, one needs to understand that they will see further improvement. We expect increased loss record volume and more consistent data points in the coming years. Some markets have only this last year begun to collect major loss data. Both they and those with established procedures will further deepen their data collection. Other markets will join the project next year.

Nevertheless, we now have something to consider.

The findings should now be available from IUMI. To give a flavour, we showed incurred losses and average loss amounts for each reporting year (2013-19.). Here, taking 2018 for example, with 492 loss records, $959m of total aggregate loss amount was collected with an average loss of $1.9m.

The average can be distorted by very large losses such as Tianjin, therefore this factor will be one of our focuses to improve the findings for future reports.

LOSSES PER RANGE We also presented the number of losses per range of loss amount. Here there was an expected outcome namely that most losses for each year are under $2.5m. for example in 2018, 27% of the volume was between $250k and $500k with 33% between $500k-$1m.

We have to remember that any claim under $250k is excluded as it is not defined as “major�. We also have begun to show the growth or fall in these loss ranges. For example, there was a 42% increase in sub $500k claims but a 19% fall in $1.0m-$2.5m.

Other findings further illustrated predicted results, such as the fact that the highest volume of claims is at the low value end with conversely only 3% of claims above the $10m level, albeit representing 37% of all incurred loss. We took comfort here as such obvious findings need to be proved for validity of the report.

Finally, we were able to look at the type of loss by accident year and mode of transport both by volume and value. We showed the top five causes, the most common of which were natural catastrophe and fire/explosion. Storage and seaborne represented the two highest transport modes for both volume and value, indeed the more recent years saw the beginnings of a trend of increasing storage losses by either measure.

To my mind IUMI is ideally placed to produce a global major claims database, indeed it should be one of its main objectives. This will be a unique database that is beginning

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to give a meaningful global insight into major cargo claims.

Information of this breadth cannot be found elsewhere and it will allow underwriters to benchmark their own activity against global performance to better inform future decisions.

Data may be available from private sources but this can often be more localised or regional and not aggregated with equivalent sources from elsewhere. With tremendous goodwill and cooperation from IUMI membership, and working in partnership with IUMI professional partner, the Boston Consulting Group, it is well placed to move into its fourth year with growing confidence and optimism in this initiative.

In working closely with cargo underwriters and participating associations, we will continue to advance the database, produce more analysis and build on our first results. IUMI will also continue its work on major hull claims. This will require the growth of reliable data fields so that further data analysis can take place. Once confidence in the hull data is at a sufficient level, IUMI intends to publish an initial analysis of global hull claims also.

IUMI 2020 NEW STATSTICS IN NUMBERS

$16.5bn $959m

The global premium base for the cargo market for 2019

Total aggregate loss amount was collected with an average loss of $1.9m for 2018

600 $10.2bn 42%

Around 600 delegates registered to attend the usual array of technical marine workshops across a two-week period

For the years 2013-2019 this data equates to 6800 major loss records (defined as greater than $250k) aggregating to $10.2bn in incurred claims

There was a 42% increase in sub $500k claims but a 19% fall in $1.0m-$2.5m

11.3%

China has the highest (11.3%) share of the global cargo market

The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Loss prevention

Loss prevention - a clear conscience?

Before considering what loss prevention can do, whether it simply provides a fig leaf for a “clear conscience”, or it is a useful practical or even political lever, we should ask ourselves what loss prevention actually is.

Uwe-Peter Schieder, of the IUMI loss prevention committee, explains Loss prevention has two aspects. Firstly there is its practical application in the form of surveys, mostly on-site before the provision of coverage against risks, but also by being applied alongside risks from planning, end of production and packaging, up to loading during pre-carriage, main carriage and on-carriage, ie through the entire supply chain.

The second aspect is of a more theoretical nature, implemented by national bodies and above all the International Union of Marine Insurance (IUMI), where it falls under the responsibility of the loss prevention committee (LPC).

The job of a surveyor is to assess risks. National and international directives, codes and standards form the criteria for this work. So, what surveyors and safety engineers do essentially comprises of quality management (QM) activities coupled with an element of consulting.

QM of this kind has not been in question for a long time.

Indeed, the economic rationale has been demonstrated many times over.

What about the work of the LPC? There are no internal comparative statistics or projections for its work as there are for the work of safety engineers in companies. Its work must be meaningful and effective in and of itself. The LPC has access to the year-on-year loss statistics of all specialist areas.

Losses in the billions are the challenge and provide sufficient motivation not to simply accept the current situation. The LPC is primarily concerned with the hull and cargo sectors, with cargo covering the entire supply chain.

However, the reaction to loss events, which is essentially a

The Marine Insurer IUMI 2020 Special Edition | October 2020

retrospective view, is only one side of the coin, the other side is looking ahead to the future. What new developments are coming up and where are the risks?

For the past 50 years, the ocean freight industry has undergone more radical change than virtually any other branch of industry.

The “productivity” of a single seaman has increased 50- to 100fold in this period. A change more fundamental than that from sail to steam without anyone seeing it as revolutionary.

Container shipping is what made the just-in-time concept possible and has networked trade across the globe. Huge container vessels have pushed down the cost of transport to such an extent that it now plays only a minor role in the price of goods. But the gigantomania of container ships is creating unprecedented accumulations at sea and these are changing the risk borne by marine insurers.

And new developments are emerging all the time: ships are expected to use low-sulphur or zero-sulphur fuels; digitalisation is continuing to make progress; new technologies with new, digital hazards; and automation can make transportation safer, but it certainly makes it vulnerable to cyberattacks.

Faced with so many challenges, the question is to identify who or what the adversary is; and it does not take long to identify it. Existing costs have to be reduced in an ongoing process that, sometimes decoupled from any consideration of QM, is constantly breaking into new territory.

IUMI 2020 REPORT | Loss prevention

This explains why security systems have atrophied, training is neglected, packaging is starved and has long since ceased to fulfill its purpose. Standard containers are loaded with liquids, tree trunks and scrap metal, cargoes for which they were never designed and which they cannot withstand if the worst comes to the worst; but the laws of economy appear to trump the laws of physics.

And so there is no lack of work for the LPC. By analysing loss statistics and major losses, the LPC attempts to detect key areas and trends, as well as assess new technologies, to identify and master upcoming problems.

What tools does the LPC have at its disposal?

The workshops at our annual conferences are a superlative opportunity to raise awareness of issues. Statements on the IUMI website offer clear political positioning that supports the argument being made in the workplace. Webinars and articles in IUMI EYE are further ways to inform and educate, alongside a free e-learning programme that can and should close any skills gaps. But that’s not the end of it: as an international association (NGO), we have the opportunity to actively participate in the work of committees.

Ten years ago, the LPC was able to contribute to the revision of the IMO/ILO/UNECE CTU Code of Practice and played a major role in the drafting of Annex 3 “Prevention of condensation damage” and Annex 7 “Packing and securing cargo into CTUs”. It goes without saying that we work together with other networks and try to forge alliances.

PRACTICAL EXAMPLE In 2012, the fire on the MSC Flaminia provided the initial impetus for the LPC to address the issue of fire on container ships. The LPC analysed the case and many other fires on container ships. Conclusion: the firefighting systems on container ships have not developed in the last 30 years. Instead, the systems on general cargo vessels were simply transferred to container vessels.

There is a blatant discrepancy between the firefighting Huge container vessels have pushed down the cost of transport to such an extent that it now plays only a minor role in the price of goods. But the gigantomania of container ships is creating unprecedented accumulations at sea and these are changing the risk borne by marine insurers.

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‘‘For the past 50 years, the ocean freight industry has undergone more radical change than virtually any other branch of industry. The “productivity” of a single seaman has increased 50- to 100-fold in this period.’’

Uwe-Peter Schieder, IUMI options that crew members have on board and the huge quantities of cargo stored in tin boxes, some of which potentially pose a high risk. And this discrepancy has to be eliminated.

The issue was subsequently presented at the 2013 Annual Conference in London, followed by further publications, presentations and round tables at international level. With the help of one flag state, the IMO has since been able to submit a proposal to amend the equipment and construction regulations with regard to firefighting systems. IUMI supported the proposal with two informal papers, which they submitted to the IMO with the proposal.

Cost pressure has spawned some bizarre offspring in the field of packaging. Packages and the load units assembled are so massively under dimensioned that they barely “survive” being transported into the container by forklift truck. And we have countered this with the definition “fit for purpose packing”. Packaging must be able to protect the cargo from the particular stresses to which it will be subjected. These stresses are defined for each mode of transport and so packaging can be designed to be fit for purpose. QM work in its purest form.

CONCLUSION Yes, the LPC provides a few people with a clear conscience, because we work in the interest of national economies, draw attention to problems and have the right solutions. We are also developing political leverage which we are trying to use sensibly and wisely.

The LPC does not see itself as the transport police but wants to balance the demands of safety and quality with economic considerations. But some loss prevention managers also have a guilty conscience because they cannot be everywhere where they are needed.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Big data

Will digitalization take over human underwriting?

Tom Shinya, Tokio Marine (Japan), member of the IUMI cargo committee, education forum, big data and digitalization forum, considers how much digitalization has impacted the marine industry already and what might happen next Digital and data science may not sound as sensational as a few years back when it started to reveal itself to the marine insurance industry. Looking from the other side, that may be because the evolving digitalization is becoming normal and it is not something special anymore.

There is no doubt digitalization will be a crucial part of our business and that was strongly proved on the communication aspect in the past six months through the Covid-19 crisis.

We all learned from Covid-19: when digitalization starts to change the way of business, the power of it is unexpected.

We are also seeing some evolution in terms of marine insurance. There is new digital technology that predicts the navigation of the ships to prevent collision. It also collects data of each ships and its machineries. Tokio Marine is investing in this new technology to gather navigational and performance data of the ships.

The Marine Insurer IUMI 2020 Special Edition | October 2020

There are other new technologies that streamline the logistics which could be used to decrease unnecessary storage during transit. Autonomous terminal operations controlled by artificial intelligence (AI) will streamline port accumulations. These digital technologies will change the exposure prior to our underwriting.

When it comes to the digitalization of underwriting itself however, it seems there is much more to be explored. Today the digitalization on underwriting tends to be focusing predominantly on the scientific and technological side such as using geographical data with the Internet of Things, location survey with 3D scanners and drones, climate data analysis, risk modeling and such. Some focus on the transactional side or administrative side such as digital transactions and data sharing may be related to blockchain. However, these scientific or technological aspects of underwriting are only a part of the whole marine underwriting process.

IUMI 2020 REPORT | Big data

The world of underwriting is heavily based on knowledge and the thought processes of underwriters, as we know.

Some talk about a “bionic underwriter” through AI. If so, the tacit knowledge of the underwriter and how that is used needs to be studied. The art of underwriting is not simple mathematics. It consists of quite a few elements.

CRUCIAL ELEMENT

For instance if we are to create a “bionic cargo underwriter”, some basic knowledge he/she is required to have may include: the structures of vessels, the shore facilities, the stevedoring operations, warehousing operations, inland transportation and infrastructure.

These requirements may differ by the type of cargo and each country may have itsown local practice or regulations. These factors may be too basic for human cargo underwriters to even realize that they have automatically included them into their thought process, but I must say they are indispensable knowledge. Another crucial element for cargo underwriting is knowledge about the commodity: the nature of the commodity, its handling, packing, storing, also the market practice and business custom of the particular commodity, as well as the standard contract of sales of that commodity.

On top of that, underwriters factor in the status of import and export rules for each country, the law and practice for the contract of carriage, maritime law, and a knowledge of the custom duties. When considering cargo war risks, underwriters look at the political situation of the countries both foreign and internal, risks of political instability including terrorism and civil commotions, knowledge of foreign affairs, while an understanding the concept of international law may be needed as well. The economic status of the assured’s industry, the economic situation of the shipping industry, the commodity market – all of it shows that the tacit knowledge of an underwriter is quite extensive.

Today underwriters will open the draws inside their brain according to the situation in front of them and make an underwriting decision, which may turn out to include some unique terms and conditions. With all this, I must say there is a vast amount of room left to study for anyone looking to develop a bionic underwriter and it may not be that simple to digitalize these tacit knowledges and the decision making process.

MAGIC STICK We should also keep in mind that AI is not a magic stick. If you want AI to make the correct decision, you will have to make it work in a a way which means you feed it with all the necessary information and programme it with all the possible options. The principle of “garbage in, garbage out” is still there.

With that, it finally leads to my conclusion that “human

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“There is no doubt digitalization will be a crucial part of our business and that was strongly proved on the communication aspect in the past six months through the Covid-19 crisis.

We all learned from Covid-19: when digitalization starts to change the way of business, the power of it is unexpected.’’

Tom Shinya, IUMI

involvement” will still be the key for underwriting. No doubt the importance of digital technology and data science will become bigger, however it will not completely replace human underwriters.

For instance, an underwriter’s “sense” is not easy to put into a digital format.

There is a potential new cargo business. You take a look at the submission.

1.You’ve heard the name of the Assured.

2. You recall some rumors of the account from a colleague few years ago…it was may be over a drink.

3. You see the type of commodity. You know how the losses occur.

4. You see heavy storage in a certain country.

5. You take a look at the terms & conditions.

6. You think, “why is this opportunity coming to me…”

With the combination of 1 to 6, you don’t feel comfortable to quote on the account.

This type of “sense” which comes from the combination of elements will only be cultivated throughout practice.

A bad experience is what really educates the underwriters.

Again, looking back the past six months at how the power of digitalization changed our way of conducting business under Covid-19, we simply cannot ignore digitalization going forward. On the other hand, for underwriting, human involvement will still be the key and will remain the key…at least for a decade probably?

The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Yachts

Cruising through pearl diving to autonomous boats?

Cenk Bilgin, senior regional marine underwriting manager, AXA Insurance (Gulf), looks ahead to an autonomous world Interacting with the sea in its various forms has been deeply embedded into the DNA of the Gulf culture for centuries. After countless battles for survival among its neighbouring peoples, the Gulf waters became the central hub for sea trade and economic activities. From the beginning of the 1800s, fishing and pearl diving were the main professions and way of life in the region, traditions which were passed down generation to generation.

With strong, regional economic stability, thanks to oil, tourism and investment opportunities, the relationship between the sea and its people has changed drastically. In the past few decades, residents in this part of the world have started interacting with the sea for fun and pleasure instead of for their livelihoods.

Furthermore, and with tremendous construction development, the building of several mega projects has helped to change people’s expectations, perceptions and social behaviours in the region. Having one of the world’s largest man-made marina waterfronts, continuously increasing new mooring facilities raising the mooring capacity to more than 10,000 boats and hosting the prestigious international boat shows every year, it has made it quite impossible for Dubai to be overlooked in the yacht world.

In parallel, and with the increase in popularity of boats, attention has also focused on yacht insurance. Having a wide range of yachts from small pleasure crafts to the very luxurious worth US$80million - $100million it has generated the need for different levels of capacity and insurance solutions within The Marine Insurer IUMI 2020 Special Edition | October 2020

the region. Major local insurance companies and foreign players have focused on this special risk segment via specialised national and international brokers along with direct channels.

In the last couple of years, despite a moderate performance in the yacht insurance market, the region has faced some major challenges; most notably a drop in reinsurance capacity, and a spike in war peril rates and cover exclusions, which have created tough conditions for the yacht industry.

In addition to these barriers, increased marina accumulations and a weakening in maintenance capabilities have followed the pandemic and recent lockdown. But despite these challenges, the yacht insurance market keeps improving through agile solutions provided by all partners, including prompt initiatives which have been undertaken by local regulators.

An interesting point to note is that the accumulation of certain types of vessels in marinas is reducing, as yachts have also become one of the most preferred places for self-isolation and a desirable ‘work from home’ option within the Gulf region, with owners looking for a safe haven during the troubling times caused by the pandemic.

The UAE has been very welcoming towards yacht owners by embedding a range of benefits into the yachting world; from digital insurance products by insurance companies to solar powered and autonomous boat manufacturing.

“Having a wide range of yachts from small pleasure crafts to the very luxurious worth US$80million - $100million it has generated the need for different levels of capacity and insurance solutions within the region.’’

Cenk Bilgin, AXA Insurance (Gulf)

IUMI 2020 REPORT | Yachts

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Rick Salway, vice president, luxury yacht at at Great American Insurance Company, reviews North American yacht insurance market conditions An agent who specializes in yacht insurance recently commented that he had not heard the word ‘no’ this much since he was raising his toddler. Recent posts in social media sites that I follow have suggested frustration with premium increases and changes in coverage; adding that they have never reported a loss in decades of boating.

