The Marine Insurer. June 2021. Issue 6

ISSUE 6

| JUNE 2021

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

s on a i c t i i er Ed Amcial e Sp

Global marine markets innovating safe passage through turbulent times

Mitigating oil pollution: California toughens the rules l

Out of the box: Innovation key to Latin American market success

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Amazon piracy: Time to fight back with better protection

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LNG boom: Insurers set to benefit as sector grows l

A community divided: Renewals set new trend l

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CONTENTS | EDITORIAL

Comment

Highlights AMERICAS SPECIAL EDITION 22 US offshore energy

The implications of the Jones Act on the US offshore wind market

26 Offshore wind

On the projected growth in US offshore wind farm construction vessels

04 Pollution risk

Risk management and training are critical to mitigating oil pollution events

06 Latin American economy Innovation is needed to help the Latin American economy through the crisis

08 California oil spills

The implications of the increased fines for oil-spill related offences

10 The US LNG boom

The recent US LNG growth is having significant impacts for offshore energy

14 P&I

A 2021 post-renewal market update on the P&I market

18 Piracy in the Amazon

The actions that need to be taken on the growing cases of piracy in the Amazon

20 Crew safety

Reviewing a case that could have important implications for the exposure of insurers to seamen under the Jones Act

FE ATURES 42 Firefighting at sea

The challenges brought by fire and what needs to be done to rise to the task ahead

44 Digital technology

How digital technology and data collection is changing the world of fixed and floating object (FFO) cases

48 Ever Given lessons

Why the Ever Given case once again underlines the criticality of understanding your risks to protect your balance sheet

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30 Personal injury

Looking at exaggeration and fraud in US personal injury litigation

34 Risk modelling

Knowledge of the exact location of a cargo in storage is fundamental to an accurate understanding of the exposure

36 Latin America

The impact of the recent hardening in the Latin American insurance market

40 Cargo data

Recent losses have focused the need for digitalisation in the cargo market

50 Data-driven underwriting

A roundtable discussion at Marine Insurance Americas hosted by AdvantageGo looked at the application of data sharing for the industry

60 A market in flux

Assessing the state of the marine insurance market during this period of significant change

52 Arbitration

Looking at a recent rejection of an attempt to re-open cases under the Arbitration Act 1996

54 Surveying

The challenges faced by marine surveyors during the pandemic

56 Digital transformation

Bringing the insurance sector into the full automated future to deliver efficiencies for all

58 Data and safety

Using shipping insurance data to drive safety and loss prevention initiatives

Editor Liz Booth liz@lizbooth.co.uk Assistant Editor Adrian Ladbury ladburya@gmail.com Art Editor Rob Crotty rob@greenlightpartners.co.uk

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

Shaking up of the old guard A NEW US president, currently in Europe on his first overseas visit since taking office, inevitably means a new approach. On land this might be about major infrastructure investments but there are bound to be implications for the ocean too.

On a sustainability footing, President Biden has agreed to once again look to the Paris Agreement and will be supporting COP26 in the UK later this year. California has already toughened its pollution laws and it is only likely that the rules will increasingly impact marine interests.

We will have to wait and see what comes out of these key meetings, but as, we hear in our article on p6, this is a time for thinking out of the box.

Economies across the world, including many of those in Latin America, are struggling to cope with the financial shock that came with the Covid-19 pandemic and need new solutions.

Unfortunately, those who are struggling financially will often take to crime and we hear of the increasing numbers of pirates emerging in the Amazon river basin – not an area one would automatically list as a piracy hotspot but one where, sadly, armed guards are becoming the norm to protect precious cargoes.

But there is good news too. The US is set to benefit from the continued LNG boom, while offshore wind installations continue to expand as the world looks to greener sources of electricity.

And increasingly the marine markets are looking to use data in smarter ways – something that could help the marine sector deal with so many of its long-standing issues, from pollution to crew.

As you can see there is a lot happening in the marine world right now, so I hope you enjoy this Americas Special.

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

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

The Marine Insurer Americas Edition | June 2021

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MARINE | Pollution risk In association with The American Club

A stitch in time From bulk carriers to small inland and coastal transports every vessel has the potential to be involved in a marine hydrocarbon or oil pollution event. These incidents are preventable with proper policy, procedures, and training.

One of the most common sources of hydrocarbon releases or oil pollution is bunkering; not considering shore installations such as refinery or drill ships, oil wells and the like.

It is estimated that over 70% of spills occur during bunkering operations with the most common cause being inadequate procedures, such as checklists, lack of communication between various entities involved, improper watchkeeping, or product being

pumped at an excessive rate.

A spill or environmental release may occur less frequently because of a collision or allision. However, when they do occur, they tend to be more serious. This type of event can cause massive damage over a wide area. Investigations into these incidents typically show a root cause attributed to navigational error of the pilot or master.

During loading operations, it is exceptionally important for all parties be well versed in the procedures and maintain constant communication. Unexpected vessel shifting, or inattention to detail and improper securing of loading lines, is another common cause of oil spills.

WELL-CRAFTED POLICY A well-crafted environmental policy begins with a strong position statement signed by senior management. It should outline an organization’s overarching aims and principles for managing environmental impact, as well as management’s commitment to adhering to those principles.

The Marine Insurer Americas Edition | June 2021

Properly planned and thought out risk management and loss prevention policy, procedures, and training are critical to mitigate an event such as oil pollution. Jack Jowers, Assistant Vice President & Claims Counsel at Shipowners Claims Bureau Inc., Managers, The American Club, explains

Unfortunately, even the strongest policy, without proper implementation, may simply be words on paper. It is the duty of senior managers to ensure that the goals set forth for the organization are understood by all team members and that each team member has the education, resources, and training to ensure the success of the policy.

Each vessel should have a spill response plan tailored specifically for that vessel. A well-crafted plan must address the overarching subjects of: education, safety, and containment.

The plan also should include the technical aspects relative to the vessel such as layout, capacities, and response locker(s)

location(s).

Prevention is always the best course of action. A prevention plan is known as the ship oil pollution emergency plan, or SOPEP, and is carried on board most large vessels or as dictated by vessel classification societies. Its purpose is to avoid a marine pollution incident with attendant damages to marine species, monetary resources, and also preserve the company’s reputation.

SAFE TRANSFER The corner stone of any good response plan and SOPEP are checklists. These will set forth the steps necessary for a safe transfer of fuel, oil, or other dangerous product, which may cause environmental damage.

Special attention should be given to the methods of communication between the parties involved, an agreed upon flow rate between the vessel and facility, or vessel to vessel, and most importantly, all recommended safety equipment is on hand and functional.

In the event of a release, first notification should go to the

MARINE | Pollution risk In association with The American Club

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“Prevention is always the best course of action. A prevention plan is known as the ship oil pollution emergency plan, or SOPEP, and is carried on board most large vessels or as dictated by vessel classification societies. Its purpose is to avoid a marine pollution incident with attendant damages to marine species, monetary resources, and also preserve the company’s reputation.”

Jack Jowers,The American Club

Qualified Individual (QI) via phone, using their 24-hour number(s).

The QI will then coordinate follow-up notifications to the USCG National Response Center (NRC), Oil Spill Removal Organization (OSRO), State authorities, and the Salvage and Marine Firefighting (SMFF) provider, if required.

These notifications can trigger enquiries from media in the event of a mass pollution incident. Remember, the public perception may be biased against an organization regardless of true liability or factual circumstances.

Under this scenario, a company is better served not giving

accurate and realistic.

Through years of experience and service, the American Club, as well as the other P&I Clubs, has developed relationships with skilled experts, consultants, and counsel, all of whom assist in coordination of communications between Members, brokers, experts, counsel, correspondents, contractors, and/or governmental agencies.

Should a response programme need attention or perhaps there is a need to formulate a program, your Club can certainly point you in the right direction. Contact the loss prevention department

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Source: DHL, McKinsey

statements to the media until more concrete facts become known.

Your insurers can recommend a media firm which can coordinate with counsel to put forth information in a protective and thoughtful manner.

KEEP PLANS CURRENT Every year, new methods, and technology are developed to assist with mitigation of environmental spills. Be sure to keep plans and employees current with the changing methods. Educational material and updates can be found through class societies, industry associations such as AWO or OMSA, or environmental response firms.