A turning market causing frustrations

Decile 10 In June 2018, the Corporation of Lloyds released the results of a study that identified among other things, the ten worst performing lines that they represent for the period 2012 2016. In what is commonly referred to as the “Decile 10 list,” yacht finished fourth from the bottom of worst performing classes. In the following year, 2017, the combined ratio for yacht deteriorated to almost 180 percent, by far the worst within the market, according to a report from the Insurance Insider. The impact from the Lloyd’s report was felt almost immediately in the yacht market. While capacity receded, both pricing and account terms and conditions began to improve for underwriters.

The fallback unfortunately fell at the feet of many insurance producers who were charged with advising customers of significant changes in terms or the wholesale necessity to replace coverage in a constricting marketplace.

“In the very middle of trying to consider the effects of a global pandemic, the phones began ringing with news of capacity leaving the yacht market.’’

Rick Salway, Great American Insurance Company

Ut Romam vadit, sic vadit mundus Translated, “As Rome goes, so goes the world,” the same can be observed through the 300-year influence of Lloyd’s on the insurance market. I am not suggesting the end of Lloyd’s, rather that the ramifications due to the Decile 10 mandate spread throughout the global yacht insurance market. In fact, it is still having an effect. As corrective action took place, emphasis and pressure on improvement continues.

This is supported by comments made by Paul Brady, head of policyholder and third party oversight, at Lloyd’s in February 2020 at a Managing General Agents’ Association event on the Future of Lloyd’s. His comments included assurances that there would be a continued focus on the worst performing Lloyd’s businesses.

The foreshadowing of these comments was felt in the beginning of the second quarter, 2020. In the very middle of trying to consider the effects of a global pandemic, the phones began ringing with news of capacity leaving the yacht market. Many US and offshore managing general agencies were restricting or exiting the yacht insurance space, particularly in the markets that served hulls valued less than US$2 million.

I am going to suggest that, while the change coming from the Decile 10 findings in 2018 was impactful, the experience in the second and third quarters of 2020 surpass even the severe actions taken following the Atlantic and Gulf of Mexico storms that redefined US yacht insurance in 2004 / 2005. Despite those resulting carrier modifications, a backstop in the market for non-standard risks developed.

Where this leaves the marketplace is still to be determined.

However, the commitment to improvement is still relevant and should continue for some time. I can only predict that for the first time in my 20 years of yacht underwriting, some yacht owners will be unable to find insurance.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Salvage

Stationary in an advancing world Phil Norwood - senior executive, underwriting at the LMA and head of the International Union of Marine Insurers’ salvage forum, warns that general average security is not keeping pace with a fast-moving world and argues that it is time for change

The Marine Insurer IUMI 2020 Special Edition | October 2020

It is hard to believe that if general average (GA) were to be invented now, namely a concept, where due to an incident that was not your fault, your cargo could be held, pending production of security, or possibly even sold and the cargo owner picks up the bill despite having previously paid for the conveyance of cargo to destination.

Yet it has survived, partly through historical reasons, but partly because there has been no replacement to date.

To someone outside of the industry, unfamiliar with its history, it would all seem grossly unfair. And yet, in the marine world it is a tried and tested concept, supported by regulations and binding precedent that provides a framework for dealing with casualties. It has its critics who say the practice is flawed, corrupt and outdated, but that same quote could be found in a letter to the Times, deriding

IUMI 2020 REPORT | Salvage

On-line security and grouping of cargo under one security can be permitted, but the fact remains that shipping advances are made more quickly than those in the legal or insurance professions.

“The HMM Algeciras recently docked in the UK, fortunately without incident. If however, a 24000teu vessel suffered a casualty that led to the collection of GA security, how could the industry cope?’’

Phil Norwood, IUMI

GA, published in 1875.

It may therefore be safe to believe that it is here to stay, at least as a concept. If so, then do we really believe we are ready for its continuance? A few decades ago, I recall completing individual GA guarantees to secure swift release of cargo in the hope that one day an advance would be made, so that this laborious process would no longer be necessary. Sadly, the only determinable advance has been in the capacity of container ships, having grown massively. At that time they had a maximum capacity of circa 2000 teu but now the figure is a huge 24000 teu. Working practices have gone from dictation to email and, more recently have managed to fully function remotely for months in the face of a pandemic. And yet, to secure release of cargo, one still has to produce a word-perfect guarantee and also harass the cargo owning client for an average bond, normally much to their confusion.

TRADITIONAL METHODS By and large it worked fairly well until a few decades ago, but time has moved on and the provision of GA security cannot go on the same way. Applying very traditional methods to the huge volume associated with the modern shipping world is draining the marine insurance world of resources and reputation. Customer service cannot be maintained, in the wake of increased containership capacity. The HMM

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Algeciras recently docked in the UK, fortunately without incident. If however a 24000teu vessel suffered a casualty that led to the collection of GA security, how could the industry cope? How could it preserve its reputation for customer service? How could it release cargo without enduring some further losses through deterioration and unnecessary charges?

Delays are compounded by different security wordings being requested, leading to arguments and exchanges at the most time critical period of a casualty. Security that then has to to be reproduced each time for each cargo.

Advances have been made: on-line security and grouping of cargo under one security can be permitted, but the fact remains that shipping advances are made more quickly than those in the legal or insurance professions. While anachronistic, in the absence of any alternative to GA, the insurance, legal and average adjusting communities need to do their bit to adapt the process to the modern world.

A solution needs to be found and the Comite Maritime Internationale (CMI) has been working with law associations around the world in an attempt to standardise a guarantee, globally. The IUMI Salvage Forum is assisting in this process and, if successful, this would be a huge step forward.

DRAFT A GUARANTEE Preservation of defences remains vital, but surely a document could be developed that would preserve these rights for both parties. Guarantees are outdated in their construction and assume a position that is no longer tenable and sits poorly with other procedures. IUMI’s Salvage Forum is therefore trying to draft a guarantee that explains how GA functions, in a way that does not scare compliance and legal departments, but is still compatible with conventions. If we could have one guarantee used globally it would avoid all of the arguments and move towards a swifter process.

Customer service is a concept that has also developed at greater pace than General Average provisions and in these client focused times, is it really appropriate to ask a cargo owner to sign an average bond? This document, never knowingly called on, is also something we consider to be unnecessary and, if we succeed in having it deemed unnecessary, it will halve the number of documents to be signed.

These are seemingly unambitious targets but established practices have made them difficult to meet. New initiatives are underway between the CMI, Association of Average Adjusters, the Association Mondiale de Dispacheurs and the IUMI Salvage Forum to find a way to avoid requiring bonds and to standardise guarantees.

Once completed, it is hoped the entire process will be streamlined and the result will be that there is just one method to secure the release of any cargo, anywhere in the world, when GA is declared.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Salvage

Fit for purpose?

LOF has previously been drafted to encourage investment in future salvage operations, but the amendments may not be enough in these changed times.

Phil Norwood, senior executive at the LMA and head of the International Union of Marine Insurers’ salvage forum, considers whether there is new life in an old open form Lloyd’s Open Form (LOF), which for more than a century has been the world’s standard contract for marine salvage operations, has often been updated to address changed global

The Marine Insurer IUMI 2020 Special Edition | October 2020

circumstances. Yet its popularity has been declining, despite revisions every five or ten years since 1980, with the pure LOF form now frequently being amended by means of side agreements, to change terms or cap the award that salvors will receive.

LOF 2020, the newest release, may not end questions about the Form’s adequacy to deal with 21st century realities, because some will argue the latest changes may not be sufficiently extensive. Should the relevance and very survival of LOF be questioned in our age of lightspeed communications, or the lack of transparency of allocation of funds, or its ability to meet requirements for sustainable development goals?

IUMI 2020 REPORT | Salvage

Those who use LOF have struggled with such questions for years. Many potential users have turned to alternative contracts. As a result, in one recent year, annual LOF use fell to just 37, down from more than 100 in 2005.

Unbelievably, speed of communications was cited as the reason for irrelevance of LOF way back in an article in 1925 and yet general average and salvage contracts still continue in much the same fashion. Communication can aid faster negotiation of contracts, but how can that be faster than using a tried and tested contract that has been previously prepared and is ready to use? Like any new contract wording, the alternatives introduce uncertainties and untested language. A widespread return to a universal standard, such as LOF, would therefore benefit all.

SIGNIFICANT REDUCTION

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of paramount importance only if it remains the best contract for tackling the most serious and perilous casualties.

REPUTATIONAL DAMAGE That is not the only issue. LOF has suffered reputational damage arising from allegations of corruption shown by an involved party (which culminated in the High Court’s judgement in the Brillante Virtuoso fraud case); from awards deemed to be excessive; and from perceptions of aloof arbitration processes which limited underwriters’ involvement during and after the salvage. These points were raised and addressed as LOF 2020 was drafted.

As a result, the changed arbitration clauses in LOF 2020 remind parties that inducements are prohibited.

Clause L remains unchanged, although arbitrators are reminded of the need to ensure equity. The worst allegations of sinister practice under LOF appear to be behind us, but work remains to be done to implement and maintain the improvements of the new version.

In time, further changes to the marine operating environment may require a further update and that is only to be expected with a living document.

Some behaviours must change to achieve the end goal of efficient and environmentally sound salvage.

For example, shipowners must report main-engine breakdowns in a timely fashion and adversarial legal decisions must be avoided if at all possible, since they increase costs exponentially. The advantages of a prepared, tested, and internationally recognised contract in overcoming these challenges are clear – as is the need for involvement and collaboration of all parties to encourage transparency. If the drafters have achieved their aim, LOF will thrive again.

LOF has previously been drafted to encourage investment in future salvage operations, but the amendments may not be enough in these changed times. At the beginning of June, Ardent, perhaps the largest and one of the most professional dedicated salvors, decided to withdraw from salvage operations, resulting in a significant reduction in global salvage capability. Insurers will lose out if there is insufficient capability and competition remaining in the salvage market, but in times of increased awareness and transparency, insurers can only provide maximum support if the allocation for funds and investment is fully understood.

That was something the aforementioned salvor had understood – more than others within the industry.

Closer examination of LOF 2020 reveals clear attempts to address various concerns about the contract as well as attempts to simplify procedures. The addition of Important Notices 4, which requires contractors to disclose any agreement to amend the terms of an LOF contract, is welcome. Although such amendments often benefit insurers, the requirement will add certainty and clarity by underpinning amendments which may otherwise weaken the “Those who use LOF have struggled with such full force of the law on contract enforcement. questions for years. Many potential users have This change arises in part from the restrictions imposed by current turned to alternative contracts. As a result, in insurance practices. We can learn from the bigger picture of an industry one recent year, annual LOF use fell to just 37, pulled in different directions by multiple influences. Ships are down from more than 100 in 2005.’’ growing larger while environmental consciousness is expanding. Both create greater insured (and retained) Phil Norwood, financial responsibilities. With IUMI environmental pollution becoming a greater moral and legal concern than ever, LOF will return to its position

The Marine Insurer IUMI 2020 Special Edition | October 2020

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IUMI 2020 REPORT | Energy

Climate change must stay on the agenda James McDonald,head of energy, Sompo International and chairman of the IUMI Offshore Energy Committee, warns that the ongoing threat of Covid-19 should not distract from the perils of climate change This year’s conference theme at the first and hopefully last virtual IUMI is “Navigating Changing Climates – Delivering Expertise to Shape the Future”. This got me thinking about climate change and the future.

While all the media attention is currently on Covid-19, climate change is going to be an even bigger challenge for humanity to solve. With a recent record global temperature of 54.4 Celsius being recorded in Death Valley last month and the largest ever California wildfire season currently under way with more than 1 million hectares burnt so far, climate change is part of our present. Undoubtedly, it will be part of our future for decades to come too.

Most would now agree that intensive use of hydrocarbons is in large part responsible. What therefore is the future for oil and gas extraction from the seabed? The first offshore well was drilled in the Gulf of Mexico in 1947. There are now roughly 6,000 offshore platforms around the world.

However, offshore oil and gas production is more challenging than land-based installations. As a result, it is more expensive to extract oil offshore. The decline in the oil price that has been attributed to Covid-19 means many offshore facilities are running at breakeven at best. The adage that the last barrel of oil produced will be from the Saudi dessert certainly makes sense. The cost to extract a barrel of oil in Saudi Arabia at US$2.8 is between 10 and 20 times cheaper than most offshore fields.

Crude oil is a finite non-renewable source of energy. 56% of crude oil produced is used for transport in the form of petroleum, diesel, aviation fuel or bunkers. The balance is The Marine Insurer IUMI 2020 Special Edition | October 2020

mainly used for heating and petrochemical feedstock.

Taking the transport sector first, it is difficult to see the replacement of aviation fuel or bunkers in the near term but for road and rail traffic, the growth in electric vehicles is bound to impact demand for oil. Many countries have announced plans to outlaw the sale of new fossil fuel vehicles by 2040 at the latest. The requirement for petrochemical feedstock however is likely to increase as the developing works seeks to catch up with the developed world in consumerism terms.

PEAK OIL In the past, the term peak oil has been interpreted as a reference to peak oil supply. It was thought that, as the limited supply of oil became increasingly scarce, its price would tend to rise. This basic belief has had an important influence on oil markets since the 1970s. Oil producers rationed their oil supplies safe in the knowledge that if they didn’t produce a barrel of oil today, they could produce it tomorrow, potentially at a higher price.

Now peak oil demand is the focus and this signals a break from a past dominated by concerns about adequacy of supply. This is a paradigm shift from an age of scarcity to an age of abundance, with potentially profound implications for global oil markets and for major oil producing countries as they adjust their economies for an age in which they can no longer rely on oil revenues.

Fortunately, this does not spell the demise of the offshore energy insurance market but presents a potential opportunity. Natural gas, which has a carbon footprint

IUMI 2020 REPORT | Energy

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estimates of up to 15MW by 2025.

Initially, wind farms were only installed in shallow water coastal environments. Inevitably with prototypical technology, there were several teething problems which cost insurers dear. However, the wind farm industry was able to learn much on the engineering side from the offshore oil and gas industry. This has led to a better claims experience; although cabling technology still needs to improve. The wind farm industry has also learnt from the oil and gas industry when it comes to floating infrastructure.

The decline in the oil price that has been attributed to Covid-19 means many offshore facilities are running at breakeven at best.

Below: For the planet to mitigate climate though, a significant increase in the amount of renewable energy will be required and much of this will take place offshore.

25% less than that of oil, will still be required for electricity production. Recent large gas finds in the Eastern Mediterranean, the Kara Sea, offshore Guyana and offshore Mozambique are testament to the long-term future of gas, which can also supplant oil as a petrochemical feedstock.

For the planet to mitigate climate though, a significant increase in the amount of renewable energy will be required and much of this will take place offshore. Offshore wind farms have all the advantages of their onshore counterparts, but they have several other advantages too.

Offshore wind speeds tend to be faster than on land and small increases in wind speed yield large increases in energy production.

For instance, a turbine in a 15mph wind can generate twice as much energy as a turbine in a 12mph wind.

Offshore wind speeds tend to be steadier than on land providing a more reliable source of energy. They also typically avoid the nimbyism which often accompanies planning applications for onshore wind farms.

Offshore wind farms are also able to cater for much larger turbines. The average turbine onshore is capable of producing 3MW, whereas those offshore are now closer to 9MW, with

PILOT PROJECTS To date floating wind farms have only been on the drawing board or pilot projects to test feasibility and gather data. The advantage of floating wind farms is that they can be installed in countries that have steep continental shelves, such as Japan and South Korea, although there are challenges. One of the proposed mooring systems is the ballasted catenary configuration, which oil and gas underwriters will know well as there have been several high-profile claims arising from the use of this technology. There are several different design concepts for floating wind and some projects that are now ready to commence. One is even being used to power water injection wells to extract more oil from depleting oil fields, combining the old with the new.

A recent development has been a pioneering floating solar array project installed in the Dutch North Sea. Offshore solar offers potential advantages when using the same sea area as offshore wind farms. When solar modules float in the space between the turbine foundations, five times more energy can be generated in the same size area of sea.

While wave and tidal power are still in their infancy, if engineers can crack the tricky problems therein, they could offer a far more reliable source of energy. Both Shell and BP have expressed ambitions to have net zero carbon emissions by 2050. This more than anything shows which way the wind is blowing. Ultimately it signals the long-term demise of offshore oil production, which is very likely to be replaced by huge investment in offshore renewables.

“The advantage of floating wind farms is that they can be installed in countries than have steep continental shelves, such as Japan and South Korea. although there are challenges.’’

James McDonald, IUMI

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Global hotspots In association with Ed Broking

The War on COVID-19

Josh Hoy, broker, marine division at Ed Broking LLP, considers the impact of Covid19 on conflict areas and the consequences for marine insurance Covid-19 has left a mark on insurance that will be felt for many months (possibly years) to come. It is in the nature of insurance that the losses filter through to insurers for a lengthy period of time and so it is to be expected that the final implications of the global pandemic have not yet been seen. That said, insurance professionals have certainly started to recognise some of the effects the worldwide spread of the virus is having across the industry. Some classes will of course suffer more than others, but the marine war market is certainly not exempt from the impact of the pandemic.

Conflict areas often garner headline positions, so any reader will most likely be aware that there are certain global hotspots which present particular challenges to the carriage of goods by sea. On this basis, marine war insurance has remained an integral part of the larger class of marine, and one which underwriters have been very willing to engage with.

Particular losses in the Persian Gulf in May 2019, and subsequent amendments to the JWLA designated high risk The Marine Insurer IUMI 2020 Special Edition | October 2020

areas, have resulted in rate rises which are reflective of pricing a decade ago. Counter-intuitively, losses in 2020 have reduced, but the war breach risk is still perceived by some expert media outlets as extremely high.

As recently as June, one article classed the probability of fullscale conflict between the US and Iran at 35%. Without making this a political piece, one thing the Trump administration has taught us is to expect the unexpected. In this context, the marine war market has some justification for its analysis of assessment of risk and the subsequent expression through rates, even though the volume of shipping has reduced as a consequence of international trade contracting.

HIGH ALERT The global pandemic does not appear to have caused rate alterations in and of itself. Perhaps it has not needed to.

Marine war insurers remain on high alert and rates have continued at their pre-Covid-19 level. In addition to the larger-scale analysis, which suggests elevated risk levels remain in place, there are other (perhaps not so obvious) factors that are having implications for the placement of war risks, which can be expected to have an impact for some time to come.

One such factor is the level of confusion resulting from this unprecedented global event. Different countries have differing views on what is, and is not, appropriate when it comes to allowing vessels to enter their ports. Hodeidah in Yemen is an excellent example. Commonly known as one of the most volatile and high-risk ports to enter, Yemeni officials

MARINE | Global hotspots In association with Ed Broking

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ultimately cause confusion as to whether insurance is in place.

Maritime trade has suffered as a result of the global economic downturn and the lockdown requirements.

Less trade results in fewer shipments and the effect of this has been particularly noticeable in the Persian Gulf where oil prices and subsequent demand have plummeted, resulting in the reduction of ship traffic.

WAR BREACH VOYAGES

Hodeidah (left) in Yemen is commonly known as one of the most volatile and high-risk ports to enter, Yemeni officials have implemented strict quarantine measures on any vessel seeking entry.

(Above) crew member well-being at sea is a concern, the practicalities of a crew member testing positive for Covid-19 at sea while in close quarters with colleagues, and the subsequent threat of the virus then spreading to other crew members.

have implemented strict quarantine measures on any vessel seeking entry.

The effect is that a vessel must sit idle for 14 days before approval to enter port is granted. There are UN ‘safe zones’ where these vessels can sit but such a build-up undoubtedly poses a much higher threat of a missile attack from the shores of Yemen.

Another issue stemming from quarantine requirements, and one which has received righteous acknowledgement, is crew member well-being during protracted periods at sea.

In addition to the mental health aspects, the practicalities of a crew member testing positive for Covid-19 at sea while in close quarters with colleagues, and the subsequent threat of the virus then spreading to other crew members, is one which will inevitably alter the performance of the vessel in her operations.

Any resulting delay (particularly in war breach areas) can add significantly to operational costs. Crew member health is of course the paramount concern, but this unavoidably means that owners run the risk of losing charterers as their obligations to them become frustrated. Loss of charterers can result in cancellation of war breach voyages at short notice which can

Consequently, the number of war breach voyages is noticeably fewer and war breach voyage premium income from the area has contracted. Recent indications show that the number of voyages is recovering, but it will be a while until the number of shipments return to anything like their preCovid-19 level. The war breach risk code has depended largely on Persian Gulf voyages to recoup the losses suffered in 2019, so this economic trough will certainly have an effect on income forecasts.

It is also noticeable that the deployment of armed guards aboard vessels has been impacted. With armed guards on board, the risk of a war-related incident is vastly reduced, especially in areas such as West Africa and the Gulf of Aden where piracy is particularly common.

One consequence of the pandemic has been a lack of available armed guards, exacerbated by a lack of resources to transport the guards to the appropriate pick-up points.

In some cases, vessels have taken the decision to deploy just two armed guards, but it is becoming more and more common that vessels are not deploying guards at all. This exposure has resulted in an increased number of incidents of kidnap and ransom, and rates are moving to reflect the additional risk taken.

Covid-19 has impacted other insurance products more noticeably, but the marine war market has not been undisturbed. Rates have largely remained unchanged, however the factors affecting the risk are multi-dimensional and likely to remain so for the medium term.

“Maritime trade has suffered as a result of the global economic downturn. Less trade results in fewer shipments and the effect of this has been particularly noticeable in the Persian Gulf where oil prices and subsequent demand have plummeted.’’

Josh Hoy, ED Broking LLP

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Loss prevention In association with UK P&I Club

The future of loss prevention

It is widely reported more than 80% of maritime accidents are due to human error, risking life, ship damage and costing the maritime industry millions of dollars each year.

Stuart Edmonston, loss prevention director, UK P&I Club, explores the ways in which the shipping sector can embrace technology and minimise losses Every major industry across the globe is undergoing a digital awakening of sorts and the shipping sector is no different. As shipping slowly embraces automation, we will see new technological advancements in shipboard processes, machineries and equipment.

This will create new training requirements as well as crew familiarity issues. The inevitable and progressive transition towards an increasingly digital and automated future also brings with it many other broader safety challenges that the industry will have to face.

Safety, leadership and culture

As we look ahead, it is more vital than ever to provide the consistent, clear leadership necessary to succeed with the The Marine Insurer IUMI 2020 Special Edition | October 2020

overarching goals of keeping our seafarers safe and our environment clean. Everyone involved in the shipping industry is aware of the sizeable impact leaders have on their organisation, not just in what they might say but importantly how they act.

Based on this principle, it is integral to develop training tools and methods which, if used properly, will help to establish and embed a sound and well-run safety culture onboard. Safety training at all levels is important because it has the capacity to unite the managers ashore and seafarers in the pursuit of a common purpose – to create a safe and secure workplace that ensures the welfare and success of everyone involved.

Embracing technological trends

With technological advancements infiltrating deeper into wider society and everyday life, exponentially increasing connectivity, it brings with it an inherent pressure to embrace a more digitised environment. However, in a sector so focused on physical assets and rooted in traditional methods, the pace of change can be glacial, but pursuing technological disruption can add real value to the shipping sector, especially in these uncertain times we live in.

MARINE | Loss prevention In association with UK P&I Club

A good example of this type of endeavour is the Club’s partnership with BlueMed to provide 24/7 telemedicine services at sea. Members and their crew receive expert medical advice from UK doctors, familiar with onboard environments to assist with managing illnesses and injuries at sea. Crew can access a round-the-clock specialised marine doctor via phone, video or webcam, with remote diagnoses and a multilingual service available if required.

However the global nature of the Covid-19 crisis presents unprecedented challenges for the shipping industry. With varied and evolving responses by different states, shipowners are facing difficulties repatriating and substituting crew.

This situation has led to many crew developing problems to underlying conditions which could be easily managed with normal access to treatment ashore.

Growing fatigue, brought about the pandemic restrictions, also makes crewmembers more susceptible to illness, while also increasing the possibilities of errors and accidents.

Efficient and reliable telemedicine services, through the use of cutting-edge technology, allow crew access to professional and specialist medical advice for both non-critical and emergency cases in a time of exceptional need.

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Certification and Watchkeeping for Seafarers (STCW) and runs for five days in a classroom setting at one of CAE’s training centres around the world.

Members manage the human element at aviation training standards, exploring leadership styles, decision making, problem solving, delegation and error management in everyday situations. Importantly, there is no financial cost to the member.

Industry-wide commitment to safety

As an industry, we see the same incidents happening repeatedly. For the crewmembers involved – and their families – these often tragic and avoidable accidents can be life changing. For shipowners and operators, the financial impact of claims can be significant, in addition to the disruption and inconvenience caused by accidents onboard.

We are committed to safety and the Club’s loss prevention programme aims to offset rising claims and maintain quality among its members. As part of this drive to share knowledge and encourage collaboration throughout the sector, the Club has recently expanded its ‘Lessons Learnt’ reflective learning videos across personal injury, navigation, pollution and cargo. These training videos enable seafarers to learn not just by their own mistakes, but by the mistakes Cross-industry collaboration of others. Making the videos freely available to the wider It is widely reported more than 80% of maritime accidents shipping community gives these vital safety messages are due to human error, risking life, ship damage and enormous reach. costing the maritime industry millions of dollars each year.

Our risk assessment programme has also evolved Our industry does not exist in a vacuum; there is lots we can through the years and operates completely separately to learn by casting the net outside our comfort zone and collaborating with like-minded the condition survey regime. It is organisations and companies from voluntary and available to all members related industries. again at no additional cost – the sole A unique initiative by the UK Club, aim is to assist members in identifying in partnership with the world’s largest and mitigating threats based on their aviation training company CAE, vessel and fleet claims history across “With technological offers and encourages a step change five main risk areas: personal injury; in crew training and safety outcomes. navigation; pollution; machinery and advancements infiltrating Introduced last year to boost member equipment; and cargo. access to top-class safety training, The assessments identify how major deeper into wider society and we have now hosted three training hazards could occur if the situation sessions, at CAE’s new EasyJet or procedure is left unchecked and everyday life, exponentialGatwick facility and JetBlue Orlando. provides suggestions on safeguards to Before the pandemic struck, we were help prevent or mitigate the effects of ly increasing connectivity, it due to run additional sessions at the hazard. facilities at Kuala Lumpur, Singapore In this moment, we operate in an brings with it an inherent and Haneda, Tokyo airports. industry in flux and exist in a world CAE is a leader in the manufacture in crisis. Collectively as a sector, it is pressure to embrace a more of flight simulators and aviation integral that we continue to adapt to training, both on a technical and these shifting demands and conditions, digitised environment.’’ human element level; and so an ideal reviewing how we can improve and company to partner with on this enhance safety methods, training and Stuart Edmonston, particular area of safety. The course services, while harnessing innovative UK P&I Club is compliant with the International technological solutions and embracing Convention on Standards of Training, collaboration.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Wreck removal In association with Norton Rose Fulbright LLP

Risk growing of uninsured vessels Shelley Chapelski, (left) Norton Rose Fulbright Canada & Malcolm Hartwell (below) Head of Transport, Africa; Master Mariner; Director Norton Rose Fulbright South Africa review the Wreck Removal Convention and consider what insurers need to know?

The Nairobi International Convention of the Removal of Wrecks 2007 or the Wreck Removal Convention (WRC) entered into force on 14 April 2015. More than 50 states have now ratified the WRC. It includes a requirement for owners of vessels 300 GT and higher to have compulsory insurance to provide for wreck removal costs.

While P&I Clubs are familiar with the WRC and providing the required proof of compulsory wreck removal insurance, the extension of the WRC provisions to territorial seas and to domestic vessels means that ship owners will likely be looking more and more to non-P&I Club insurers for the necessary insurance. Ship owners operating only domestically may be more accustomed to relying on the non-P&I Club marine insurers by reason of pricing or their country’s licensing requirements which limit P&I Club participation in their market.

P&I Clubs themselves may be risk adverse to accepting barges used only in domestic voyages (often ranging from 500 GT to 5000 GT).

However, the nature of the compulsory insurance required as by the WRC is not always well understood outside of the P&I Club market.

The management of multi-line insurance companies might be surprised to discover that including Wreck Removal Insurance in their offering goes well beyond the coverages provided by traditional marine insurance.

Article 12 of the WRC imposes a compulsory insurance regime for vessels 300 GT and up (Wreck Removal Insurance).

The word “insurance” as used by the WRC, is a fundamental The Marine Insurer IUMI 2020 Special Edition | October 2020

misnomer because the insurer has no contractual defences under the Wreck Removal Insurance policy. The policy must allow for rights of direct action against the insurer. The Wreck Removal Insurance required by the WRC is really a financial guarantee issued by the insurer (or other party) to reimburse third parties for wreck removal and other costs if the owner of a vessel fails to do so.

Under Article 10 of the WRC, the only defences available to a vessel owner to avoid paying for wreck removal costs are if the maritime casualty: > resulted from an act of war, hostilities, civil war, insurrection, or a natural phenomenon of an exceptional, inevitable and irresistible character; > was wholly caused by an act or omission done with intent to cause damage by a third party; or > was wholly caused by the negligence or other wrongful act of any government or other authority responsible for the maintenance of lights or other navigational aids in the exercise of that function It will likely be difficult to satisfy the very high bar of “wholly caused by” because a casualty typically arises from a plurality of events.

The party providing Wreck Removal Insurance can rely on the WRC Article 10 defences and one additional defence: if “the maritime casualty was caused by the wilful misconduct of the registered owner”.

This means that a wreck removal claim must still be paid out under Wreck Removal Insurance even if a maritime casualty occurs when: > the vessel is sailing hundreds of miles outside of its trading warranty set out in its insurance policies; > the vessel is unseaworthy, ie the captain is incompetent due to being illegally impaired by drugs or alcohol; > the vessel is being used for an illegal purpose such as importing illicit drugs; or > the owner of the vessel failed to comply with any warranty in its insurance policies to perform repairs specified in a survey report within a certain period of time Therefore, insurers may want to include express provisions in the Wreck Removal Insurance policies to entitle them to at least attempt to recover from the insured any amount paid out for

MARINE | Wreck removal In association with Norton Rose Fulbright LLP

claims that may have been caused or contributed to by a breach of that contract, or the underlying hull and machinery or P&I insurance policies for the vessel.

CAP TO WRECK REMOVAL INSURANCE In exchange for providing the guarantee of financial responsibility, the party providing the Wreck Removal Insurance is permitted to limit its liability to the vessel’s limitation amount pursuant to the Convention on Limitation of Liability for Maritime Claims. This is important because in some countries, such as Canada, vessel owners themselves cannot avail themselves of limitation for wreck removal claims. Even if the state involved has exempted claims related to wreck removal from the Limitation Convention, the insurer can limit its liability under the Wreck Removal Insurance.

However, this may be of limited comfort because under the Limitation Convention the property damage limitation amount for a 300 GT vessel is approximately US$2 million (the limitation amount increases as the vessel gets larger). This is still a very significant amount to pay out in circumstances that an insured may be in breach of its underlying marine insurance policies.

One other difficulty which may be encountered by the nonP&I Club market is the fact the limitation of liability in many countries is based on special drawing rights (SDRs), which is a currency used for international conventions based on an averaging of five international currencies (the US dollar, euro, Japanese yen, British pound sterling and Chinese renminbi).

During the last five years, the value of 100 SDRs has ranged from a low of US$122 to a high of US$151. Therefore, the Wreck Removal Insurance can vary significantly even over the course of a one-year policy.

EXTENSION TO TERRITORIAL SEAS Under the WRC, a state may extend the application of the WRC and the obligation to carry Wreck Removal Insurance to its territorial seas. To date, more than 20 countries have assented to the territorial extension under Article 3(2) of the WRC including Canada, Denmark, Finland, France, Japan, Panama, Sweden and the UK. A county’s territorial sea normally extends 12 nautical miles from the coastal baseline. If states do not extend the scope of the Convention, incidents in their territorial waters will remain subject to domestic law and the provisions of the Convention (including the compulsory insurance regime) will not apply.

As more countries extend the application of the WRC to their territorial seas, some countries are applying the obligation to have Wreck Removal Insurance to vessels under 300 GT. Denmark requires vessels as small as 20 GT to have Wreck Removal Insurance. Canada is also considering a lower tonnage requirement.

P&I CLUBS AND BLUE CARDS The need for Wreck Removal Insurance to satisfy the WRC will spill over into the non-P&I club marine insurance market

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because the application of the WRC is so broad.

International P&I Clubs are accustomed to issuing “Blue Cards” as proof of the necessary financial security required by other maritime conventions dealing with liability and compensation (ie International Convention on Civil Liability for Oil Pollution Damage the “CLC,” and International Convention on Civil Liability for Bunker Oil Pollution Damage, 2001, or the “Bunkers Convention”).

The application of the CLC and the Bunkers Convention to vessels is much narrower than the application of the WRC to the world’s fleet.

The CLC only applies to tankers carrying persistent oil in excess of 2,000 tonnes and the Bunkers Convention only applies to vessels over 1,000 GT with fuel on board to operate machinery or the vessel itself. The liability risks for these larger vessels is more often placed with P&I Clubs.

The WRC, on the other hand, applies to vessels as small as 300 GT. Under the Bunkers Convention and the CLC, Canada issued 750 certificates evidencing compliance per year. This is expected to increase four-fold to 3,000 certificates with those vessels that are now required to have proof of financial compliance under the WRC. In Canada, many hundreds of barges are now captured by the requirement to have Wreck Removal Insurance even where the value of the barge itself may be insignificant. A number of the barges may not qualify for hull insurance which makes it even more difficult for them to obtain compulsory Wreck Removal Insurance.