Drills are not only required by class societies or governmental regulatory agencies, but they are also an organization’s opportunity to become better prepared.

Depending on the type of vessel, best practices dictate the conducting drill of the plan at least every quarter. To add value to the drill, consider incorporating local emergency response agencies and spill response consultants. They are typically eager to work with organizations to ensure that their plans are up-to-date,

or your individual claims handler with specific questions.

Those with more advanced response plans may name an emergency or environmental response firm. While not necessary, this can unquestionably cut down on the confusion at the onset of an event. It is always a best practice to have these relationships in place as part of the safety management system.

INSURER RELATIONSHIP KEY One of the more important relationships for a company in the event of an oil spill is the one with its insurer.

At the American Club, we partner with Members to help them develop, assess, and execute their response plan. We are there to aid them through every step to ensure a successful cleanup operation. Our network of expert professionals is trained to act quickly to mitigate environmental damage, damage to property, and help to lessen overall liability. It is our goal to ensure that our Members do not just react to an event, but, through the proper implementation of policy, procedures, and training, are prepared for such an event and can mitigate their exposure.

The Marine Insurer Americas Edition | June 2021

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MARINE | Latin America In association with ARM Services

Think out of the box

Samuel Markov, Director ARM Services, the logistics, STP-property risk assessment, security risk management services, marine/cargo claims adjustment and telematics group, says that imagination and innovation is needed within the marine sector to help the Latin American and global economy emerge successfully from the current crisis As the global community works together to meet the many challenges brought by the Covid-19 pandemic, the unprecedented work on vaccine development is yielding great results. With vaccines becoming increasingly available over the world, we are now witnessing the start of of a global population in a safe, timely and efficient manner and so...the transportation and distribution of vaccines is critical. This will require the largest transportation and supply chain efforts ever undertaken and will be on a massive scale. From a marine (re) insurer’s perspective, this requires the following criteria to be carefully assessed: The effects of the COVID-19 coronavirus outbreak will go well beyond the impact on our health or the threat to human life.

The pandemic will have significant repercussions, including an economic downturn, the risk of a recession in some regions, logistical complications, and geopolitical and security issues.

The maritime insurance industry and the eco-system of The Marine Insurer Americas Edition | June 2021

multimodal transport has not been and will not remain unaffected.

During this period of instability, and the transition to a ‘new normal’, all of the links in the cargo insurance industry will play a key role, supporting decisions with clear, reliable and data-based solutions.

These decisions which will not only facilitate economic recovery but will also promote new, better and more innovative, across-the board practices for the sector. The insurance and reinsurance industry play a pivotal role.

As a result of the coronavirus crisis, the market is rethinking the coverage in the event of a pandemic as a case of force majeure or as an unforeseen event that interrupts or affects the supply chain.

Now that we are seeing some recovery (although slow, and only in some countries or regions) it is appropriate to review the economic activity in Latin America in comparison with previous years.

This will enable us to determine a baseline and then

MARINE | Latin America In association with ARM Services

project its evolution and behaviour over the coming years.

UNCHARTERED WATERS After a year (2020) that was the most disruptive period in more than a century, Latin America finds itself in unchartered waters, full of risks as well as opportunities.

COVID-19 and the lockdowns and restrictions that go with it have unfortunately divided us more than they have united us, in spite of the noteworthy gestures of human kindness throughout the region since the pandemic broke out.

Even before the onset of COVID-19, Latin America was struggling with stagnation and under-investment in several countries. Such a backdrop adds several challenges to economic recovery in the region, which only began in 2021.

At the close of 2020, global merchandise trade fell by 5.6%, the highest slump since 2009, when it fell by 22%. Even though Latin America was no stranger to this impact, the figures, even in local currency show growth in several countries in 2020 versus 2019. The figures presented in dollars reveal a general drop in premiums because of the devaluation of Latin American currencies in 2020 according to research.

UNPRECEDENTED SITUATION It is obvious that our industry and our national and regional economies are not the only ones experiencing an unprecedented situation, with consequences that cannot be anticipated. All of humanity is seeing that in real time.

Transport and logistics are two sectors that play an essential role, not only as the critical link in healthcare management, but also in the the well-being of society and even the ability to face the challenges to come.

I would like to end this article by proposing ideas that will allow us – as individuals – to reset the way we work and think (and, possibly, do the same in our organisations) so that we get ready for a post-pandemic reality that will certainly not be the same as the reality that saw us grow and brought us to where we are now.

“In times of crisis, only imagination (and, I would add, innovation) is more important than knowledge”.

Albert Einstein

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“Even before the onset of COVID-19, Latin America was struggling with stagnation and under-investment in several countries. Such a backdrop adds several challenges to economic recovery in the region, which only began in 2021.”

Samuel Markov.

ARM Services

LATIN AMERICA MARINE INSURANCE REVENUES 2019-2020 USD (Thousands) USD (Thousands) COUNTRY COUNTRY ARGENTINA ARGENTINA Written Written Premiums Premiums CededCeded Premiums Premiums % Ceded % Ceded Gross Gross Loss Ratio Loss Ratio Combined Combined Ratio Ratio BOLIVIA BOLIVIA Written Written Premiums Premiums CededCeded Premiums Premiums % Ceded % Ceded Gross Gross Loss Ratio Loss Ratio Combined Combined Ratio Ratio BRASILBRASIL Written Written Premiums Premiums CededCeded Premiums Premiums % Ceded % Ceded Gross Gross Loss Ratio Loss Ratio Combined Combined Ratio Ratio CHILE CHILE Written Written Premiums Premiums CededCeded Premiums Premiums % Ceded % Ceded Gross Gross Loss Ratio Loss Ratio Combined Combined Ratio Ratio COLOMBIA COLOMBIA SUPERSUPER Written Written Premiums Premiums CededCeded Premiums Premiums % Ceded % Ceded Gross Gross Loss Ratio Loss Ratio Combined Combined Ratio Ratio COSTACOSTA RICA ANUAL RICA ANUAL Written Written Premiums Premiums CededCeded Premiums Premiums % Ceded % Ceded Gross Gross Loss Ratio Loss Ratio Combined Combined Ratio Ratio DOMINICANA DOMINICANA SUPERSUPER Written Written Premiums Premiums CededCeded Premiums Premiums % Ceded % Ceded Gross Gross Loss Ratio Loss Ratio Combined Combined Ratio Ratio ECUADOR ECUADOR Written Written Premiums Premiums CededCeded Premiums Premiums % Ceded % Ceded Gross Gross Loss Ratio Loss Ratio Combined Combined Ratio Ratio GUATEMALA GUATEMALA Written Written Premiums Premiums CededCeded Premiums Premiums % Ceded % Ceded Gross Gross Loss Ratio Loss Ratio Combined Ratio Ratio Combined

98.89298.892 90.48490.484 70.24070.240 63.21563.215 71% 71% 70% 70% 34% 34% 33% 33% 58% 58% 58% 58%