As more and more countries ratify the WRC and extend its application to their territorial seas, the WRC’s Wreck Removal Insurance provisions create a much bigger footprint than the existing conventions which also require some form of compulsory insurance representing a financial guarantee.

CONCLUSION To stay competitive in the commercial marine business, we expect that both dedicated marine underwriters and multi-line insurers insuring vessels operating within territorial seas of a country waters will have to offer Wreck Removal Insurance. As insurers cannot rely on any contractual or statutory defences before paying wreck removal claims up to about US$2 million, those insurers may refuse to insure any vessels that are not the highest quality and therefore, least likely to be involved in a wreck removal claim.

Insurers may decide to add recovery provisions to their contracts if claims are paid out to third parties notwithstanding breaches by the insured of the underlying insurance policies.

If it becomes difficult or prohibitive to buy Wreck Removal Insurance due to its cost or strict terms, the obligation to do so may be ignored by the owners of the very vessels that are most likely to become wrecks. The end result, we predict, is that barges and old, large ships will be hidden away on coasts without any insurance whatsoever – out of sight, out of mind, until a casualty occurs.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Cargo In association with Skuld

Misdeclaration of dry bulk cargo remains a significant problem, warn Peter Ward, (left) senior claims executive, lawyer, and Martin Øhre, (below left) technical manager, Skuld

To ensure a safe stowage and shipment of solid bulk cargoes it is essential to obtain current, valid and accurate information on the intended cargo’s physical and chemical properties. The prime hazards owners face associated with this type of cargo relate to: > loss or reduction of stability during voyage > chemical reactions resulting in fire and/or explosion; and > structural damage due to improper cargo distribution It is therefore vital to identify the dangers associated with the shipment and to obtain instructions on the procedures to be adopted when the shipment of solid bulk cargoes is contemplated.

Unfortunately, Skuld continues to receive reports of serious incidents caused by misdeclarations of solid bulk cargoes. INTERCARGO reported in their yearly bulk carrier casualty report of 2019 that, despite a reduction of ship losses after the peak in 2011, the industry continues to experience losses of life and vessels. Several causes in their yearly matrix, such as “cargo shift/liquefaction” and “fire/ explosion”, which jointly accounted for 106 losses of life and nine losses of ships, potentially arise from improper declaration of solid bulk cargoes.

It is the shippers’ responsibility under the IMSBC Code (International Maritime Solid Bulk Cargoes Code 2020 edition), which is made mandatory under SOLAS, to provide the master or his/her representative with appropriate information on the cargo sufficiently in advance of loading to enable precautions, which may be necessary for proper stowage and safe carriage of the cargo. The cargo information shall include all details as set out in 4.2.2 of the Code and the information shall be confirmed in writing accompanied by a declaration.

The issue of proper cargo declaration has been brought into sharp focus due to the many liquefaction related casualties in recent years, but the issues go further and affect other types of cargo as well. In particular Skuld experiences an increase of misdeclaration of group B cargoes where we see cargoes: > not declared by using correct BCSN > with moisture content (MC) exceeding IMSBC limits The Marine Insurer IUMI 2020 Special Edition | October 2020

A word of caution > fines above allowable limits > MC certificates older than seven days > MC certificates dated within seven days of loading, but dated before heavy rain when cargo is stored in open stockpiles

CONTRACTUAL LIABILITIES If a cargo is misdeclared (whether unintentionally or otherwise), a resulting incident has the potential to affect all parties interested in the shipment of the cargo.

For example, the cargo itself may become damaged because of incorrect stowage or carriage, or simply through inevitable deterioration, leading to losses being incurred by the cargo owner/ receiver. The misdeclared cargo may also damage the vessel, for example due to an explosion on board, or cause loss of stability leading to a total loss, likely resulting in significant losses for the shipowner, including potentially the loss of life. Any resulting delay during the voyage will also have a detrimental impact on shipowners, charterers and receivers.

It is therefore necessary to consider which parties might have liability for any damage, delays and losses arising from such an incident.

When considering dangerous cargoes, the first question to ask is whether the shipowners had knowledge, or ought to have had knowledge, of the specific risks involved with carrying the cargo. If they did, then the likelihood is that they would be held to have consented to the risks (see The Athanasia Comninos [1990] 1 Lloyd’s Rep. 277, and Aconcagua [2010] ECWA Civ 1403). However, where a cargo has been misdeclared, the assumption is that the shipowners did not have the relevant knowledge and that they cannot be held liable as a result.

Under English common law, both shippers and charterers have an implied obligation not to ship cargo

MARINE | Cargo In association with Skuld

which poses a danger to the vessel, without giving due notice to the carrier. This obligation is absolute, therefore the extent of the shipper/charterers’ knowledge about the dangers is irrelevant. The relevant charterparty may also contain an express clause dealing with the issue – for example the NYPE 1993 (at clause 4) and Baltime 1939 (at clause 2) forms.

Therefore if, as a result of a cargo misdeclaration, the vessel is damaged or worse, a crew member is injured, the shipowner should be able to bring a claim against either the shipper via the bill of lading, or against the charterer via the charterparty, provided that English law governs the relevant contract.

Whether a charterer can then pass such a claim on to the shipper will depend on the terms of their contractual relationship (if any), including the applicable law. A claim in tort will of course very much depend on the jurisdiction where such a claim is brought.

A receiver of a damaged shipment of misdeclared goods will have the option of bringing a claim against the owners under the bill of lading, or potentially against their sellers via the sales contract, or indeed against the shippers (if a different party).

From an insurance perspective, it is worth noting that carrying or shipping a cargo in breach of the IMDG or IMSBC Codes may well prejudice, respectively, an owner

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“The issue of proper cargo declaration has been brought into sharp focus due to the many liquefaction related casualties in recent years, but the issues go further and affect other types of cargo as well.’’

or a charterer’s P&I cover.

By scrutinising carefully shippers’ cargo declarations to ensure that these include current valid, and accurate information on an intended cargo’s physical and chemical properties in accordance with the requirements of the IMSBC Code, shipowners and carriers can take necessary precautions to facilitate proper stowage and safe carriage, which in turn will mitigate the primary hazards faced by shipowners and protect lives at sea.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Litigation In association with Galloway, Johnson, Tompkins Burr and Smith

When is it a marine contract?

Jason Waguespack (left) managing director and Fredrick William Swaim (below), director of Galloway, Johnson, Tompkins, Burr and Smith, discuss maritime contracts in the Fifth Circuit subsequent to the Doiron decision By well-established practice, maritime contracts often contain indemnity provisions.

This allows the contracting parties to allocate risk and reliably determine insurance needs.

Unlike maritime contracts, which are subject to general maritime law, non-maritime contracts are generally subject to state law, which often prohibits the enforcement of indemnity agreements.

Therefore, it is important for contracting parties to have confidence that theirs is a maritime contract, to avoid indemnity issues and other unpredictable state laws that The Marine Insurer IUMI 2020 Special Edition | October 2020

may affect the enforceability of the agreement. The US Fifth Circuit Court of Appeals has recently addressed the test used in determining whether the contract is maritime.

From 1990 until 2018, the Fifth Circuit used a six-factor test, set forth in Davis & Sons v Gulf Oil Corp. 919 F. 2d. 313 (5th Cir. 1990). The six factors were: 1) What did the specific work order in effect at the time of the injury provide?

2) What work did the crew assigned under the work order actually do?

3) Was the crew assigned to work aboard a vessel in navigable waters?

4) To what extent did the work being done relate to the mission of that vessel?

5) What was the principal work of the injured worker? and 6) What work was the injured worker actually doing at the time of the injury?

UNDULY COMPLICATED The Davis test has been criticized as unpredictable and unduly complicated. In response to this criticism, the Fifth Circuit, in an en banc opinion, established a simpler test with more predictable results to largely replace Davis. In Larry Doiron, Inc. v Specialty Rental Tools & Supply, L.L.P., 879 F.3d 568 (5th Cir.

MARINE | Litigation In association with Galloway, Johnson, Tompkins Burr and Smith

2018), the Fifth Circuit held that an oral work order issued under a master services contract (MSC) for certain services to facilitate the drilling or production of oil or gas on navigable waters, but not requiring a vessel, was a non-maritime contract. The court’s test considered two prongs: 1) Is the contract one to provide services to facilitate the drilling or production of oil or gas on navigable waters? and 2) If the answer to the first question is yes, does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract. 879 F.3d 576?

The court separated its analysis from that required to determine whether a maritime tort occurred, noting, “The facts surrounding the accident…are immaterial in determining whether the worker’s employer entered into a maritime contract.” Id. at 573-574.

One must understand that the court focused its analysis on

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of a vessel is not a necessity for the second prong of the Doiron test, as a vessel employed purely as a work platform can satisfy the second prong, as long as its utility as a work platform derives from it being a vessel. See id. at 361.

In 2019, the Fifth Circuit held that Doiron’s test applies to all mixed services contracts, not just in the oil and gas context, and restated the test, replacing “the drilling or production of oil or gas” with “activity” in the first prong of the test, but otherwise leaving the wording exactly intact.

Barrios v Centaur, L.L.C., 942 F.3d 670, 678-680 (5th Cir. 2019); See also Doiron 879 F. 3d 577 n.52.

Barrios also provided that, “Doiron’s first prong—though requiring some nexus to the traditional maritime predicate of activity on navigable waters—doesn’t exclude non-sea-based obligations. And Doiron’s second prong clarifies that cursory or unexpected vessel involvement, even if important, isn’t enough; the involvement must be substantial.” 942 F. 3d 680.

Thus, following the Barrios decision, the test we are left with is: 1) Is the contract one to provide services to facilitate activity on navigable waters? and 2) If the answer to the first question is yes, does the contract provide or do the parties expect that a vessel will play a substantial role in the completion of the contract? Id.

EXTINGUISHED It is important to understand that the Davis factors are not entirely extinguished. Doiron provided that some Davis factors may still have relevance, but the Eastern District of Louisiana has held courts may examine the Davis factors only if the two Doiron prongs do not resolve the maritime-nonmaritime issue. Carr v Yellowfin Marine Servs., LLC, 423 F. Supp. 3d 316, 321 (E.D. La. 2019).

Therefore, while the post-Doiron decisions show that Doiron did not completely resolve the confusion in this area, the new Doiron analysis has increased predictability and certainty as to whether contracts will be considered maritime contracts by the Fifth Circuit. By considering only two necessary factors, parties may now more confidently tailor their contracts to their particular insurance needs.

the specific work order at issue, not the MSC. The Louisiana Eastern District later confirmed, more explicitly, that it is the work order, not the MSC, that must be analyzed when determining whether a contract is a maritime contract. Quiroz v C & G Welding, Inc., 2018 U.S. Dist. LEXIS 194647, 13 (E.D. La. 2018).

Two years have passed since the Doiron decision and the Fifth Circuit and its lower district courts have had several opportunities to apply the Doiron test to other sets of facts and asses the test’s practical utility.

The first Fifth Circuit case subsequent to Doiron to employ the test was Crescent “Unlike maritime contracts, which are subject Energy Servs., L.L.C. v Carrizo Oil & Gas, Inc., 896 F.3d 350 (5th Cir. 2018), where to general maritime law, non-maritime the court held that a plug and abandon contract satisfied the first prong of the contracts are generally subject to state law, test, while expanding on the Doiron reasoning by stating, “The question is which often prohibits the enforcement of whether this contract concerned the drilling and production of oil and gas on indemnity agreements.’’ navigable waters from a vessel.” 896 F.3d 356-357.

They further noted that the navigability

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Legal In association with Quadrant Chambersmith

Courts provide clear LOI guidance Robert Thomas QC (left) and Ben Gardner (below left), of Quadrant Chambers, review a recent case providing important guidance on the requirements of a standard letter of indemnity

In April and May 2020, Teare J handed down two judgments in two related actions: Trafigura Maritime Logistics v Clearlake Shipping and Clearlake Chartering USA v Petroleo Brasileiro. The judgments provide important guidance about the requirements imposed by the International Group of P&I Clubs’ standard letter of indemnity (LOI) and the position of intermediate parties in an LOI chain.

BACKGROUND Trafigura was the time charterer of the vessel Miracle Hope.

Trafigura sub-chartered the vessel to Clearlake and Clearlake sub-chartered to Petrobras on back-to-back terms, for a voyage carrying 1 million barrels of crude oil from Brazil to China. The charterparties permitted the charterers to order discharge without production of bills of lading against owners’ standard LOI wording.

Petrobras requested discharge to receivers without production of the bills, which Clearlake passed on to Trafigura and Trafigura passed on to head owners, who complied with the request. The receivers’ financing bank, Natixis, then arrested the Miracle Hope in Singapore and claimed damages of US$76 million for mis-delivery against the head owners.

Trafigura demanded that Clearlake put up security to release the vessel, which Clearlake passed on to Petrobras.

No security was put up and so Trafigura obtained an urgent mandatory injunction against Clearlake requiring the provision of security forthwith [2020] EWHC 726 (Comm).

Clearlake obtained the same urgent mandatory relief against Petrobras [2020] EWHC 805 (Comm).

The Marine Insurer IUMI 2020 Special Edition | October 2020

THE JUDGMENTS Teare J gave judgment at the return date in both actions [2020] EWHC 995 (Comm), four weeks after the Trafigura injunction and three weeks after the Clearlake injunction. Clearlake and Petrobras explained the delay in posting security on the basis that Natixis, the arresting party, was making unreasonable demands as to the terms of the bank guarantee to be provided as security in Singapore.

Trafigura argued that Clearlake breached the injunction to provide security “forthwith” because it had been ordered to do so four weeks earlier and had not done so. Trafigura therefore sought an order that Clearlake put up security in whatever form was agreeable to Natixis within two business days, alternatively paid cash to Natixis (subsequently modified to a payment into court). Clearlake resisted that variation but made an equivalent application against Petrobras to maintain its back-to-back position.

The first issue that the Court considered was the meaning of the term “forthwith” in the injunctions, which was treated as equivalent to “on demand”. The Court rejected Trafigura’s submission that “forthwith” meant immediately (as a dictionary might suggest) and without regard to the practicalities of doing so. Instead, the Judge held that the wording required the indemnifying parties to put up security “in the shortest practicable time”, which “will inevitably depend on the circumstances of the case” [16].

MARINE | Legal In association with Quadrant Chambersmi

The Trafigura Maritime Logistics v Clearlake Shipping and Clearlake Chartering USA USA v Petroleo Brasileir case involved a sub chartered oil tanker that was carrying 1 million barrels of crude oil from Brazil to China.

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decide whether Clearlake and Petrobras should be ordered to put up security by agreeing to Natixis’ demands as to the terms of a bank guarantee. The Court was not satisfied that Natixis’ security demands were reasonable or that it was possible to provide a guarantee in the terms required, particularly in so far as it required the bank guarantee to respond to the judgment of a foreign court and was “evergreen” in nature. He also rejected Trafigura’s suggestion that security be put up under protest because, whatever the position in Singapore, it was unrealistic to expect a bank to put up security under protest in a form to which it objected [64]. The proper way to determine whether the security offered by Clearlake or Petrobras was acceptable was to make an application to the Singapore Court, as Clearlake had done [65].

Nevertheless, the English Court was unwilling to leave the parties at the impasse created by the guarantee negotiations between Natixis and Clearlake / Petrobras and the Singapore Court’s inability, in the extraordinary current circumstances, to decide the amount of the guarantee more swiftly. Therefore, the Judge ordered Clearlake and Petrobras to make a payment into the Singapore Court with a view to securing the release of the vessel [67] – [75].

In the consequentials judgment, the Court with “some hesitation” rejected Clearlake’s argument that the payment obligations should be staggered, with Clearlake allowed further time if Petrobras failed to comply [22]. The Court recognised the potential wasted costs if Clearlake were ordered to put up security within the same deadline as Petrobras but considered that Trafigura’s rights outweighed that consideration [20] – [22].

As to costs, the indemnity basis was inappropriate because Clearlake had exhibited “responsible behaviour” in acting as it had [33] and “the existence of [the indemnity under the LOI] does not assist in enabling Trafigura to show that Clearlake’s conduct of the proceedings is out of the norm” [38]. Petrobras was ordered to pay the majority of both Clearlake’s and Petrobras’ costs.

The other construction issue was as to what security was required to provide forthwith. The standard LOI wording provided for “security as may be required” to release the vessel. The Judge considered that there were three potential meanings: (1) the security required by the arresting party, (2) the security required by the court of the place of arrest, or (3) the security required by the court with jurisdiction over the LOI. The Judge held that, consistent with Article 5 of the Arrest Convention, the standard LOI wording required the indemnifying party to put up such security as was required by the arresting forum to secure the vessel’s release [28].