USD (Thousands) USD (Thousands) COUNTRY COUNTRY 2019 2019 2020 2020 HONDURAS HONDURAS Written Written Premiums Premiums 8.285 8.285 8.103 8.103 % Ceded % Ceded 0% 0% 0% 0% Gross Gross Loss Ratio Loss Ratio 30% 30% 75% 75% Combined Combined Ratio Ratio 30% 30% 75% 75% MEXICO MEXICO CNSF CNSF Written Written Premiums Premiums 954.405 954.405621.372 621.372 CededCeded Premiums Premiums 780.297 780.297456.579 456.579 % Ceded % Ceded 82% 82% 73% 73% Gross Gross Loss Ratio Loss Ratio 39% 39% 53% 53% Combined Combined Ratio Ratio 56% 56% 76% 76% NICARAGUA NICARAGUA Written Written Premiums Premiums 3.177 3.177 3.741 3.741 CededCeded Premiums Premiums 1.846 1.846 2.365 2.365 % Ceded % Ceded 58% 58% 63% 63% Gross Gross Loss Ratio Loss Ratio 29% 29% 14% 14% Combined Combined Ratio Ratio 29% 29% 14% 14% PANAMATRIMESTRAL PANAMATRIMESTRAL Written Written Premiums Premiums 51.44351.443 55.17155.171 CededCeded Premiums Premiums 39.41639.416 43.37043.370 % Ceded % Ceded 77% 77% 79% 79% Gross Gross Loss Ratio Loss Ratio Combined Combined Ratio Ratio PARAGUAY PARAGUAY Written Written Premiums Premiums 14.65914.659 15.25915.259 CededCeded Premiums Premiums 8.115 8.115 8.905 8.905 % Ceded % Ceded 55% 55% 58% 58% Gross Gross Loss Ratio Loss Ratio 23% 23% 41% 41% Combined Combined Ratio Ratio 67% 67% 80% 80% PERU PERU Written Written Premiums Premiums 89.17389.173 82.85882.858 CededCeded Premiums Premiums 47.03947.039 45.63445.634 % Ceded % Ceded 53% 53% 55% 55% Gross Gross Loss Ratio Loss Ratio 35% 35% 46% 46% Combined Combined Ratio Ratio 60% 60% 75% 75% URUGUAY URUGUAY Written Written Premiums Premiums 27.96427.964 32.92132.921 CededCeded Premiums Premiums 7.806 7.806 13.54413.544 % Ceded % Ceded 28% 28% 41% 41% Gross Gross Loss Ratio Loss Ratio 14% 14% 12% 12% Combined Combined Ratio Ratio 56% 56% 45% 45% AMERICA AMERICA LATINA LATINA Written Written Premiums Premiums 2.685.394 2.685.394 2.102.649 2.102.649 CededCeded Premiums Premiums 1.525.843 1.525.843 1.156.482 1.156.482 % Ceded % Ceded 57% 57% 55% 55% Gross Gross Loss Ratio Loss Ratio 42% 42% 47% 47% Combined Combined Ratio Ratio 66% 66% 76% 76% Total Total 4.211.238 4.211.238 3.259.133 3.259.133

26.62726.627 25.70625.706 11.76811.768 11.22911.229 44% 44% 44% 44% 21% 21% 22% 22% 43% 43% 46% 46%

Source Latino Insurance.com

2019 2019

2020 2020

134.083 134.083123.413 123.413 60.05660.056 60.82160.821 45% 45% 49% 49% 64% 64% 25% 25% 96% 96% 64% 64% 17.57617.576 13.38713.387 7.230 7.230 5.619 5.619 41% 41% 42% 42% 34% 34% 40% 40% 82% 82% 109% 109% 955.828 955.828734.052 734.052 290.867 290.867236.394 236.394 30% 30% 32% 32% 45% 45% 53% 53% 72% 72% 86% 86% 166.626 166.626168.935 168.935 128.883 128.883135.495 135.495 77% 77% 80% 80% 52% 52% 49% 49% 80% 80% 75% 75% 101.546 101.546 91.68191.681 40.01940.019 39.37939.379 39% 39% 43% 43% 45% 45% 46% 46% 85% 85% 85% 85% 15.58715.587 15.41715.417 2.806 2.806 3.158 3.158 18% 18% 20% 20% 41% 41% 35% 35% 89% 89% 77% 77% 19.52319.523 20.14920.149 29.45529.455 30.77430.774 151% 151% 153% 153% 30% 30% 27% 27% 128% 128% 123% 123%

The Marine Insurer Americas Edition | June 2021

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MARINE | California oil spills In association with Gard

California toughens up oil spill regime California has significantly increased the criminal penalties for oil spill-related offences. However, it is uncertain how the new regulations will play out in practice, and the biggest fines will likely be fewer than expected. Frank Gonynor, (left) Senior Claims Adviser Lawyer with Gard (North America) Inc. and Tonje Castberg, (below left) Senior Claims Adviser with Gard AS, analyse the implications If pollution occurs, the spill must be reported immediately and the responsible party’s failure to comply with orders given and measures required may also lead to fines.

The Marine Insurer Americas Edition | June 2021

The new statutory amendment to California’s marine oil pollution law came into effect in January 2021. With it, the civil fine penalty range was doubled from the previous $5,000-$500,000, to $10,000-$1m.

More significantly, the second tier of fines that could be imposed if criminal charges are brought, was increased up to $1,000 per US gallon.

IT COULD HAVE BEEN WORSE Prior to the change, there were certainly attempts to lobby against the new legislation. For instance, a suggested provision that would have changed the California state Certificate of Financial Responsibility (COFR) limit from $1bn to $2bn, ended up being removed.

There was also successful lobbying against the proposed increase of the criminal fine level, which had been proposed to go to $10,000 per US gallon.

A gallon is about 3.8 liters, so even at $1,000 per gallon, the new legislation still has the potential to result in fines exceeding the $1bn limit of the International Group of P&I Clubs’ (IG) oil pollution cover. The Clubs advised their members that the $1bn limitation on cover for pollution, including fines, remains in effect.

FOUR LIMITING FACTORS There are several factors limiting exposure for fines above the $1bn P&I cover. For factors need to be focused on.

First, the most common fines after a marine oil pollution incident are civil penalties and, while these have been doubled

MARINE | California oil spills In association with Gard

in the new legislation, they are at maximum $1m. Although certainly a high amount, this is well within the Club’s $1bn coverage for such events.

Also, this is a broad penalty range and, for smaller spills, the most commonly occurring events, the application would likely be at the bottom of the range, $10,000 or somewhat above.

Second, as criminal enforcement actions are usually not instituted for the most common oil spill cases, the draconian fines available to Californian authorities would not emerge in most cases. That said, the culpability ‘trigger’ for such criminal prosecutions is lower than in other areas of criminal law.

Third, the high, punitive exposure for such criminal fines against vessel interests does not come into play unless the quantity spilled is greater than 1,000 US gallons.

This means that the risk of exceeding the P&I cover limit is therefore much more relevant for tankers, rather than for vessels with oil aboard as fuel only.

For example, a spill incident involving 500 m/t above the 1,000 US gallon level, would be a spillage of 374,025 gallons, which could incur a maximum criminal fine of $374,025,000 – well within the ceiling of $1bn P&I pollution cover.

Fourth, the additional high fine that could be imposed in a criminal case for quantities greater than 1,000 US gallons is not mandatory for a judge to impose, so likely it will only be used in cases of more egregious conduct or widespread environmental impact.

LOWER CRIMINAL TRIGGER A big question is: what about the lower trigger for potential criminal prosecution, how might that work in practice?

The new California provisions are said to target deliberate or knowing criminal actions and wilful or grossly negligent actions, standards that have been seen before in other legal regimes in the world.

But in this new California statute, the wording applies to a party “who should have reasonably known” that a discharge or pollution event would occur.

This does raise some uncertainty as to where this degree of simple negligence kicks in, and whether it will be assessed on an individual crew member basis, or on a ship management level.

There is prior US case law that environmental crimes are ‘public welfare crimes’, which do not need any intent element at all. It is difficult to predict how the new regulations will play out in practice, before seeing how the California authorities and courts will deal with such matters.

In practice, criminal prosecutors generally wish to reserve the maximum penalties for the most egregious actors/facts, to allow for settlement of lesser cases and to maintain the maximum fine level as a factor in plea bargain agreements, under which a large majority of criminal cases are resolved.

Pollution fines are covered by IG Clubs’ Rules when arising from accidental discharges of pollutants from the ship and

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there is no express exclusion in the Clubs’ Rules for criminal versus civil fines. Fines, whether civil or criminal, arising from intentional discharges are not covered.

AVOIDING PENALTIES Another important question is: how can a vessel operator deal with marine oil pollution cases in California when they occur to try to avoid the imposition of high civil and criminal penalties?

Shipowners should assess the risk of trading to California and exercise utmost caution to avoid operational spills.

If pollution occurs, the spill must be reported immediately, and the responsible party’s failure to comply with orders given and measures required may also lead to fines.

Unless known with absolute certainty, the vessel personnel should initially be very cautious in making any specific quantity representations, or estimations, since the civil and criminal penalties are geared to quantity levels.

When dealing with California officials in an investigation, before digging into the specifics about why an incident may have happened, and particularly what errors or mistakes might have occurred, the master should immediately contact the local P&I correspondent for advice.

All US correspondent offices are law firms and local legal advice in California will be of paramount importance in pollution cases. Correspondents can also provide important information about legal rights of crew subject to questioning and also assist in obtaining individual legal representation for crew witnesses.