Trafigura’s argument that Clearlake was “The receivers’ financing bank, Natixis, then required to put up whatever security Natixis demanded was rejected. arrested the Miracle Hope in Singapore and The Judge noted that in ordinary circumstances it was the arresting court claimed damages of US$76 million for that would determine whether the security offered was acceptable. However, mis delivery against the head owners.’’ the Court was unwilling to wait for the Singapore Court to resolve the issue in late May [29] – [30].

The Court was therefore required to

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Data In association with Concirrus

The future of data democratisation post Covid-19 Andrew Yeoman, CEO of Concirrus, explains how the democratisation of data will fundamentally reshape insurance value chains and depicts what the future will look like in a world post Covid-19 Covid-19 has left a mark on insurance that will be felt for many months (possibly years) to come. It is in the nature of insurance that the losses filter through to insurers for a lengthy period of time and so it is to be expected that the final implications of the global pandemic have not yet been seen. That said, insurance professionals have certainly started to recognise some of the effects the worldwide spread of the virus is having across the industry. Some classes will of course suffer more than others, but the marine war market is certainly not exempt from the impact of the pandemic.

The economy and the demand for goods has changed because of Covid-19 and there has been a knock-on effect.

At first, there was pressure on the industry to create contingency plans to manage the undercurrent of change, now there is a call for companies to rethink the traditional operating model to gain more knowledge and be better prepared if a global crisis were to happen again. The best way to do this is with data.

The Marine Insurer IUMI 2020 Special Edition | October 2020

Generally, better access to and a more developed understanding of company data will feed into faster decision making, creating more agile teams and a greater competitive advantage. This may seem like a no-brainer, but there are unique advantages for some industries.

For the marine insurance industry specifically, richer data sets and better accessibility can be used to help insurers get closer to their customer, optimise their product-line, drive more efficient operations in every step of the value chain and ultimately become more profitable.

A way to achieve this would be through the ‘democratisation of data’. This would give insurers, brokers, and clients access to the same set of data whenever they may need it, with no gatekeepers or bottlenecks slowing it down. It could transform the market.

Every team could use this democratised data simultaneously to make decisions based on a shared understanding. It could be fed into both new and old processes within companies and could be a driving force that helps businesses get back to how they were prepandemic.

Understandably, there are complexities and complications with everyone having access to this wide network of data and it changes the nature of the operation entirely. Each touchpoint has more insight than they did before, giving them power to make informed decisions, but that has the potential to take the value out of the system that preceded it.

MARINE | Data In association with Concirrus

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PRESERVING KNOWLEDGE

lack the right tools and software to store the data safely and process it on The sharing of knowledge is crucial if an as-needed basis. businesses are to become more resilData management comes at a ient, however there is an expected “Richer data sets and better accessibility subsequent cost which not every resistance to sharing what you may know, especially if you put knowledge can be used to help insurers get closer to business is prepared for. Onboarding new software that consolidates and and power in the hands of someone organises your data ready to share else. their customer, optimise their prodbetween departments is necessary Insurers, underwriters, and brokers all play a crucial part in the chain with uct-line, drive more efficient operations to stop it sitting unused in silos, but not every company will be able to a specific set of skills they can leverage make a budgeted commitment to new to bring value. The more value they can in every step of the value chain and technology and training. provide, the more profitable the policy Another consideration is the quality at the end of the chain will be. ultimately become more profitable.’’ of data. Not every person needs to Value chains are customised and know the minutiae of processes within involve processes that are specific to Andrew Yeoman, the business and it may distract them a customer based on analysis, policy Concirrus from more important tasks at hand. creation and claims processing - all of It also opens the subject of disclosure. which are key value chain drivers. Each It is unlikely that brokers, insurers, and customers want actor on the value chain charges a fee based on the services it everyone having access to detailed information that might put provides. Giving away more data might devalue the services their business operations at risk. at each touchpoint.

This is especially true of insurance underwriters, where reliance has been placed on their comprehensive knowledge COVID-19 SHOCKWAVES to make judgments on risk and what price should be The effects of Covid-19 are still being felt in every industry and charged. Historically, this was based on their ‘retrospective what would usually have been physical face to face conversaknowledge’ i.e. what has happened but with that data tions with business prospects, have now become technologdemocratised, their valuable time can be freed up to focus ically driven dialogues that take place online. The insurance on ‘prospective knowledge’ i.e. we know what’s happened, industry is mostly prepared for this and the most successful but what do we believe about the next 12-months that’s ones made a quick switch to the new way of working, but condifferent from the last. This keeps the underwriters offering versations have changed in calibre. a crucial role in the market.

Generally, data has made these conversations more fruitful by giving a more detailed client profile and providing more context about patterns within a client’s business. Having THE BENEFIT FOR COMPANIES data that can be discussed and benchmarked removes This where it gets particularly interesting. Behaviour gleaned guesswork and assumptions. On a more practical level, video from data is a far better indicator of risk than anything conferencing software has been productive and has saved else. While static factors such as the age and class of a teams time arranging and travelling to meetings. vessel might have some bearing on incidents, they are not causation risk factors. Large vessels do not have more accidents simply because they are large, it is the use and LOOKING AHEAD operation that causes claims and behavioural data will There are still unknowns pertaining to data indicate what behaviours drive these. democratisation and there is nothing set in stone to say that New data is proving to be more indicative of risk this will or should happen. Data is always changing and so is and claims than some of the old data, providing a huge the world around us. It could take a longer period of time to advantage. In the shipping industry, anything that can create a streamlined data democratisation plan that adheres to improve the safety of vessels and improve the predictability the needs of every touchpoint in the insurance value chain. of risk allows more effective pricing, therefore making What can be agreed is knowledge obtained from data insurance more profitable and sustainable. democratisation will ultimately be of most value when it aligns the interests of insurers, P&I clubs, brokers and clients.

If companies arm themselves with the right tools and manage OBSTACLES data in the correct way, the market can offer innovative While companies are busy working to mitigate the issues insurance products that drive safety, reduce claims and deliver created over the previous months, some may see the topic of profitability. the democratisation of data as an issue, particularly if they The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Ports and terminals In association with Waves Group

Crane damage and business disruption As shore-based cranes have evolved significantly in size and lift capacity in recent decades, Rob Williams (left) and Brian Armour, (middle) both consultant maritime civil engineers and Martin Pownall, (below) a crane expert, with Waves Group, suggest how disruption to the terminal can be effectively assessed in the event of a crane damage incident Ports and terminals rely heavily on a wide range of different types of crane to transfer cargo between vessels and the shore. A damaged or inoperable terminal crane can cause significant disruption to port operations, throughput and terminal efficiency. In the event of an incident it is therefore essential that any crane downtime is minimised or avoided as far as practicable.

STS crane evolution The sustained growth in the size of general cargo and container vessels through the last 50 years has resulted in a parallel evolution of shore-based crane size. With evolving crane design, manufacturer capabilities and materials, these larger cranes are now fabricated with comparatively thinner, more slender steel sections. Later generation cranes are often possibly more susceptible to potential longer-term issues of fatigue and cracking.

To guard against prolonged operational downtime, it is important that regular inspection and monitoring of all cranes is undertaken by terminal operators to identify early signs of fatigue and excess wear on crane components.

The comparatively slender sections of these larger cranes The Marine Insurer IUMI 2020 Special Edition | October 2020

can also be vulnerable to deformation and buckling if contacted by a vessel during berthing or unberthing. This can consequently lead to disruptive and expensive repairs, significant component replacement, or at worst, the catastrophic collapse of the crane.

Inspection requirements The Lifting Operations and Lifting Equipment Regulations (LOLER) are in place to ensure that all lifting equipment is in a safe operational condition and is used in a safe manner.

Countries that adopt LOLER are legally required to carry out inspections every six to twelve months, depending on whether the crane is used for lifting personnel.

These inspections are very detailed and enable the residual operational life of the crane to be estimated. They include the assessment of all structural, mechanical, and electrical aspects of the crane as well as all safety and function tests.

This process can be of benefit to the terminal by identifying short term maintenance requirements and enable planning

MARINE | Ports and terminals In association with Waves Group

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dents, localised buckling, creases and distortion of members to more extensive buckling damage and “The extent and type of crane deformation of the crane’s frame. The derailment of some or all the crane damage can range from minor bogies can also occur. Depending on the severity of the damage, propping, dents, localised buckling, creases stabilisation, or anchoring works can be required. Such temporary works and distortion of members to more provide stability to the crane structure, mitigating against full collapse or topextensive buckling damage and pling. This is particularly important at terminals subject to strong winds and deformation of tropical monsoons.

When assessing the the crane’s frame.’’ overall extent of crane damage, and immediately following an incident, consideration should be given to all potential options, including in-situ repair. It is not always necessary for the damaged crane to be transported back to the manufacturer’s facility for the repairs to be completed.

Specialist contractors can assess the damage and where possible work with the terminal and crane manufacturer to undertake the repairs on site, recommission the crane and preserve any residual operational warranties.

The adopted solution is often a carefully assessed balance between the overall cost of repairs (including an allowance for terminal disruption costs) or the overall replacement of the crane. Both options must consider carefully the time taken to complete the works, including fabrication, delivery and commissioning of replacement components or a replacement crane. This decision is largely dependent on the overall severity of the damage. for future larger scale capital upgrade expenditure requirements.

Remote inspections Vessel contact damage to shore-based cranes and lifting equipment typically occurs as a result of unplanned vessel berthing or unberthing manoeuvres. The bow or stern of the vessel can overhang the wharf structure and come into contact with the seaward crane legs or the lowered crane boom.

It is imperative that an inspection of the damaged crane and wharf structure is carried out by suitably experienced and qualified engineers, as soon as practicable. In these current times of travel restrictions, it is possible to use photographic and video footage captured by local surveyors to develop 3D digital models of the damage in question. This capability enables us to conduct detailed remote assessments of crane and wharf damage, and then to advise on the most appropriate options for repair or replacement.

Crane damage The extent and type of crane damage can range from minor

Business interruption

Terminal revenue depends heavily on the number of containers handled across the quay.

Maintaining or maximising throughput volumes is critical to a terminal, which is closely linked to crane productivity and efficiency. The crane is therefore a critical and integral part of terminal operations.

As soon as a crane contact incident occurs, disruption to the terminal is immediate and a reduction in terminal throughput is expected. It is important to record this disruption as accurately as possible and to compare this data with terminal throughputs prior to the incident, to evaluate the overall scale of the disruption and to assess whether the terminal took sufficient measures to mitigate any disruption.

Each incident involving disruption to terminal operations is unique to the terminal and requires a graduated approach depending on the complexity and scale of operations affected.

Experience in the operation of terminals is considered key to enable the accurate assessment of information and to assess complex business interruption claims.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | IT In association with Noria

The frightening thing about the accelerated speed of change is that if a strategic IT project fails now, your company may fall too far behind its competitors to ever recover. CEO of Noria Software, Ronny Reppe, shares his insights into how to prevent failure in a major IT project Too many digital projects fail.

IT project failure can take the form of major budget overruns, late completion, scope creep, failure to meet expectations in terms of value delivered or, as we have seen many times, total failure with nothing being delivered.

It is more common than you may think. McKinsey reported in 2019 that a whopping 70% of digital transformations fail, while IBM places the failure rate even higher at 85%. These figures should be ringing alarm bells for any marine insurer currently undertaking or intending to embark on an IT project of any size.

Most concerningly, 17% of IT projects go so badly that they threaten the very existence of the company. In an economy ravaged by Covid-19, this figure is likely to be much higher.

Now is not the time to fail. Ten to fifteen years ago, a company could fail in a major IT project, learn its lesson and recover lost ground. But today’s blistering pace of change in the world of InsurTech (exacerbated by Covid-19) means there are no second chances. Fail, and you might fall too far behind.

To prevent this happening, insurers need to focus on growing more efficient in their digital project delivery and getting more bang for their buck through their IT investment.

Here are three ways to increase the chance of IT project success: 1. Reduce risk by adopting the MVP approach to IT projects I have seen countless banking and insurance companies adopt a “big bang” approach to major IT initiatives. They pour tens of millions of dollars into a big bang project, which means that if it fails, it’s catastrophic. Instead, we promote an iterative, step-by-step approach to lower risks.

Organisations should start with the MVP (minimum viable product), which means building a product with just enough features to allow the team to validate an idea. From there, build on the MVP in iterations, establish a rigorous feedback loop and avoid the temptation to leap to a big-bang approach at any point in the project.

The Marine Insurer IUMI 2020 Special Edition | October 2020

IT project failure not an option in a post-Covid economy

2. Make sure you have enough business knowledge in IT projects Many IT projects have failed despite having a generous budget and plenty of technical knowledge. What they were missing was business knowledge and an understanding of how digital solutions should support the crucial details in the business.

Ideally, the project team should include highly experienced people who have been in the business for 15-plus years and truly understand the organisation’s needs. Ensure they have a voice throughout the project to minimise the likelihood of developing an inadequate product.

Mindset is equally important as experience: look for project team members who recognise that IT has the potential to transform the business and approach senior sponsors who understand that every company that intends to survive the next decade will have to rely heavily on technology.

One of the issues faced by the marine insurance talent pool is that there is not a lot of IT knowledge mixed with marine insurance knowledge. As a result of this, marine insurers frequently engage technology companies with little business understanding, or vendors with a knowledge of general insurance only. As we all know, there is a major difference

MARINE | IT In association with Noria

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GETTING MORE BANG FOR YOUR BUCK Enterprise IT spending for the insurance market is more than US$220 billion worldwide as insurers seek to improve speed-to-market, data and analytics capabilities and ease of doing business through digital solutions. Covid-19 has added more pressure to launch and complete digital transformations at an accelerated rate.

If we can believe that at least 70% of IT projects fail, this suggests that global insurers have received nothing for an eye-watering $154 billion.

The irony is that large insurance companies spend most of their budget on digital transformations, but they are generally terrible at IT. This translates into catastrophic project failure and no bang for their buck. There’s simply too much risk and too little competence.

The solution is to build or acquire the processes and competence that will bring more efficiency to IT projects.

This is where a company of experts can help. We know technology, we know the marine insurance industry and we know how to run an efficient and successful IT project using agile methodology. Use the experts to: • Increase the likelihood of IT project success by using an MVP approach.

• Get the most out of your project team.

• Create a fail-proof project design.

In the IT economy, a successfully executed project with the right team size and competence can cost a fraction of a similar project that uses the wrong approach. Make sure you learn from IT failures in the industry through the last 30 years before you start the next phase of your digital transition journey. between general insurance and marine insurance. This lack of busines understanding on the technology vendor side increases the chance of a project being delivered that does not meet the business’ needs.

3. Get the project design phase right Do not rush. A robust project methodology, good governance and an agile way of working has the potential to set your IT project up for success. Use a design sprint to ensure the concept, design and pre-project phase is tested with stakeholders.

If your organisation is unfamiliar with agile ways of working, consider hiring an experienced agile coach to get the project started. Aim to build a team that has a combination of agile know-how, technical expertise and knowledge of what the business needs.

Finally, ensure your project is designed to be adaptable in a continuously and rapidly evolving digital environment. This approach allows teams to absorb added complexity (such as the unexpected consequences of the Covid-19 crisis), make rapid changes to the work plan and be flexible enough to respond to continuous feedback.

“17% of IT projects go so badly that they threaten the very existence of the company. In an economy ravaged by Covid-19, this figure is likely to be much higher.’’

Ronny Reppe, Noria

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | P&I survey In association with Noria Software

Technology saving the day through Covid-19

The Marine Insurer IUMI 2020 Special Edition | October 2020

MARINE | P&I survey In association with Noria Software

last two to five years, 22% believe it will be longer than five years, while only 5% believe the situation will return to normality within one year.

3. Covid-related delays and barriers (14%): Ongoing delays, restricted access to ships and crews, difficulty in obtaining documents in support of a claim and complexity in terms of carrying out surveys related to claims all make it challenging to create accurate claim estimates.

Political barriers such as difficult jurisdictions, increased regulation and government bureaucracy, as well as ongoing sanctions indicate that governments are responding to the crisis by making it more – not less – difficult to do business.

4. Doing business with struggling shipowners (11%): How can insurers obtain a sufficient and appropriate premium while shipowners are facing formidable financial problems due to Covid-19 fallout? With struggling shipowners putting downward rate pressure on insurers, the challenge lies in balancing clients’ needs with affordability. According to the survey, the hardest-hit sectors are cruise ships and passenger ferries, followed by tankers (excluding crude) and containers.

Impacts include dramatically reduced revenue, lay ups, crew change issues, lay-offs of crew and shore staff, as well as force majeure.

5. Pricing squeeze (10%): Low premiums, a rise in the cost of claims and increasing client expectations that cover responds to more risks, is creating a dislocation between premium levels and market rates. One club member summarised the current situation as a “chronic inadequacy

Marine insurers are responding to the crisis by embracing technology, but can do a lot more, suggests CEO of Noria Software, Ronny Reppe

Marine insurers have responded to the Covid19 crisis by embracing technological innovation.

From remote surveys to online medical diagnostics, drone delivery to videoconferencing tech, solutions are being found to tackle many seemingly insurmountable challenges facing the industry.

But this is only a start. To help the industry shift from survival mode and return to growth, there’s a lot more that can be done in terms of digital transformation, leveraging data, automating tasks and digitising the customer journey.

In this article I will explore some of the technologies currently in use and make the case for investment in digital transformation in a time of crisis. But first, let’s examine the results of a recent survey to understand the specific challenges faced by the industry.

Challenges to overcome The Marine Insurer Business Intelligence P&I Club Survey recently took the pulse of 99 club members to discover the challenges they are facing in underwriting risk and handling claims in an extremely volatile environment.

Here are the top six challenges nominated by marine insurers: 1. Uncertainty and lack of insight (nominated by 16%): As expected, the most common challenge faced by club members in terms of underwriting risk revolves around a critical lack of information. Where is the world economy headed? Will there be more waves of Covid-19; and more lockdowns? It is proving extremely difficult to properly price risk when the type and nature of that risk is nearly impossible to assess.

A lack of transparency and trust between parties is exacerbating this challenge and making it significantly more difficult to handle claims. Some members point to a lack of digitisation and a dearth of shared systems that have the potential to greatly improve transparency.

2. The global economic downturn (95%): Half of the survey respondents anticipate a continuation of the global economic downturn for the next 12 to 24 months, which will place economic pressure on shipowners and is likely to cause resistance to premium increases. Respondents expect more bankruptcies, insolvencies and mergers as a result of the economic situation.

Most of the remaining 50% of those surveyed were less optimistic. 23% believe the Covid-19-related upheaval will

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THE TOP SIX CHALLENGES Nominated by marine insurers

16% Uncertainty and lack of insight

11% Doing business with struggling shipowners

95% 14% The global downturn

Covid-related delays and barriers

£¢€

10% 10% Pricing squeeze

Looking after crews

Source: The Marine Insurer Business Intelligence P&I Club Survey

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | P&I survey In association with Noria Software

with DNV GL completing more than 15,000 remote surveys since launching the service in late 2018.

“Marine insurers are addressing the Remote inspections have varying levels of technological complexity problem of travel bans or restricted and can be carried out using real-time access to quarantined ships by carrying videoconferencing tools, smartphone applications, or drones and robotics.

Remote survey apps: Remote out remote ship surveys. This method of surveys can be carried out with surveying was becoming increasingly nothing more than a smartphone app. The shipowner appoints an appropriately experienced crew Four technologies currently being popular even before the pandemic.’’ member as a remote surveyor, who is employed then guided through the livestreamed They say that necessity is the mother of Ronny Reppe, survey process by an onshore team of invention. Although the survey results Noria Software technical experts. Where there is no have not indicated the arrival of any connectivity and livestreaming does particularly ground-breaking technologies being developed to overcome the challenges not work, photos and videos form supplementary evidence. above, the crisis has certainly spurred marine insurers to Inspections can be co-witnessed to ensure transparency. accelerate their adoption of technology that was already When the survey is complete, the evidence is reviewed by available. the remote survey team using the usual reporting process before the certificate is issued electronically.

1. Remote ship surveys Remotely operated vehicles (ROVs): Ranging in size Marine insurers are addressing the problem of travel bans or from that of a small computer to the size of a small truck, restricted access to quarantined ships by carrying out remote ROVs enable safe and remote in-water ship surveys without ship surveys. This method of surveying was human presence in the water. Controlled by operators with becoming increasingly popular even before the pandemic, joysticks, most ROVs are equipped with a photographic camera, video camera, lights so they can transmit images and video back to base. Sonar technology can be used to HOW LONG DO YOU EXPECT COVID-19 RELATED locate hull equipment such as echo sounder sensors and to UPHEAVAL TO LAST? assess the general condition of the hull.

Smart headsets: Crews can be provided with sophisticated portable headsets with cameras and head-up displays (HUD), linked to a smartphone app. This allows an inspector Less than to direct an appointed crew member (wearing the headset) 1 year to move around the ship and complete the survey. of pricing power”.

6. Looking after crews (10%): With some crews at sea for more than a year due to quarantine measures, seafarers are suffering from overwork, fatigue and mental health issues. This clearly unsustainable situation will need to be addressed with new ways of working, new rules around seafarer quarantine and repatriation, as well as better care of crews’ mental health.

50%

1 to 2 years

5%

23% 2 to 5 years

22% 5+ years

Source: The Marine Insurer Business Intelligence P&I Club Survey

The Marine Insurer IUMI 2020 Special Edition | October 2020

2. Remote medical diagnoses While surveyors are restricted from inspecting the health of ship, a similar situation is playing out with regards to the health of crew members. Medical professionals in many cases have not been able to access ships’ crews to assess health, leading to complications for marine insurance in terms of assessing claims.

Performing a remote medical diagnosis may be as simple as having crew members fill out questionnaires or connecting a patient via audio or video link with a medical or mental health practitioner. In more complex cases, it may involve processing analogue physiological information, such as images or electrocardiograms, into a digital format and securely transmitting them to a remote expert.

MARINE | P&I survey In association with Noria Software

As remote medical diagnosis becomes more widespread, we can expect to see ships carrying associated equipment such as sensors that can gather medical information for remote analysis from a finger-prick of blood.

3. Drone delivery Drones are being used to safely deliver light-weight items to quarantined ships within reach of shore or other vessels.

Crucial items may include medicines, or (for marine insurers) the documents required to support a claim. Transitioning to paperless documentation and trusted/verified digital information exchange would be more efficient in the long run, but for organisations still reliant on pen-and-paper, drones are proving an excellent alternative to a human courier.

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FOUR TECHNOLOGIES CURRENTLY BEING EMPLOYED Remote ship surveys

Remote medical diagnoses

Drone delivery

Video conferencing

4. Videoconferencing Videoconferencing technology is nothing new, but its impact on business continuity during the crisis across nearly every sector cannot be understated; and marine insurance is no exception. Unsurprisingly, web and videoconferencing software providers have seen incredible growth this year, with a 2,900% increase in daily active users in only four months.

The technology is crucial for: Source: The Marine Insurer Business Intelligence P&I Club Survey

> Enabling remote work during lockdown > Communicating with crews, shipowners; and other parties in the ecosystem > Cutting costs (company and individual travel costs) > Winning new business > Team collaboration Staff engagement > Mental health (particularly for stranded crews) helping people feel connected > Information-sharing between marine insurers to drive visibility and collaborate on shared challenges.

More can be done P&I clubs need to seize this opportunity for change and use this chance to speed up technological adoption because there is so much to gain for clubs, employees and customers.

Research from McKinsey from May 2020 found that businesses vaulted five years forward in digital adoption in only eight weeks. Specifically, organisations have launched remote services, improved their digital outreach to customers, harnessed new data and AI to improve operations, while also selectively modernising (automated) manual tasks.

To return to the challenges identified in the survey, marine insurers can leverage technology to improve insight and visibility by harnessing data to make better decisions, digitise the customer journey with smart insurance software to make it as seamless as possible for struggling shipowners

to do business with them and drive down operational costs by automating repetitive tasks and back-office operations.

Investing significantly in IT capabilities during an economic downturn may seem counterintuitive, but these are all ultimately cost-saving initiatives that – in time – will pay off by keeping your organisation competitive in the postCovid-19 economy.

For marine insurers that have been hesitant to take the leap into digital transformation, the good news is that Covid-19 has the potential to catalyse and accelerate the decision to invest in IT. A 2020 Deloitte report discovered that Covid-19 has unlocked the hidden potential of institutions by stripping away many of the barriers organisations face in realising their digital future.

Help in accelerating your digital transformation Now is the time to act. Organisations that accelerate their digital journey today are the ones who will hold the advantage in a recovering sector.

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Get in touch to learn about PARIS, our end-to-end policy lifecycle management, data reporting, and web portal in one modern platform deployable on premises or in the cloud.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Navigation In association with Matthews Daniel

Naval gazing Going old-school and actually using your eyes rather than relying on technology is crucial, warns Jim Clark, London marine manager at Matthews Daniel

Like the writer, a navigator is working when he is looking out of the window.

While teachers at school have often been known to berate daydreaming children by suggesting “you’ll never get paid for looking out of the window”, at Matthews Daniel we have a number of master mariners who seem to have embarked on their careers with the sole objective of proving their school teachers wrong.

Navel gazing, or the contemplation of a single issue at the expense of the wider view, can broadly be connected with a number of collisions and allisions in recent years. Many of these have involved very well lit and clearly charted structures, such as offshore platforms, or indeed islands, and a number are now the subjects of widely-shared videos or animated AIS traces.

As the recent court martial of the officer of the watch of HMS Sutherland showed, where the absence of ‘mark 1 eyeball’ caused a close quarters situation with the Dutch fishing vessel Jan Cornelis, even the UK’s finest are not averse to running too close to a vessel that was likely lit up like a proverbial Christmas tree. Certainly, a case of naval gazing.

The basic duty of the officer in charge of a navigation watch The Marine Insurer IUMI 2020 Special Edition | October 2020

is to maintain a look out and, in doing so, confirm the vessel’s position and ensure the safety of the navigation. In the modern world this has been supplemented by the use of the global navigation satellite system (GNSS). Such satellite systems are now so well established that they are seen as the leading means of surface maritime positioning and consequently they are often relied on as the single source of truth, such that there has perhaps been a weakening of traditional skills; essentially looking out of the window.

WARNING SIGNS It is to be noted that the maritime industry is not alone in this phenomenon. We will all have seen videos of articulated lorries wedged in small villages, or under bridges, after the driver has ignored many warning signs, and their own common sense, because “the SatNav said this was the right way”.

All GNSS navigation systems are inherently vulnerable and susceptible to both natural and manmade interference.

These vulnerabilities are among the first things a navigator is taught and include: position inaccuracy from high horizontal dilution of precision due to the tracked satellite’s position within the constellation of monitored satellites;

MARINE | Navigation In association with Matthews Daniel

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interference and jamming in recent months.

This highlights a number of instances “The basic duty of the officer in charge of a where the loss of accuracy of the GPS (global positioning system) signals navigation watch is to maintain a look out and, in has affected vessels’ navigation and communication equipment. There doing so, confirm the vessel’s position and ensure is also a degree of geographical concentration, with more than one the safety of the navigation. In the modern world incident reported in the eastern and central Mediterranean, the Persian Gulf this has been supplemented by the use of the Global and several Chinese ports.

Naturally such reports and incidents Navigation Satellite System (GNSS).’’ instantly lead to thoughts of cyber security and the motivations of bad actors, Jim Clark, if these are intentional interferences. The Matthews Daniel MARAD alert also alludes to the fact that GNSS signals are increasingly relied on, both onboard and ashore, to an extent beyond their primary use as a navigation fix.

GNSS signals onboard feed into the ship electronic chart display and information system; the automatic identification system; the latitude correction on the gyro compass; ground stabilisation on RADAR (although this practice is perhaps an anti-collision article in its own right); GMDSS digital selective calling; the vessel data recorder, which itself has become increasingly important in incident investigation and claims handling; dynamic positioning; survey equipment; and by no means last or least, the stabilisation of the satellite broadband and entertainment antennae. solar activity; accidental interference from faulty equipment; loss of timing services; decommissioning of a satellite; or OVERRELIANCE unintentional or intentional jamming.

These are increasingly critical for not just crew welfare, but Cases of all have been recorded in recent past. This ships’ and client communication, accurate forecasts and vulnerability stems from the fact that the satellites use solar routing. Clearly the navigation officer of the watch is unable power to transmit to the earth’s surface circa 20,000 km to correct these systems and nor should they be when fully away, with the result that the signals received by the GNSS engaged in looking out of the window. receiver are extremely weak. This has always been known The overreliance on GPS has been a topic of conversation and accepted. So, with adequate training and situational for almost as long as it has been in use, with the back-up and awareness, any doubt in the accuracy of a GNSS position complementary technologies suffering decades of delay. Galileo, should naturally draw the navigator back to the window the European Space Agency’s GNSS, is perhaps the most-high to obtain visual or radar fixes, or even to revert to dead profile, with the extent of the UK’s involvement post-2021 reckoning. remaining uncertain. However, the fact that all GNSS operate With this in mind, it is essentially the duty of the on broadly the same bands means that they are potentially all navigation officer of the watch to prove the GNSS position susceptible to interference from the same sources. isn’t wrong, rather than assuming it is correct. They should I will leave you with a question. Is the jamming or spoofing of regard these systems as a simple aid to navigation, a tool they GNSS signals by radio interference, with no actual malfunction can use, rather than blindly relying on any GNSS position as of the GNSS unit itself, a cyber-event? Or is it rather, and fact. simply, crew negligence stemming from too much naval gazing As I write this, The US Department of Transportation’s and not enough looking out the window? Either way, we are Maritime Administration Advisories (MARAD) issued an sure there will be a degree of relief that we did not make a alert on the increasing number of reports of significant GPS cheap pun on 20/20 vision.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Cruise shipping In association with Envista Forensics

Cruise ship lay-up and reactivation

In response to the Covid-19 pandemic, many cruise lines began voluntary pausing their operations, followed by the US Centers for Disease Control (CDC) issuing a No Sail Order on March 14, 2020. Patrick Hudson, marine practice leader at Envista Forensics, reports on what’s happened next The Cruise Lines International Association (CLIA) has extended its own voluntary suspension of cruises from US ports until at least October 31, 2020. Many cruise lines have cancelled operations, at least from the US until early 2021. MSC Cruises and Costa Cruises have both resumed limited itineraries within Italy, AIDA is restarting Italy cruises in October, while Paul Gauguin has been operating South Pacific cruises since late August. However, as the suspension of most The Marine Insurer IUMI 2020 Special Edition | October 2020

cruise itineraries drags on into 2021, lines have begun selling ships or placing them into long-term layup status. Carnival Corporation, which owns Carnival, Princess, Costa, and six other cruise lines, announced on September 16, 2020 that they were selling 18 ships and placing two into long-term lay-up.

Inactivating vessels is certainly not a new practice.

Classification societies, including Lloyd’s Register, DNV-GL and Bureau Veritas, have all published guidance for lay-up and reactivation of vessels. While the class societies have

MARINE | Cruise shipping In association with Envista Forensics

similar guidance, we will use the Lloyd’s Register Ship Lay-up guide, published in June 2020, as a reference here. Lay-up and reactivation of a vessel, be it after a month or five years, has significant implications for maintenance, insurance and class status. One of the primary considerations will be the expected duration and how long it will take to reactivate the ship. Lloyd’s defines lay-up conditions depending on the duration, reactivation time and class status, with hot-ship and warm-ship being less than a 12-month duration, cold-ship lasting from one to five years and long-term for more than five years.

Cruise ships cannot be laid-up just anywhere, and the choice of location should be carefully considered based on expected duration and other factors. For periods of 12 months or less, vessels can often be laid-up in operational ports with the approval of the cognizant port Cruise ships cannot be laid-up authorities. Considerations just anywhere and the choice of include proximity to normal location should be carefully considered. For periods of 12 operating routes, shelter from months or less, vessels can often weather and waves, water depth be laid-up in operational ports and tidal variations, availability of with the approval of the cognizant port authorities. maintenance and repair services and security from piracy and theft.

For cold-ship lay-up of cruise ships, there are established lay-up sites around the world, including Norway, the Mediterranean, Africa and Southeast Asia. Many of these locations provide some level of services and supplies for skeleton crews (eg fresh water, food, shore power, waste disposal, etc.) and minimal maintenance availability. Logistical considerations include crew changes, proximity to travel hubs and regional dry dock facilities.

Vessels should be moored with multiple anchors and/ or to mooring buoys to prevent weather-vaning in wind and currents and they should be aligned fore-and-aft to prevailing winds and currents. Anchor chain scope should be about five to seven times the water depth, anchors should be marked with buoys, and ship position should be monitored

by GPS to prevent anchor dragging. In all locations, but especially near shipping lanes, laid-up vessels should have operational anchor lights and fog signals. Multiple vessels of similar length and beam can moored in groups with breast lines and fenders between the hulls.