“For example, a spill incident involving 500 m/t over the 1,000 US gallon level, would be a spillage of 374,025 gallons, which could incur a maximum criminal fine of $374,025,000 – well within the ceiling of $1bn P&I pollution cover. ’’

The Marine Insurer Americas Edition | June 2021

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MARINE | LNG In association with Envista

Insurers to benefit from US LNG boom

The US has been a consistent net exporter of natural gas since September 2017. This supply growth is having significant impacts for offshore energy, shoreside terminals, shipbuilding, and vessel operation. Michael Venturella, (left) Practice Leader-Marine Group, and Guillermo Ramirez, (below left) Principal Engineer-Major Loss, of Envista Forensics provide analysis of the potential risks and benefits for the insurer to consider with this growth According to the US Energy Information Administration (EIA), the US first saw a few months as a net exporter of natural gas in April 2017 and has made the transition to consistent net exporter since September 2017.

While production of natural gas offshore has significantly declined over the last 20 years, forecasts from the EIA indicate production offshore has leveled and will not decline in future years.

United States domestic consumption of natural gas has increased by about 30%, but, the additional shale gas production had the US exporting 5,280 billion cubic feet in 2020, which is more than double the imported volume from the same year.

PRODUCTION STORAGE AND DELIVERY While production offshore has declined by over 60% since The Marine Insurer Americas Edition | June 2021

2000, this growth has been due to shale gas obtained by fracking, which has seen a 400% growth during the same timeframe.

The basic process to produce natural gas offshore is typically partnered with oil production. Exploration and production have evolved from stationary rigs in shorelines to rigid platforms in shallow water and now new ventures in deep (more than 20,000 ft.) and arctic waters that have resulted in new technologies and challenges not seen before by the industry.

The basic process of offshore gas extraction starts at the well where oil and gas are extracted and transported by pipeline to a platform of vessel (ie FSO or FPSO). The gas is separated from the oil (gas and liquid phases) and further separated, or cleaned, for commercial use. The natural gas is then locally stored for offloading to a transportation vessel or directly delivered onshore via pipeline.

MARINE | LNG In association with Envista

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only at the structure level but also in the production systems contained in them. New extraction conditions might result in product variations not before seen by operators and may have a detrimental effect on the production infrastructure.

However, along with the risks described, there is also the opportunity for significant benefits to the industry. The new areas of production will result in new and more complex infrastructure that will require a whole new set of policies and coverages. With the proper inclusion of risk safeguards, the increase in offshore natural gas production will open a lucrative market for energy policy carriers.

LNG PRODUCTION, STORAGE, AND CARRIAGE

The cost of LNG is typically 33% to 50% lower than oil-based fuels and maintenance frequency is reduced compared to typical oil-fuel ships.

RISKS AND BENEFITS Drilling and production technologies are improving for increasingly difficult operating environments through collaboration between industry and research bodies.

Exploration in deep and Arctic waters result in new challenges and bring risks for the industry. Some of the deepest Gulf of Mexico wells are in waters more than a mile in depth, with some wells extending past 20,000 feet below the seafloor. Plans to explore in deeper and more hazardous regions in the US and around the globe are in development and their success will depend on continuing technological advances.

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

Other federal agencies contribute biologic, geologic, environmental, and security expertise and regulatory authority. In addition to the rules and regulations introduced for the Gulf of Mexico, in 2016 BSEE issued revised rules that included updated regulations for production facilities and equipment for Arctic drilling.

All rules are developed with public input, including public comment sessions. However, neither BSEE nor BOEM currently have extensive experience with the new environments that will come into play.

With these new variables in place, insurers must also consider the typical risks of operating offshore facilities, not

While about 61% of natural gas exports are by pipeline to Mexico and Canada, around 27% is exported as liquified natural gas (LNG) onboard ships.

LNG is produced by cooling natural gas to a liquid state at about -160oC (-260oF), often at shoreside liquefaction capable facilities. This liquefaction reduces the volume of natural gas by six hundred times, increasing its large volume transportability via LNG carrier ships with cryogenic tanks.

The LNG can be regasified at the destination terminal for consumption or delivery via natural gas pipelines.

LNG closely matches the characteristics of the largest portion of its composition, methane. LNG will burn if the percentage of methane in air is between about 5% and 15% and exposed to an ignition source. Although, no combustion can take place if the oxygen content in the atmosphere remains below 12%. If LNG is heated and becomes a gas, it is not explosive unless confined. A confined methane and air mixture in the explosive range can create explosive overpressures.

The extremely low temperatures involved in LNG are particularly dangerous to hull structural mild steel. Mild steel is susceptible to brittle fracture at cryogenic temperatures and can easily crack if contacted by LNG. For this reason, cryogenic tanks are made of special alloys with temperature ranges safe for cryogenic use, but the hulls remain mild steel.

“There are advantages in using LNG as a fuel including environmental protection. This is because LNG has no sulfur emissions, no particulate matter, no visible smoke plumes and reduced CO2 emissions.’’

The Marine Insurer Americas Edition | June 2021

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MARINE | LNG In association with Envista

Hull insurance may be impacted by the risk involved with the potential for contact between the LNG and mild steel hull and flammability or explosivity concerns for confined spaces where vapors could be trapped.

Personnel risks include accidental contact with LNG or its vapor through physical contact or inhalation. In addition to the obvious cryogenic temperature concerns to ship’s crew, the LNG vapor can displace oxygen causing asphyxiation, headache, dizziness, or drowsiness. Protection and Indemnity (P&I) insurance will cover liability for bodily injury caused by cryogenic accidents.

However, there are advantages in using LNG as a fuel including environmental protection. This is because LNG has no sulfur emissions, no particulate matter, no visible smoke plumes, and reduced CO2 emissions. LNG carriers and LNG fueled vessels present a lesser risk profile for pollution liability coverage as it relates to spills or vapour releases due to the environmentally friendly emissions.

Additionally, the cost of LNG is typically 33% to 50% lower than oil-based fuels and maintenance frequency is reduced compared to typical oil-fuel ships.

Machinery insurance risk may be increased because of the complex and fairly novel systems required to store cryogenic liquid onboard and burn it as fuel. The potential decrease in required preventative maintenance reduces and balances out this risk.

“House of Representatives Bill 1819 was referred to the House Committee on Energy and Commerce on March 11 with 14 co-sponsors, ten Democratic and four Republican.The proposed House bill requires a certain percentage of natural gas exports be transported on US built and US flag vessels.’’

to employment of US shipbuilders and mariners, there is also a risk of reducing the demand for US LNG because of increased cost to support the American marine industry.

LNG EXPORTS

BIPARTISAN PUSH IN CONGRESS

According to Federal Energy Regulatory Commission (FERC) data, there are currently seven active LNG export terminals in the US. This includes two on the east coast, four on the Gulf coast, and one in Alaska. There are an additional 21 export terminals approved by FERC, five of which are already under construction. Six more export terminals have been proposed but have yet to be approved.

The US marine industry has begun to invest in construction and operation of some vessels designed to carry LNG. There is currently one LNG bunker barge and one offshore LNG articulated tug/barge (ATB) in operation that were delivered between 2018 and 2019. At least two more LNG carrying ATBs are under construction in US shipyards, but this number is steadily growing.

Additionally, the US has started building and operating cargo vessels and offshore supply vessels (OSV) capable of burning LNG as fuel. There are at least five US flag OSVs and four Container/RO-RO ships already capable of burning LNG for propulsion fuel.

There are, however, zero larger LNG carriers operating under the US flag. Based on congressional proposals to require exports of LNG on US ships, it is estimated that the US would need to build one hundred or more LNG carriers to be able to export solely on US ships.

While this type of legislation would be clearly beneficial

House of Representatives Bill 1819 was referred to the House Committee on Energy and Commerce on March 11 with 14 co-sponsors, ten Democratic and four Republican.

The proposed House bill requires a certain percentage of natural gas exports be transported on US built and US flag vessels. It uses a ladder approach to gradually increase from two percent during the first seven years to 15% in year 22 and beyond.

This ladder approach would strike a balance to try to keep demands for US LNG high, while facilitating time for the US to build the LNG carriers and domestic maritime expertise to crew the vessels. While this bill has only been introduced to the House Committee, it is evidence of a potential trend in the US marine industry that cannot be ignored.

Overall, the US status as an exporter of natural gas is driving construction of new exploration and production facilities, export terminals, bunker barges, LNG ATBs, and brings the potential for construction of a fleet of US flag LNG carriers.

This growth in the marine industry brings environmental, fuel cost, and American employment benefits while creating additional risks related to exploration and production with new variables, such as high pressure, high temperature, cryogenic temperatures and flammability/explosivity. Insurers can benefit from an understanding of these basic risks and benefits when underwriting marine and energy insurance policies.

The Marine Insurer Americas Edition | June 2021

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14

MARINE | P&I In association with Marsh

A community divided

Mark Cracknell, Head of P&I, Marsh Specialty provides a 2021 post-renewal market update on the P&I market and finds an interesting and perhaps long-term division in approach.

Following the February 2021 protection and indemnity (P&I) renewal, announcements by the International Group (IG) and P&I clubs were not as uniformly positive as in previous years.

In the past, it was common to see all the P&I clubs claim an increase in business when reporting their renewal outcome, even though the renewal for the market as a whole is by definition a zero-sum game.

Organic year-on-year growth on the back of a surging world fleet would explain many cases. But, the overall tone of nearly half of the commentary published by the clubs this year was less upbeat than in previous years. This raises the possibility that the market is now, or will soon be, bifurcated.

While some clubs reported growth in membership at renewal, a significant number reported no growth or a reduction in entered tonnage (see graphic on p15).

Some highlights for those reporting growth include: > Gard’s mutual entered tonnage reached a record 246 million gross tonnes (GT) and Gard reported a renewal rate of 99.4%.

The Marine Insurer Americas Edition | June 2021

Gard also said its owners general discount (OGD) will be payable in 2021 at a rate of 5% of renewing premium; > Britannia added 2.6 million GT during the 2020 policy year and then doubled that tally at the renewal itself; > Skuld crossed the 100 million GT owned tonnage threshold at the renewal, booking an increase of 5.5%; > Steamship Mutual added 5.8 million GT, taking total owned entered tonnage above 96 million GT. At the same time, the club reported achieving an overall premium increase close to the club’s published general increase of 5%; and, > Among the smaller clubs, The Swedish Club reported an increase in owned entered tonnage of more than 10%, to 56 million GT. Gard’s considerable financial and physical resources have a strong appeal as the club continues to consolidate its position as the market powerhouse.

Britannia has one the strongest balance sheets of all the clubs in relative terms. Recent history notwithstanding, Skuld has the best long-term published underwriting result

MARINE | P&I In association with Marsh

P&I CLUBS BY OWNED GT AFTER 2021 RENEWAL

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plus, strong free reserves. It also shares with Britannia a policy of distributing “surplus” capital.

REDUCTIONS IN TONNAGE Among the larger clubs reporting reductions in owned entered tonnage at 20 February were Japan, North, Standard, UK Club and West.

The first four of those made it clear in the lead-up to renewal that they intended to prioritise premium increases above new business gains and that they were prepared to lose business where satisfactory terms could not be agreed.

West, like North, said some of its reduction in tonnage was driven by de-risking.

In a “normal” year, very little P&I club business changes hands.

The terms on which a ship owner can move between P&I clubs are restricted, often suppressing any appetite to make a move. In addition, when P&I business does change hands, short-term price issues are not typically the main reason as it is usually the easiest part of a relationship to fix.

The 2021 renewal, however, saw more movement between the clubs than expected. Have some shipowners identified a trend towards a bifurcated P&I market and responded to that?

Source: Marsh Specialty

– 16 years of combined ratios below 100% prior to 20192020. It, like Gard, can point to the benefits of a diversified business model.

Skuld was the first club to abandon the general increase as a concept. Steamship, like Britannia, remains mainly P&I focused, but also has a positive underwriting performance, ADVERTISEMENT

The Marine Insurer Americas Edition | June 2021

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MARINE | P&I In association with Marsh

CAUTIOUS RESERVING There is clear evidence the P&I clubs are cautious when they reserve claims. As a result, more often than not, policy year results improve as they develop to maturity, allowing the clubs to release excess reserves into their surplus funds.

This practice potentially has an initial negative impact on the combined ratios the clubs report and brings with it the attendant problem of club members attaining fair premiums.

The extent to which this practice obscures the scale of the true underwriting challenge varies.

But, logic suggests that the clubs with the biggest reported gaps between income and expenditure on the underwriting account really do need to increase premiums to achieve underwriting balance.

Could it be that some ship owners have reached the conclusion that there is one group of clubs content to approach each risk on its merit; whereas the others have an ongoing requirement to increase rates all around?

That could possibly explain the larger than normal tonnage moves this year – a drift, perhaps, in the direction of long-term stability and predictability of cost.

It is notable that, of the clubs recording growth at the 2021 renewal, only one had a general increase and that was at the lowest point on the scale. It remains to be seen whether this becomes a feature of the P&I market in the coming years.

COVID-19 AND CYBER EXCLUSIONS Much of the excess of loss reinsurance programme that supports the IG pool was on a 24-month term starting 20 February 2020.

Given that timing, the clubs did not need to take account of the COVID-19 and malicious cyber exclusions that have since become widespread in the direct and facultative (re)insurance markets in which the IG collectively, and the clubs individually, spend most of their reinsurance dollars.

For the reinsurance that supports the various products that the clubs offer outside their pool, COVID-19 and cyber exclusions have now become almost universal.

Perhaps because they expect it will be a temporary challenge, most clubs offer a limited reinstatement of cover under these products for COVID-19, though not in the majority of cases for cyber. Clubs take different approaches in this area

The Marine Insurer Americas Edition | June 2021

COVID-19 AND CYBER EXCLUSIONS BY P&I CLUB

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18

MARINE | Piracy in the Amazon In association with West of England P&I

Piracy in the Amazon Damian Mustard, Senior Underwriter, West of England P&I/West Fixed discusses the risk prevention and management actions that need to be taken on the growing problem of piracy in the Amazon region The typically smaller size of vessels using Fixed Premium P&I Cover does not mean that the risks their owners face are slighter or simpler.

One particularly prominent and growing issue is river piracy in the Amazon which is having a detrimental impact on barges that operate on inland waterways as well as their crews.

Barges are usually laden with valuable cargoes which can be easy to load or unload. In areas where vast inland waterThe Marine Insurer Americas Edition | June 2021

Armed security guards are becoming an increasingly popular deterrent on some barges and vessels, especially those travelling at night or with a vulnerable cargo.

ways are insufficiently policed, these kinds of vessels can be an easy target for pirates. These conditions are particularly common in the Amazon areas, where locals call these criminals ‘river rats’.

In these kinds of attacks, a small group of pirates will commonly board a pushtug that’s leading a barge convoy at night. Under the cover of darkness and using the element of surprise, they will enter the vessel and overpower the crew.

These pirates are often armed and pose a serious danger to seafarers and their vessels.

Once the pirates have control of the barge convoy, any cargo that is capable of being transferred will then be offloaded to their boats. This includes the product from any fuel carrying tank barges, which pirates will often access by

MARINE | Piracy in the Amazon In association with West of England P&I

drilling a hole on the barge´s hull and transferring the cargo with a hose.

MORE FREQUENT ATTACKS The simplicity of a ‘river rat’ attack means that there isn’t a significant barrier to entry for enterprising criminals. As they only require a small group of attackers – typically only three or four people – organisation is rarely a significant challenge and there’s no shortage of available boats capable of transferring the stolen property to land.

As a consequence, organised crime rings in the region see these kinds of attacks as a low risk, high reward enterprise.

Indeed, many otherwise normal workers have chosen to become ‘river rats’ – either through these crime gangs or independently – as economic conditions have deteriorated in the region.

We have seen the number of incidents recently rise, both in general and in specific port locations. Alberto Pinheiro Carvalho, Diretor de Relações Institucionais at Brazil P&I, recently highlighted to me that cases have notably increased in the anchorage number 2 of Macapa Port.

This means that the risk to cargoes has increased, but also to crews and vessels. Violent exchanges or other actions associated with piracy can cause crew injury or trauma or cause significant structural or technical damage to a barge or tug.

The risks from these attacks can also become compliance problems. My team recently dealt with an incident during which raiders attacked an empty vessel in port, stealing the barge’s whole safe and the crucial compliance documents inside. Documenting this loss with authorities and repopulating the documents created a complex and time-consuming challenge that compounded all the other losses suffered.