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HOT AND WARM-SHIP LAY-UPS Hot-ship lay-ups of a month or less, where the ship can be reactivated in about 24 hours, result in few impacts except for a reduction to minimum safe crewing levels. The ships are laid up in ports near their normal operating routes, all machinery remains operational and they stay in class with normal surveys. The Protection and Indemnity (P&I) Club should be informed no matter the level of lay-up and many will require submission of a lay-up plan. Owners typically receive back a portion of their P&I premium after the ship has been laid-up for more than one month. P&I clubs require that no cargo be on board during lay-up and all cargo tanks and spaces be clean and gas-free. Hull and machinery (H&M) insurance can be converted to a port risk policy after one month, or owners can opt for a partial return of premium for the lay-up period. Most H&M policies require a lay-up plan be submitted to the insurer prior to commencing lay-up. When a ship remains in hot lay-up for more than one month, the reactivation period is extended to about one week. The ship remains in class, but crew levels can drop somewhat and port authorities may have local permit requirements that should be consulted.

Flag nations should also be notified.

The primary differences for warm-ship compared to hot-ship lay-up is that vessels will usually be moored at one of several established lay-up locations around the world, they will be assigned a “laid up” class status by the relevant classification society, and onboard crew will be reduced to only engineering and navigation officers. Most machinery will continue to be operational and reactivation will still take about a week. To maintain class while in a laid-up status, the annual condition surveys of hull and machinery will still be required, and an underwater condition survey may also be required if due. On reactivation, any overdue class surveys will need to be brought up to date.

International Safety Management (ISM) and International Ship and Port Facilities Security (ISPS) certificates will become invalid after six months in lay-up and interim verification audits will be required when the ships are subsequently reactivated.

COLD-SHIP AND LONG-TERM LAY-UPS Cold-ship lay-ups are intended to last between one and five years and it will normally take about three weeks to reactivate the vessels. Lay-ups longer than five years can take up to three months to reactivate. Crew size can be reduced to a level sufficient to respond to emergencies.

Unlike hot-ship and warm-ship lay-ups, most machinery (propulsion, electrical generation, air conditioning, etc.) will be shut down. Due to the prolonged lack of operation, protection of hull, machinery and equipment for cold-ship and long-term layups is of critical importance. Corrosion is an ever-present enemy aboard vessels; and ships in lay-up can be an easy target. The Lloyd’s Lay-up guide suggests: The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Cruise shipping In association with Envista Forensics

> The hull and superstructure should > Electronic and electrical equipment be repainted prior to lay-up. Sacrificial must be kept sealed from the weather anodes and/or the impressed current and dry with a combination of system should be frequently inspected dehumidifiers, heaters to prevent and replaced if needed. Additional condensation, and desiccant material.

“For cold-ship lay-up of cruise anodes may be required depending Batteries should be disconnected from on conditions at the lay-up location. loads, maintained as recommended and/ ships, there are established lay-up In-water hull surveys by divers may be or removed from the vessel. required periodically depending on the sites around the world, including duration of the lay-up.

REACTIVATION > In all lay-ups, ballast tanks should be The reactivation process is the most Norway, the Mediterranean, Africa either dry or fully filled with water that critical phase in the lay-up of cruise has been treated to prevent corrosion. ships, with the highest risk of damage and Southeast Asia.’’

All internal tanks and voids should to machinery and equipment. Any be cleaned and certified gas free. Sea outstanding class surveys should be Patrick Hudson, chests and other seawater intakes and completed, including a dry-docking after Envista Forensics discharges should be blanked. longer lay-up periods, as well as ISM and > Fire-fighting systems (emergency ISPS verification audits. All machinery fire pumps, fire extinguishing systems, systems and equipment should be careetc.) and life-saving appliances should be tested regularly fully inspected in and maintained in an operational condition. Fire dampers accordance with manufacturer recommendations before in ventilation systems may be sealed but should be exercised being brought back on line. Careful lay-up procedures, on a regular basis. Fire alarms and bilge alarms should have maintenance and documentation are crucial in minimizing backup power and be capable of remote monitoring if the potential problems during reactivation. vessel is unattended. Wet fire mains should be drained to Some specific areas of concern during reactivation include prevent damage from freezing. corrosion of the hull, marine growth, corrosion inside > At least one deck crane should remain operational. piping, damage to rotating equipment due to an extended Anchoring and mooring equipment should be operated once time in a static position, lack of lubrication film on bearing a month. Moving parts on hatch covers and deck equipment and gear surfaces, undetected fluid or seawater leaks as should be coated with grease. systems are brought back on line, electronic and software > With their thousands of passenger accommodations, failures after non-operation and general deterioration from cruise ships need special care in lay-up preparations. excessive humidity. These risks are amplified if the lay-up Unoccupied cabins and public areas should be maintained recommendations were not followed. Cascading failures can at a relative humidity of 45% to 55% using dehumidifiers. occur, especially if the reactivation process is rushed and Passageway decks should be covered with plastic sheeting. too many systems are restarted at once. There are also crew External doors and windows should be sealed, cabin linens training issues, which can necessitate recertification of crew and towels should be consolidated and stored in one dry on procedures and operation of all systems. location, mattresses should be stored on edge, sanitary fittings in the heads should be blanked and sealed and CONCLUSION refrigerators emptied and the doors left open.

The cruise ship sector continues to weather a historical > Main and auxiliary engines, propellers, shafting, and downturn due to Covid-19 travel restrictions, no-sail thrusters should be operated (or at least turned) monthly. orders and customer wariness about the prospect of It is important that main turbines and shafts be turned at returning to cruises. Initially expected to last a few least one full turn each ahead and astern and stopped in months, the worldwide suspension to cruising has a different position every month. Fuel systems should be continued to drag on for more than half of 2020. Many flushed and injectors removed and hydraulic oil systems cruise lines opted early-on to place ships into cold-ship should be operated monthly. Seawater and freshwater layup, others moved their vessels there as the cooling systems, compressed air and steam/condensate suspensions continued and some sold off ships for scrap. systems should be emptied and opened for ventilation.

As cruise ships resume operations, their Main and auxiliary engine exhaust lines should be blanked. reactivations must be handled in a careful and Machinery spaces should be maintained at a relative deliberate manner to avoid costly equipment failures humidity between 30% and 50% using dehumidifiers. and damage to vessels.

The Marine Insurer IUMI 2020 Special Edition | October 2020

MARINE | Global Maritime Issues Monitor 2020 In association with Marsh JLT Specialty

Pandemic has becomes a top maritime industry issue—but it’s not the only one, warns Marcus Baker, global specialty head, marine & cargo, Marsh JLT Specialty With much of the world’s attention focused on the Covid-19 pandemic, it is easy to forget that other pressing issues have not gone away.

For the maritime industry, the pandemic has exacerbated some risks and had relatively little effect on others, points brought into focus by the Global Maritime Issues Monitor 2020.

Based on a survey of maritime industry leaders and bolstered by expert commentary, the report presents a look into the top global issues for the sector in terms of likelihood, impact and preparedness.

This was the third year the Global Maritime Forum — with support from Marsh and the International Union of Marine Insurance — conducted the survey, but the first that asked respondents to consider pandemic risk. Their response was to place pandemics third on the list of 19 issues in terms of potential impact. Not surprisingly, respondents ranked it in last place regarding how prepared the industry is to manage it.

Along with pandemic concerns, survey respondents cited issues related to global economies and geopolitics, the environment, and digitalization as being of particular concern. Embedded in these emerging issues are the challenges and opportunities from which the sector will set its course through the pandemic and beyond.

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Don’t forget other risks as pandemic rolls on Pandemic’s affect ranges wide With the pandemic the dominant global issue since early 2020, the survey asked respondents how they see Covid-19 affecting the likelihood of other issues. The most resounding response related to pandemic’s impact on a potential global economic crisis: 93% said the pandemic makes such a crisis more likely.

Among the survey’s other pandemic-related results: > 73% of respondents think the pandemic makes geopolitical tension more likely, particularly escalation in the conflict between the US and China. > 72% think trading patterns are more likely to change. > 48% said the pandemic will increase the societal demand decarbonization of shipping, and new environmental regulation — dominated the results, and they remained a high priority in 2020.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Global Maritime Issues Monitor 2020 In association with Marsh JLT Specialty

IMPACT

It will also be critical for the for sustainability. industry to consider health impacts as > 46% said Covid-19 increases the it evaluates its response to Covid-19, likelihood of governance failure, “Along with pandemic concerns, particularly issues of physical and which we define as the inability of mental wellbeing for the seafarers regional or global institutions to resolve survey respondents cited issues who form shipping’s backbone. There issues of economic, geopolitical, or is a range of workforce issues for environmental importance. related to global economies and the industry to tackle in developing > 35% said that the main issue the resilience against the next pandemic, pandemic made less likely is fuel price geopolitics, the environment, and including impacts of the disease increases. itself; seafarers being unable to join Across the board in the survey results digitalization as being of particular their families and, in some cases, and in comments about the results from working on expired contracts; and the an array of external experts, there was concern.’’ possibilities of increasing the amount a recognition of Covid-19’s deep impact of remote work done in the sector. on the maritime industry.

Marcus Baker, One red flag from the survey results Dr. Mukhisa Kituyi, secretary Marsh JLT Specialty relates to the perceived likelihood general, UN Conference on Trade and of future pandemics. Although Development (UNCTAD), summed it respondents ranked a new pandemic as likely to occur, they up well: “Covid-19 is a litmus test for a globalized and placed it tenth in likelihood compared to other issues. This interdependent world economy. Maritime transport should ranking in the middle of the pack presents a warning: once brace itself for change and prepare to reassess vessel and the world deems Covid-19 “done,” organizations cannot capacity deployment, shipping network configuration and afford to ease up on overall pandemic resilience efforts. port development. Shipping and ports may also have to rethink their strategies and plans to integrate criteria Economic and geopolitical issues high on agendas pertaining to disruption risks and vulnerabilities, as well as Economics and geopolitics will always play an outsize role related response mechanisms.” in the maritime industry and survey respondents — for the third consecGLOBAL MARITIME ISSUES MAP utive year — said a global economic PREPAREDNESS crisis would have the highest impact Source: Global Maritime Issues Monitor 2020 on the sector for the next 10 years.

Not surprisingly, a shift occurred Most Least prepared prepared this year in respondents’ perception IMPACT vs LIKELIHOOD vs PREPAREDNESS of how likely a global economic crisis has become — the issue moved from Decarbonization Global economic crisis 4 of shipping number 10 in likelihood in 2019 to number two this year as 93% of Pandemics New environmental regulation Geopolitical tension respondents said the pandemic makes Societal demands 3.5 for sustainability Big data and AI such a crisis more likely. Indeed, it is Failure of climate change mitigation underway. Among the other concerns Cyber-attacks/data theft Changing trading patterns expressed were increased tension between the US and China and more Workforce and skill shortage Insufficient access to finance 3 regionalization.

Governance failure Autonomy technology In the open-ended comments Major safety incident Fuel price increases section of the survey, many Failure or shortfall in infastructure respondents said they expect to 2.5 see bankruptcies and consolidation Terrorism increase, along with more scrapping of older ships and lower rates of Increased piracy new-build orders.

2 Several experts noted that 2 2.5 3 3.5 4 LIKELIHOOD globalization itself is under threat The Marine Insurer IUMI 2020 Special Edition | October 2020

MARINE | Global Maritime Issues Monitor 2020 In association with Marsh JLT Specialty

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“Engaging in hindsight, some experts at this time.

“The maritime shipping industry will need to consider how to optimize their global footprint in this more challenging, fragmented environment,” said Meredith Sumpter, head of research, strategy and operations at Eurasia Group. “This may mean more of a shortening or rationalization of shipping routes than planned to capitalize on the trend toward intra-regional trade.”

Digitalization needs breakthroughs Digitalization is another area that the pandemic has emphasized as a shortcoming in the maritime industry.

Engaging in hindsight, some experts said that if digital technologies had been more widely adopted before the pandemic, they could have improved transparency and traceability in disrupted supply chains and decreased seafarers’ exposure to Covid-19.

Perhaps this line of thinking will spur more action within the industry to make digitalization a top agenda item and engage with technological advances, from big data analytics to artificial intelligence to autonomous technology.

Potential benefits include efficiencies in data optimization — including meteorological data, oceanographic data, shipping rates, to vessel information — as well as improved risk management, environmental performance and more.

Environmental issues remain top of mind The increasing demand from society for sustainability means the maritime sector will face continued scrutiny of its environmental performance. In the 2019 survey, environmental issues — climate change, decarbonization of shipping, and new environmental regulation — dominated the results, and they remained a high priority in 2020.

said that if digital technologies had been more widely adopted before the pandemic, they could have improved transparency and traceability in disrupted supply chains and decreased seafarers’ exposure to Covid-19.”

Marcus Baker, Marsh JLT Specialty

Given its pervasiveness, the pandemic cast a shadow on thinking about these issues, even if it did not dominate them. For example, the majority of respondents (57%) said that the pandemic would not have any impact on efforts to decarbonize shipping, which is a cornerstone of the industry response to climate change. In fact, some commentators said they were encouraged that decarbonization efforts and ambitions remain high.

Some of those commenting on the survey results said that, as governments roll out stimulus packages in Covid19’s wake, associated policymaking could include incentives for shippers to decarbonize their fleets. “Fortunately, weathering the current recession and moving towards decarbonization do not need to be mutually exclusive,” said Faustine Delasalle, director, Energy Transition Commission.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Casualty In association with Brookes Bell

Casualty management in the times of Covid

William Leschaeve, senior naval architect, Brookes Bell, reports on the challenges on dealing with a major casualty in Brazil just as the Covid-19 pandemic took hold

Covid-19 has left a mark on insurance that will be felt for many months (possibly years) to come.

It is in the nature of insurance that the losses filter through to insurers for a lengthy period of time and so it is to be expected that the final implications of the global pandemic have not yet been seen.

That said, insurance professionals have certainly started to recognise some of the effects the worldwide spread of the virus is having across the industry. Some classes will of course suffer more than others, but the marine war market is certainly not exempt from the impact of the pandemic.

In more clement times the process of casualty management The Marine Insurer IUMI 2020 Special Edition | October 2020

is well understood. As casualty consultants, we are always ready to travel at short notice and assist clients with distressed vessels. We have become accustomed to the ease of communication and travel that comes with our modern environment. This all changed when the world had to contend with severe travel restrictions starting in March 2020, courtesy of the Covid-19 pendamic.

For Brookes Bell this coincided with the start of a complex salvage operation in Brazil. The initial phase of this project was not unusual, one of our SCRs (special casualty representatives) flew to Brazil, assessed the condition of the casualty and reported back to all parties. It

MARINE | Casualty In association with Brookes Bell

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became clear very early on, that there In my view this sheds light on a would be no simple fix to this casualty. difference in approach for long term This was a very large vessel aground in against shorter attendances. Where an exposed location with limited access longer term operations are involved, “One solution that has been discussed to the assets required to complete the consultants are likely to be able to blend refloat operation. At the same time, the in with the logistics of the project. The for some time and is attracting more number of Covid-19 cases in Brazil was costs may increase, but ought to be rising rapidly. manageable. interest, is remote surveying. This can By the time our consultant had The difficulty in shore term been in Brazil for two months, travel attendances arises where specific be an elegant solution in some restrictions in Brazil meant that a relief expertise is required in a remote was virtually impossible to bring into location, but only to gather information circumstances for instance low value the country. We were not alone in and report to the interested party. dealing with this situation. The salvors Declaration of CTL is an example, or non-contentious claims .’’ and the owners of the Norwegian but there are many more. These support vessel were facing a similar attendances often take place in William Leschaeve, problem. The solution took some time anticipation of litigation and require Brookes Bell to work out, but finally I was able to high quality expertise that is not widely travel to Brazil on a charter flight with available. The example of declaration of CTL is one that, in most cases, is resolved in the short term. the relief crew. The Covid-19 protocols put in place by all This is not the case with litigation, any gap in information parties were stringent but effective and no Covid-19 cases gathered during an attendance may take years to come to were reported onboard of the main light and could increase litigation costs significantly. support vessel.

One solution that has been discussed for some time and is attracting more interest is remote surveying. This can be RESTRICTIONS an elegant solution in some circumstances, for instance low Our overall experience of Covid-19 in large scale projects value or non-contentious claims. However, if litigation is is that solutions are available to deal with the restrictions anticipated or even possible in the future, any expert could imposed by various countries. However, they come at a cost. be on the back foot if he has no first-hand experience in In this case the main issue was getting people in and out the matter. This may change in the future as technology of the country and in some instances the delays in getting becomes more reliable, widespread and cost effective. For salvors back from Brazil to their home were counted in now, it is hard to see a world where marine consultants can weeks. work without crossing boarders.