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Easy-to-handle material storage compartments should also be transported in compartments located at the bow of the vessel, away from the bridge, and physical barriers should be used to make it more secure. This means that food, paint cans, cables, or other valuable cargoes are more difficult for thieves to access and transport.

Any piracy incidents, including attempted raids, must also be reported to local authorities as soon as possible.

However, perhaps the most important tool that shipowners have is the loss prevention expertise within their P&I insurer. Up to date, circumstance-specific guidance can help a shipowner to understand the practical risks they face from a route and what practical avenues are available to cut those risks. This can include installing new security systems, but it can also include tailoring vessel plans to avoid high risk situations.

At West, the loss prevention department has more than 150 years’ combined experience as senior deck and engineering officers on almost all vessel types, as well as in ship management roles.

As West’s Fixed Premium book has expanded and the Club has become one of the largest insurers of tugs and barges in South America, this extra level of service has been invaluable to shipowners dealing with the distinctive risks faced by smaller vessels.

Unfortunately, barges and inland waterways are currently seen as soft targets by criminals. Shipowners could and should be taking steps today to make river piracy more difficult for criminals but this is unlikely to bring the risk down to zero. In this environment, shipowners need more than ever to be able to rely on detailed guidance and a high level of service from their P&I insurer.

PIRACY RISK MANAGEMENT Armed security guards are becoming an increasingly popular deterrent on some barges, especially those travelling at night or with a vulnerable cargo.

As many ‘river rats’ are lightly armed, and many more opportunistic groups are looking specifically for easy targets, this can be very effective. However, some thieves carry heavier weaponry – especially those connected to organised crime – which may be more than guards are able to cope with.

To further cut risk, crew training awareness must be adapted to highlight the need for constant surveillance of the surroundings of the vessels, including radar surveillance to prevent approaching of small boats.

Infrared cameras should also be used on barges during night navigation and whilst overnight in port areas to allow crews and guards to see ‘river rats’ before they have boarded a vessel. This means that they no longer have the element of surprise.

“Barges are usually laden with valuable cargoes which can be easy to load or unload. In areas where vast inland waterways are insufficiently policed, these kinds of vessels can be an easy target for pirates. These conditions are particularly common in the Amazon areas, where locals call these criminals ‘river rats’.’’

Damian Mustard, West of England P&I The Marine Insurer Americas Edition | June 2021

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MARINE | Crew safety In association with Galloway

After this article was submitted to the editors, the Fifth Circuit, on May 11, 2021, issued its en banc decision. The Fifth Circuit found that the plaintiff, a landbased welder directed by his employer to work on two discrete short-term transient repair jobs on two vessels, was not a seaman because he was not engaged in sea-based work that satisfied the requirement that he be substantially connected to a fleet of vessels in terms of the nature of his work.

Jason Waguespack, Managing Director at leading specialist US marine law firm Galloway, reviews the recent Court of Appeals decision in a case that could have important implications for the exposure of insurers to seamen under the Jones Act.This federal law gives seamen who were injured in the course of their employment the right to sue their employer for personal injury damages in the absence of redress under workers’compensation rights for land-based workers On August 14, 2020, the US Court of Appeals for the Fifth Circuit filed its opinion in the case of Sanchez v Smart Fabricators of Texas, LLC, 970 F.3d 550 (2020). At issue before the court was whether a welder who was injured on a rig jacked up above water, a step away from and adjacent to the shore side pier, was a Jones Act seaman.

Although the court held that he was, it also issued an unusual concurring opinion, joined by all three judges on the panel. The court urged the entire Fifth Circuit to re-hear the case because it was convinced that the precedent that mandated the result was inconsistent with US Supreme Court’s holdings on the issue of Jones Act seaman status.

Before considering Sanchez, it would be helpful to review the test for Jones Act seaman status developed by the Supreme Court. The Jones Act, part of the Merchant Marine Act of 1920, allows a “seaman injured in the course of employment… to bring a civil action at law, with the right of trial by jury, against the employer.” 46 U.S.C. § 30104.[1] The Jones Act does not define the term “seaman.” Thus, it has fallen to the courts to determine whether a maritime worker injured in the course and scope of employment is a “seaman” who can sue the employer under the Jones Act.

TWO PRONG TEST The Supreme Court established a two-prong test for seaman status in Chandris, Inc. v Latsis, 515 U.S. 347 (1995).

First, the employee’s duties must contribute to the function of the vessel or to the accomplishment of its mission.

Essentially, a court must determine if the employee contributed to the ship’s work.

The Marine Insurer Americas Edition | June 2021

Jones Act status under critical review

Second, the employee must have a connection to a vessel in navigation (or to an identifiable group of such vessels) that is substantial in terms of both its duration and nature. In other words, a court must review the claimed connection for both its temporal, or duration, aspect and its substantive, or nature, aspect.

The fundamental purpose of this prong is “to separate the sea-based maritime employees who are entitled to Jones Act protection from those land-based workers who have only a transitory or sporadic connection to a vessel in navigation, and therefore whose employment does not regularly expose them to the perils of the sea.” Chandris, 515 U.S. at 368.

“The duration of a worker’s connection to a vessel and the nature of the worker’s activities, taken together, determine whether a maritime employee is a seaman, because the ultimate inquiry is whether the worker in question is a member of the vessel’s crew or simply a land-based employee who happens to be working on the vessel at a given time.” Id.at 370.

JUST A GUIDELINE In determining the duration element of the vessel connection requirement, the Supreme Court adopted a general rule that a worker who spends less than about 30% of his or her time in the service of a vessel in navigation should not qualify as a Jones Act seaman.

The Supreme Court explained that this figure “serves as no more than a guideline established by years of experience, and departing from it will certainly be justified in appropriate cases.

As we have said, the inquiry into seaman status is of necessity fact specific; it will depend on the nature of the vessel and the employee’s precise relation to it.” Id.at 371. Nevertheless,

MARINE | Crew safety In association with Galloway

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Thus, the question of whether Sanchez qualified as a seaman was narrowed to the nature element of the test. The entire time Sanchez worked aboard the ENTERPRISE WFD 350, the rig was jacked up above water, adjacent to the shore side pier.

ONLY TWO STEPS

because of this general rule of thumb, the duration element of the second prong is relatively easy to establish.

Determining whether an employee has a substantial connection to a vessel in navigation in terms of its nature has proven to be more problematic.

The US Supreme Court provided more details on this element in Harbor Tug & Barge Company v Papai, 520 U.S. 548 (1997).

In that case, in finding that Papai, who was hired for one day to paint the housing structure of a tug at dockside, was not a Jones Act seaman, the Supreme Court stated emphatically “Jones Act coverage is confined to seaman, those workers who face regular exposure to the perils of the sea.” Papai, 520 U.S. at 560. This is the framework established by the Supreme Court as Sanchezwas considered by the Fifth Circuit.

Sanchez was a welder who was injured when he tripped on a pipe welded to the deck of a jack up drilling rig. The drilling rig where the accident occurred was the Enterprise 263, a rig on the Outer Continental Shelf.

But 72% of Sanchez’s employment was spent on the Enterprise WFD 350, a vessel under common ownership as the Enterprise 263, located adjacent to an inland pier.

The three-judge panel of the Fifth Circuit had to decide if Mr. Sanchez qualified as a Jones Act seaman under the Chandrisand Papaitest as applied by Fifth Circuit precedent.

The parties stipulated that Sanchez met the first prong of the test, that is, that his employment contributed to the function of the vessel or to the accomplishment of its mission, so the panel started with the second prong.

The panel easily concluded that Sanchez satisfied the duration element because almost 90% of his employment was aboard two jack up drilling rigs owned by the same company.

Sanchez only worked a day shifts and he returned home every evening. He never sailed with the vessel, and instead only had to take two steps off the rig and onto land to go home in the evening.

Despite this, the panel held that Mr. Sanchez was a Jones Act seaman. In doing so, the panel was bound by prior Fifth Circuit precedent in In Re Endeavour Marine, Inc., 234 F.3d 287 (5thCircuit 2000), and Naquin v Elevating Boats, LLC, 744 F.3d 927 (5thCircuit 2014).

As noted above, however, in an unusual concurring opinion, all three judges on the panel urged the Fifth Circuit to review the case en bancbecause they were “persuaded that our case law is inconsistent with the teaching of the Supreme Court. It is clear…that Sanchez was a land based fitter and welder whose duties did not take him to sea; consequently, he does not qualify as a seaman”.

Specifically, the panel was persuaded that Fifth Circuit precedent fails to appropriately consider whether a worker’s duties regularly exposes them to the perils of the sea. Sanchez, like Papai, did not work on a sailing vessel and his duties did not take him to sea. Like Papai, therefore, Sanchez should not be a Jones Act seaman.

The Fifth Circuit did agree to rehear Sanchez en bancand the case was argued before the full Fifth Circuit in February of this year. We are currently awaiting the Fifth Circuit’s en bancdecision. If the full Fifth Circuit agrees with the panel’s concurrence, it will narrow the test for Jones Act status in the Fifth Circuit to exclude those workers whose duties do not take them to sea or expose them to its perils.

[1] Prior to the passage of the Jones Act, a seaman did not have under the common law the right to sue his employer for negligence.

“The Jones Act does not define the term “seaman.”

Thus, it has fallen to the courts to determine whether a maritime worker injured in the course and scope of employment is a “seaman” who can sue the employer under the Jones Act.’’ Jason Waguespack, Galloway The Marine Insurer Americas Edition | June 2021

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MARINE | US OFFSHORE ENERGY In association with MatthewsDaniel

Winds of change James Vavasour, Group Marine Director at MatthewsDaniel, the global loss adjusting and marine warranty surveying firm analyses the potentially significant implications of the Jones Act on the development of the US offshore wind market

The Marine Insurer Americas Edition | June 2021

MARINE | US OFFSHORE ENERGY In association with MatthewsDaniel

There is no doubt offshore wind has been a major topic of discussion in the US because the Jones Act, the law that stipulates that all vessels carrying goods between two US points be Americanbuilt, -owned, -crewed and -flagged, is often cited as a barrier to offshore wind development and how these national infrastructure projects are going to be delivered.

Offshore wind farms have been the focus of considerable innovation, outpacing the development of the onshore wind sector as they expand into deeper waters and more challenging environments.

This is not the first time innovation has pushed the limits in the US energy sector, shifting from land to shallow water and eventually to ultra-deep water as emerging technology makes new and exciting resources more commercially viable.

The current discussion around specific installation equipment could well be exaggerating the implication of the Jones Act across a very narrow field of Jones Act-compliant wind turbine installation vessels (WTIVs) and service operation vessels (SOVs). However this is not the first time offshore construction has been presented with these challenges.

The innovations in the development of offshore wind very much mirror the offshore energy sector that renewables is looking to transition away from, oil and gas.

It is clear that there is industry experience to leverage, with sections of mid water and deep-water oil and gas development performed by non-Jones act compliant vessels.

As the development of offshore wind shifts from a predominately-European venture into wider, more global markets, the application of concepts not conventionally found in Europe will highlight the importance of harnessing skilled resources not normally associated with the wind sector. This is particularly the case in the US market.

OFFSHORE WIND VS DEEPWATER Shallow water fixed bottom offshore wind projects will need to adapt their installation methodologies as a result of the limited availability of suitable Jones Act-compliant vessels, mimicking the approach to conventional offshore oil and gas projects and deviating from the approaches used in the installation of European offshore wind farms.

As an example, at present, there are no available US Jones Act compliant WTIVs. Assuming they will be delivered and dedicated to any given project during the planning stages, could be a costly mistake.

Options such as using feeder barges with components being staged at a shipyard and tugs to feed a WTIV, Jones Act compliant or otherwise, seems a more prudent planning methodology until multiple competitive options are available in the region and is a common approach in offshore hydrocarbon projects.

With conceptual designs such as tension leg platforms (TLPs), semi-submersibles and spars entering the renewables

23

sector, offshore wind is a natural skillset for offshore oil and gas companies and their subcontractors and service providers.

These innovative designs also introduce unique challenges.

For example, larger floating wind projects will require fabrication at scale, sophisticated staging facilities and potentially hundreds of floating structures that will need to be towed and dry transported to installation sites.

With towage and construction onshore and the utilisation of barges circumventing Jones Act requirements, this method of offshore construction is familiar in the US oil and gas supply chain. But is not the modus operandi in most offshore wind developments and therefore may be less familiar to developers insurers.

GLOBAL LEADERSHIP GOAL President Biden’s Administration has made clear its aim to transform the US into the world’s leading offshore wind energy producer, and a global leader in that industry.

Amanda Lefton, director of the US Bureau of Ocean Energy Management, recently said:“We have an industry in the US that knows how to do energy development in the Outer Continental Shelf (OCS)”.

This is entirely consistent with the administrations plan to help support the transformation of the US based oil and gas industry into the energy industry of the future with a clear focus on renewables.

Despite the clear ambitions of the new administration,

“As the development of offshore wind shifts from a predominately-European venture into wider, more global markets, the application of concepts not conventionally found in Europe will highlight the importance of harnessing skilled resources not normally associated with the wind sector.

This is particularly the case in the US market.”

James Vavasour MatthewsDaniel

The Marine Insurer Americas Edition | June 2021

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MARINE | US OFFSHORE ENERGY In association with MatthewsDaniel

until now, the law and the application of the Jones Act with regard to the development and support of the emerging US offshore wind energy has not been entirely clear.

The Jones Act, at its most basic, requires that all vessels mobilizing and transporting cargo between two US points be American-built, American-owned, American-flagged and American-crewed, is aimed at providing stability to the US maritime industry, ship building and seafarers.

In relation to the offshore wind industry, the Jones Act effectively forbids foreign vessels from loading turbine components in a US port and installing them in US waters.

President Biden’s record proves that he is a strong supporter of the Jones Act and will likely leverage it for the development of US-based jobs from the offshore wind sector.

There has been extensive debate about the application of the Jones Act with regards to the development of the OCS as it pertains to offshore wind. Several key rulings by the US Customs and Border Protection (CBP) have been largely reflective of principles developed and implemented in connection with offshore oil and gas developments in the US Gulf of Mexico.

If the intentions of the US regarding an ‘America first’ offshore wind industry were not initially made entirely clear, the intentions of the president, regulators, forward-thinking energy companies, offshore operators, wind industry advocates and now, lawmakers, are certainly becoming much clearer after the most recent ruling that the Jones Act must apply to the mobilization of vessels and the transportation of cargo related to the development of offshore wind.

This outcome wasn’t entirely unforeseen. The Keppel AmFELS shipyard in Brownsville, Texas is already well into the construction of the Charybdis, the first Jones Actcompliant, GustoMSC-designed WTIV. The vessel will likely be used for Dominion Energy’s development of the Coastal Virginia Offshore Wind project (CVOW), the largest private offshore wind project in US waters.

Other players are also showing intent. Crowley, the US-owned and operated energy service company,recently announced plans to construct a purpose-built, Jones Act SOV in support of the growing US offshore wind energy market.

OFFSHORE FAST TRACK As a result of the current administration’s commitment to fast-track offshore wind developments by expediting the permit process, more announcements from US players can be expected especially following Chevron’s recent announcement of its investment in the sector with Norwegian company Moreld Ocean Wind.

Many of these players will likely try to build from the technologies developed in the European sector while leveraging local knowledge and lessons learned from the oil and gas sector, most particularly the application of floating concepts not conventionally found in Europe.

Beyond novel design concepts that will challenge The Marine Insurer Americas Edition | June 2021

“President Biden’s record proves that he is a strong supporter of the Jones Act and will likely leverage it for the development of US-based jobs from the offshore wind sector.’’

conventional WTIV suitability, there will also be key environmental differences and impacts that will play a role in installation schedules, which will ultimately impact vessel availability.

While the east coast is often compared to the North Sea from a metocean perspective, there are important differences.

When seas tend to flatten out during the summer months in Europe and installation activities are more technically and operationally viable, the US experiences the onset of the hurricane season.

Therefore, with the limited number of Jones Act-compliant installation vessels, there remains a risk of downtime, extended schedules, and narrow installation windows because of the activation of hurricane contingency procedures as tropical revolving storms wind up the eastern seaboard.

This introduces a level of variables to insurers that is distinct from European offshore wind farms. Engaging players with such local knowledge will be key from a risk prevention and claims perspective.

Despite any rulings by the CBP regarding the Jones Act, the political stance of offshore renewables has clearly changed in the US. As some have already noted, President Biden’s ambition to bring 30 gigawatts of offshore wind online by 2030 would, from a practical standpoint, require that nearly every WTIV, Jones Act compliant or not, coming into service and existing in the US, to meet that objective.