Another issue is getting the right expertise at the right time, which is crucial in the life cycle of a salvage/wreck removal project. One of the most critical aspect of this is the REALISTIC ALTERNATIVE declaration of constructive total loss (CTL). This normally The use of local surveyors is the only realistic alternative. involves a hull and machinery (H&M) surveyor inspecting In a lot of cases this can be suitable. However, when an the vessel and calculating the repair costs. This information underwriter needs help with from a qualified metallurgist in is then reviewed by underwriters and a decision is reached. a remote part of the world, his needs may not be met. The The timing of this decision can have drastic implications on nearest alternative will probably to combine the proximity the apportionment of costs between H&M and P&I. H&M of a local surveyor with the remote expertise of a discipline will generally cover some, or all, the salvage costs until CTL expert. This is something that has existed for a long time of is declared. All the interested parties will want to trust the course, but it is likely to become more commonplace. information provided especially when the declaration of Thus far our experience of working with Covid-19 CTL is marginal. restrictions, has taught us that technically complex matters While Brazil had surveyors available to assist with this requiring specialised surveyors on site are the most difficult process, it is easy to imagine a situation where a suitably to respond to. In some instances, attendance is simply experienced advisor cannot access the site for weeks. When impossible. Given that Covid-19 restrictions look like they this happens, it may be preferable to use the expertise of the are here to stay, it is likely that proximity will become the casualty consultant onsite to gather information about the most important part of the response to assist owners and damage and use a third-party consultant to remotely assess insurers. Providers of technical services to those interests repair costs. This would help avoid any perceived conflict of will need to adapt and combine proximity with specialised interest and allow the project to be completed without delay. expertise.

The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Detentions In association with Cambiaso Risso Marine

Gian Piero Priano, director at Cambiaso Risso Marine, takes a look at some problematic detentions in central America which are set to challenge the market “What is new in marine insurance”?

All those who have some sort of interest in marine insurance and particularly those friends in the industry, who started dealing with it many years or probably decades ago, may confirm that “something new” does happen, from time to time, to pose new challenges to players and to provide the opportunity for new insurance solutions that then have been adopted in the day by day practice.

Someone older (oops… more senior) than me may remember, for instance, the introduction of the “Pollution Hazard” clause after that the m/t Torrey Canyon was deliberately bombed in 1967 in an attempt to stop pollution, or the adoption of the “London Blocking & Trapping Addendum” after the detainment of some 45 ships in Basrah in 1981.

Shall we look at some new situations still unknown to insurance practice and ready for a new approach?

Probably yes.

For example, during this Covid-19 affected year, we faced two similar cases which are causing concern and alarm.

Two ships (a bulkcarrier and a container vessel) have been “stopped” in central America by order of the public authority further to the discovery of substantial quantity of drugs in boxes on board.

The result is that the owners have had their vessels “detained” for months now and have started investigating which insurance cover should help in recovering the losses such detentions are causing, leading potentially even to a “total loss”.

No formal claim has been entered so far and the question is – for the time being – little more than an academic exercise, which of course is of no relief for the involved shipowners.

The local authorities have laid no blame at the door of the owners of either vessel, but any attempt to obtain permission for the vessels to sail has resulted in nothing yet.

There are some differences that have to be mentioned between the two cases but, equally, they are very similar: > In the case of the container vessel the alarm was raised when crew members, at night, noticed someone throwing overboard some large bundles which were then recovered by some people on a small craft moving around the vessel.

Following that alarm, the police managed to arrest those in the craft and recovered the packages found floating around; > The case of the bulkcarrier is slightly different, in the sense that some packages (thereafter found to contain drugs) The Marine Insurer IUMI 2020 Special Edition | October 2020

Problematic detentions highlighting market challenges were found by discharging stevedores in a hold of the vessel, concealed amid the cargo and then notified to the police. > The container vessel is insured with Nordic Plan, while the bulker is insured with English conditions.

Is there any form of insurance to protect the owners from such kind of losses? There may (probably) be a different approach depending on the adopted set of insurance instruments.

Let’s start from an English market approach.

Of course the first kind of loss coming to our mind is, as long as a vessel remains “detained”, a loss of revenue or earnings, but the typical loss of hire insurances are conceived to protect the insured only if the loss of use of the vessel is triggered by an event being a risk insured under the hull and machinery (or war risks) policies.

NAMED PERIL As to cover for physical losses, detention is not a named peril under Institute Time Clauses – Hulls but instead it is a risk specifically, mentioned in the Institute War and Strikes Clauses, clause 3 giving the assured right to claim constructive total loss of the vessel when same has been subject to capture, seizure, arrest, detainment, confiscation or expropriation and thus subtracted to the free use of the assured for a continuous period of 12 months.

With regard to the scope of the named peril “detainment”, this may include any detention as a result of any political or executive act, other than arising from ordinary judicial process (in civil proceedings). However, detention would not be covered if it arose as a consequence of breach of custom/ trading regulations, meaning rules forbidding, controlling or

MARINE | Detentions In association with Cambiaso Risso Marine

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Shipowners that have had their vessels “detained”, for months now have started questioning which insurance cover should help in recovering the losses such detentions are causing.

otherwise regulating the sale or importation of goods into a political objective”. country or their carriage on this purpose.

The wording is aimed to exclude the result of enforcing In the submitted bulk carrier case, cover may not operate police or custom legislation related to investigation on an as “custom regulations” exclusions have been construed by assumed criminal act which is not a politically motivated English courts and commentators to include regulations act. Being not a war risk, detainment has consequently to which prohibits the import absolutely (such as for drugs). be regarded, in our case, as a peril falling within the all-risk The approach is somewhat different in a case governed cover provided by Cl. 2-8 (Marine Perils). by the Nordic Plan, as in this case we are in the context It may be interesting to note that, on the same basis, hypothetical final confiscation of the of an all risks cover. The point is vessel would not be a war peril, but a therefore basically to understand marine peril and that the time needed which policy may intervene, if the hull by local authorities in reaching a and machinery or the war risk policy, ‘With regard to the scope of the conclusion is not itself something particularly Cl. 2-8 (Marine Perils) or which can change treatment of claim Cl. 2-9 (War Perils) of the Plan. named peril “detainment”, this may under the policy, even if the length The matter has been expressly of detainment may be regarded as a considered by the 2019 Version of include any detention as a result of misuse of power. the Plan. Amendments made clear In fact the deciding point would that detainment of a vessel due to any political or executive act, other still be the absence of the intention investigation regarding the breach of to pursue overriding political goals, regulation, or due to the fact that the than arising from ordinary judicial which is enough to exclude war perils vessel was used for illegal purposes by cover and consequently to render a fraudulent action from a third party, process (in civil proceedings).’’ applicable the (all risks) cover against is not a war peril covered by Cl. 2-9, the marine perils. as this would require an intervention Gian Piero Priano, Indeed, we face new challenges. made “for the furtherance of an Cambiaso Risso Marine overridding national or supranational The Marine Insurer IUMI 2020 Special Edition | October 2020

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MARINE | Salvage In association with Cavus & Coskunsu

Salvage claims in the Turkish Straits Caglar Coskunsu, partner at Cavus & Coskunsu Law Firm, reports on the challenges of salvage in the Turkish Straits TURKS 2015 By well-established practice, maritime contracts often contain indemnity provisions. This allows the contracting parties to allocate risk and reliably determine insurance needs. Unlike maritime contracts, which are subject to general maritime law, non-maritime contracts are generally subject to state law, which often prohibits the enforcement of indemnity agreements.

When there is a salvage case in Turkish Straits, it is still referred to as a TOF case. TOF stands for Turkish Open Form, a salvage agreement which used to be offered by The Directorate General of Coastal Safety (the salvors), the Turkish state-owned salvors, which had monopoly rights for salvage operations in the Turkish Straits including the Marmara Sea and some adjacent waters at the entrance of Bosporus and Dardanelles.

TOF as a salvage agreement was abandoned many years ago following a marathon litigation which ran for four years, where our firm represented the hull underwriters and the owners.

The Turkish Supreme Court Appeals ruling on the TOF Arbitration Clause marked the end of an era for salvage cases in the Turkish Straits. After TOF, there was an opportunity for the salvors to develop an internationally acceptable form of agreement. So now the salvors offer the Turkish Salvage Agreement (TURKS) 2015. However, Turks 2015 was not the outcome hoped for.

The salvors issued Turks 2015 without any consultation process including stakeholders in salvage cases. As a state-owned company, the salvors hold monopoly rights in the Turkish Straits and they may feel that they do not need to consult anyone. However, the benefit of consultation would have been to understand the realities of the shipping and insurance markets and to create an internationally recognized salvage agreement.

Turks 2015 kept a controversial part of the arbitration clause by which arbitrators are entitled to receive 12% of salvage award. Another real issue for shipowners under Turks 2015 is that once the master signs Turks 2015, shipowners agree to pay the salvage remuneration and the associated expenses relating to the vessel, bunkers, cargo and the freight in full and also agrees that the relevant claim can be directed to himself alone. So, Turks 2015 puts a heavy burden on the shipowners’ shoulders. That may include some uninsured risk in many cases as the shipowners do not usually insure paying, for example, the cargo share of the salvage claim or to provide salvage security on behalf of the cargo.

Unfortunately, what has replaced TOF is far from what a shipowner may consider to be a reasonable salvage contract and therefore whenever a salvage case occurs, we call the hull underwriters, the shipowners and the masters to suggest that the master should not sign Turks 2015.

The number of salvage cases in the Turkish Straits have not decreased in 2020 even when global trade was hit because of the Covid-19 pandemic.

The Marine Insurer IUMI 2020 Special Edition | October 2020

MARINE | Salvage In association with Cavus & Coskunsu

The Turkish Commercial Code, which came into force on 1 July 2012, substantially codified the provisions of the International Convention on Salvage of 1989 and Turkey also became a state party to the 1989 Salvage Convention with full effect as of 29 May 2013. Accordingly, Salvage Convention, 1989 is directly applicable to all salvage cases with a foreign element. The shipowners and the hull and cargo insurers’ legal rights are much more better compared with the provisions of Turks 2015.

SLOW SPEED IN TURKISH STRAITS The number of salvage cases in Turkish Straits has not decreased in 2020 even when global trade was hit because of the Covid-19 pandemic. There is a trend where salvage cases are mostly related to engine breakdowns or speed problems in Turkish Straits.

I cannot say whether it is scientifically provable but whenever we are instructed in a salvage case in Bosporus or Dardanelles arising from engine problems, the hull underwriters’ surveyors frequently mention that “IMO’s 0.50% Sulphur Cap” decision affected the performance and the operation of the ship’s engines for manoeuvring in challenging areas like narrow channels with adverse currents that - a description of Bosporus and Dardanelles.

The low sulphur issue was widely discussed in the run-up to 2020 but probably no one considered that it would have an impact on salvage cases in Turkish Straits.

It is widely known that The Directorate General of Coastal Safety has a percentage approach on salvage cases. That does not suggest that they totally ignore the facts, but the nature of the services, facts and surrounding circumstances define their stance in a narrow percentage window. It is becoming more difficult to settle less than 8% of the salved values while it used to be possible to achieve more reasonable settlements at substantially lower percentage than 8%. However, there are some salvage claims arising from low speed in Turkish Straits where the minimum speed is 4 Knots under Regulations on Marine Traffic Scheme

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of Turkish Straits. If a vessel cannot maintain the minimum speed of 4 Knots, it does not necessarily become a salvage claim, but the problem is that the Directorate General of Coastal Safety are not just salvors. They operate pilotage and the VTS in Turkish Straits too. Ship masters do not understand this conflicting situation and have been giving lines to tugs of the salvors in low speed cases without realizing that it will lead to a salvage case because both the VTS and the pilot will encourage it.

Therefore, if the manoeuvring speed of vessel is low, the masters whose vessels pass from South to North should be careful, particularly when the weather conditions are rough in the West of Black Sea around the Northern entrance of Bosporus. Here, the force of currents dramatically increase up to 4 – 5 knots in rough seas. More importantly, ship masters should be alerted to potential salvage risks in case of slow speed in the Turkish Straits.

Unless there is absolute necessity due to an imminent danger, the shipmaster should consider not to take lines from the tugs, instead dropping anchor at a safe place or to continuing if the vessel can be steered at low speed. Normally, dropping anchor is prohibited in Turkish Straits but if it is needed for safety reasons it can be done and the worst outcome would be an administrative fine, which is very low in cost compared to a salvage claim based on the values of ship and property on board Slow speed issues and engine breakdowns in the Turkish Straits are becoming more costly for owners and their insurers. There were four cases within a week recently. Therefore, given the risks are real, good passage planning including consideration of all operational

“The Turkish Supreme Court Appeals ruling on the TOF Arbitration Clause marked the end of an era for salvage cases in the Turkish Straits. After TOF, there was, an opportunity for the salvors to develop an internationally acceptable form of agreement.’’

Caglar Coskunsu, Cavus & Coskunsu

The Marine Insurer IUMI 2020 Special Edition | October 2020

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ADVERTORIAL: SMIT SALVAGE

Creating salvage solutions for years to come Training staff and developing strong teams has helped Smit Salvage through many tough times, most recently the Covid-19 pandemic, as Jody Sheilds, manager commercial EMEA at Smit Salvage, explains The Smit brand is been recognized as a leader in the world of marine salvage industry for decades. Many notable emergency response projects or complex wreck removal cases have been successfully executed under the Smit flag through the years. What drives these projects and how can a company survive for more than 178 years in an industry where the dangers and uncertainties are met on a daily basis?

“It’s all about teamwork and the unstoppable commitment to success that drives us.” says Richard Janssen, managing director of Smit Salvage. “It is the 200 men and women that can count on each other when operations are complicated or things get rough, whether it is an apprentice diver, senior salvage master or our office support colleagues that ensure that our teams on site can keep going. Their contribution is highly valued and appreciated by everyone within our organization and that is why we believe in ‘We are Smit, we are a team, we want to be the best’.”

We pride ourselves with having our own trained-up personnel as the backbone of our organisation and shall The Marine Insurer IUMI 2020 Special Edition | October 2020

continue to do so for the foreseeable future. There are a number of examples of colleagues who have worked their way up from diver to senior salvage naster or those who have transitioned from general salvage support into specialists or even industry subject matter experts.

For many reasons the integration into the Royal Boskalis Westminster group in 2010 has proven to be very beneficial for Smit Salvage but from a career opportunity perspective the available options exponentially grew for our people. Within the Boskalis group, which employs approximately 11,000 people globally, there are intercompany career paths available, which makes it possible for employees to shift within the three divisions: Dredging & Inland Infra, Offshore Energy and Towage & Salvage. Also, staff have access to temporary assignments to familiarize themselves with the many other marine services that the company offers. A good example of this our current general manager in Singapore, Hemant Phul.

After his time at sea for a shipping company Hemant joined the operations team for salvage in Singapore in

ADVERTORIAL: SMIT SALVAGE

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‘‘It’s all about teamwork and the unstoppable commitment to success that drives us.” says Richard Janssen, managing director of Smit Salvage. “It is the 200 men and women that can count on each other when operations are complicated or things get rough, whether it is an apprentice diver, senior salvage master or our office support colleagues that ensure that our teams on site can keep going.”

2007. While gaining experience in the field of salvage for several years, he was promoted to operations manager where he developed from strength to strength. To gain further project experience, particularly with large scale projects, Hemant was assigned to the dredging division to work on the “Pulau Tekong Project” which entails the reclamation of approximately 810 acres of land in Singapore. This project with a total contract value of S$800 million is designed for a lifecycle of four years with many stakeholders, large subcontracts and regional influences. When earlier this year the position of general manager Asia for salvage became available, it was decided to appoint Hemant.

While many of the SMIT staff have been with the company for quite some years, to keep the business sustainable new recruits are required on regular basis. As the fight over talent is a challenge, Boskalis corporate HR have designed a trainee programme to serve the needs of all divisions. Every summer a group of 50 trainees start their careers in the Boskalis group.

During a period of 18 months the trainees will receive tailor made assignments taking into consideration their education and background. These assignments can be anywhere in the world and are rotated between the divisions to gain experience within an organization that encourages them to rise to the challenge and make their mark on complex infrastructural and marine projects.

Last year Smit opened its doors of the new warehouse in the port of Rotterdam. The premises provide storage and maintenance facilities for the salvage equipment of Smit as well as for the crucial parts for the 900 vessels that the group operates on a global scale. The newly built facility is at the deep waterfront of the Rotterdam port entrance and provides a 17,800 m2 storage capability with an additional office floor of 1,570 m2. With 17 loading docks and approved bondage storage capabilities it is ready to swiftly mobilize equipment whenever required. Presently the roof top of the ware house is being covered with solar panels to reduce the carbon footprint and to live up to our ambition to further reduce the carbon footprint of the company.

On this basis the company is convinced that with the investments in people, equipment and the environment our future is sustainable and viable to continue to contribute to the maritime community that we have been honoured to serve for so many years.

For more information go to www.smit.com The Marine Insurer IUMI 2020 Special Edition | October 2020