It will be interesting to see how future rulings will begin to address these challenges as they continue to unfold and potentially compound as new and existing players capitalize on the opportunities of this promising, and rapidly developing, US energy sector.

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26

MARINE | Offshore wind In association with Holland & Knight LLP

US offshore wind growth brings risk and opportunity Gerald Morrissey (left) and Vincent Foley (right), Partners in the Maritime Practice Group of the US based Holland & Knight LLP, discuss the marine risk and insurance implications from a legal perspective of the projected growth in US offshore wind farm construction vessels There has been an increase in news and commentary about the vessels needed for construction and operation of US offshore wind farms that is driven by the 16 active leases on the US East coast and support for the ambitious 30 giga-watt by 2030 goals advanced by President Biden.

A great deal of expertise and practices developed for European offshore wind through the last 20 years is being imparted to development of projects in the US. But, there are many issues and applications in the US that are new and/or different.

US-SPECIFIC IMPLICATIONS A good deal of commentary has touched on the role that the Jones Act may have on the availability of vessels for projects in the US. Most commonly, the discussion concerns the The Marine Insurer Americas Edition | June 2021

requirements to use US “coastwise qualified” vessels for offshore wind projects (e.g., because of the Jones Act, and Passenger Vessel Services Act, to name two relevant statutes); concerns about availability of coastwise qualified vessels; and, ultimately, concerns about the relative cost of building coastwise qualified vessels.

More in-depth analysis points out that, while employing a foreign-flagged turbine installation vessel (TIV) in conjunction with coastwise qualified feeder vessels can comply with Jones Act requirements, using a coastwise qualified TIV would be operationally more efficient and, theoretically, more cost effective.

While marine risk is quite logically an implicit facet of these efficiency and cost considerations, the impact of using a US coastwise qualified TIV on marine risk exposure has not received much specific attention.

As utility scale US offshore wind comes closer to fruition,

MARINE | Offshore wind In association with Holland & Knight LLP

27

“A great deal of expertise and practices developed for European offshore wind over the last 20 years is being imparted to development of projects in the US. But, there any many issues and applications in the US that are new and/or different.’’

Although Jones Act considerations apply in one way or another to any potential vessel involved in a US offshore wind project, the most significant issue concerns the vessels needed to construct and install the turbines.

and as construction of the first US coastwise qualified TIV proceeds, it is reasonable to expect more rigorous analysis and consideration of the expected reduction in marine risk exposure of projects using a coastwise qualified TIV for integrated transportation and installation.

THE “JONES ACT” The “Jones Act” refers to a US statute that regulates the carriage of merchandise by water between any two points in the US, referred to as “coastwise trade.”

The term Jones Act is commonly used to refer collectively to a number of other US statues that regulate carriage of passengers, cargo (or equipment), towing, dredging, salvage, and fisheries.

A Jones Act coastwise qualified vessels must be: > Constructed in the US (although substantial foreign content including engines and equipment is permissible); > Registered/flagged in the US (with a “coastwise” endorsement); > The master and majority of the crew must be US citizens; and, > The vessel must be at least 75% owned by US citizens or Jones Act-qualifying US citizen entities, and

operated and overall controlled by a Jones Actqualifying entity.

For the purposes of offshore wind, all points within US territorial waters (generally extending from the coastline out to three nautical miles) are considered coastwise points.

Accordingly, the Jones Act was implicated in the Block Island project locations in the territorial waters of Rhode Island.

In addition, the Outer Continental Shelf Lands Act (OCSLA) extends the application of federal laws, including the Jones Act, to the subsoil and seabed of the Outer Continental Shelf (OCS) and artificial islands or installations permanently or temporarily attached to the seabed for certain purposes.

In late 2020, Congress clarified a long-standing ambiguityover whether offshore wind installations would be considered OCSLA attachments, amending the extension of federal laws in Section 4(a) of OCSLA to cover: “(iii) installations and other devices permanently or temporarily attached to the seabed, which may be erected thereon for the purpose of exploring for, developing, or producing resources, including non-mineral energy resources…”[1] US Customs and Boarder Protection (CBP), which administers the Jones Act, has subsequently issued interpretive rulings expressly applying the Jones Act to proposed US offshore wind projects on the OCS.[2]

OFFSHORE WIND PROJECT VESSELS Construction and operation of offshore wind projects can involve a wide array of vessels and vessel types for preconstruction surveying, construction of foundations, scour protection, cable laying, tower/turbine installation and long-term operation and maintenance.[3] Although Jones Act considerations apply in one way or The Marine Insurer Americas Edition | June 2021

28

MARINE | Offshore wind In association with Holland & Knight LLP

another to any potential vessel involved in a US offshore wind project, the most significant issue concerns the vessels needed to construct and install the turbines.

In Europe, wind farm construction generally uses a specialized TIV, that is designed to both transport the turbine components from port to the installation site, and install them on site.

Because of the transportation of equipment between two points in the US, a TIV used in the same manner for US offshore wind projects would need to be US coastwise qualified, but at present none exist.

Thus, for the Block Island project a non-coastwise qualified TIV was permissibly used to construct the towers by staying in a stationary position, while two smaller coastwise qualified vessels were used as “feeder” vessels to ferry the components from port to the installation sites.

For two test towers installed on the OCS off the coast of Virginia, a non-coastwise qualified TIV was permissibly used by loading the components on the TIV in a foreign port (Halifax), and transiting to the tower installation site for installation on the OCS. In each case, the non-coastwise qualified TIV was permissible because the TIV did not engage in transportation of merchandise or passengers between two US points.

For the Virginia project, the transit from Halifax to the OCS installation site was not a Jones Act movement, but required transiting back and forth to a relatively distant foreign port.

For the Block Island project, the TIV did not engage in any transportation itself, but required the additional coastwise qualified feeder vessels and required a second heavy lift for the components. The first was in port, and the second at sea from the feeder vessels to the TIV.

MARINE RISK CONSIDERATIONS Employing a non-coastwise qualified TIV in the scenarios described above impacts installation efficiency and cost. These are balanced against considerations such as the cost and logistical details of constructing coastwise qualified TIVs such as US shipbuilding capacity and the high projected cost of US construction and operation.

But a matter worthy of more discussion is the relative risk of using a single TIV for transportation and installation against the feeder vessel approach.

The Block Island feeder vessels were themselves jack up vessels which permitted a more stable platform for the at sea heavy lift from the feeder vessel to the TIV. Floating feeder vessels could be used, especially in conjunction with advanced station keeping and lifting compensation technologies. But, in either scenario the second at sea heavy lift when using a feeder vessel increases the risk of property damage, potential vessel casualty and associated marine pollution, and personal injury.

The Marine Insurer Americas Edition | June 2021

“As utility scale US offshore wind comes closer to fruition, and as construction of the first US coastwise qualified TIV proceeds, it is reasonable to expect more rigorous analysis and consideration of the expected reduction in marine risk exposure of projects using a coastwise qualified TIV for integrated transportation and installation.’’

These concerns are a subset of cost and efficiency, but, they also warrant specific consideration from the perspective of marine risk and insurance, in particular because of the increased risks of personal injury or death claims, a safety and well-being issue which warrants consideration independent of the cost and efficiency analyses.

In the absence of available US coastwise qualified TIVs, the feeder vessel installation approach is likely to be employed again. This is an approach that US Customs and Border Protection (CBP) recently held would comply with the Jones Act in a ruling issued in connection with the Vineyard Wind project offshore of Massachusetts.

At the same time, Dominion has undertaken construction of the first coastwise qualified TIV, at Keppel AmFELS in Brownsville, TX, due to be delivered at the end of 2023. It was announced that the vessel would be chartered for use by two other projects slated for construction before Dominion’s Virginia project.

The current trajectory of the offshore wind industry suggests that this trend of investment in US vessels and infrastructure will continue. While marine risk considerations alone are not likely to drive a decision to build a coastwise qualified TIV they are relevant factors for analysis and consideration by the industry.

[1] Section 9503 of the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021,H.R. 6395, 116th Cong. § 9503 (2021) (NDAA) (emphasis highlighting amendment added).

[2] See, e.g., See HQ H309186 (Jan. 27, 2021), HQ H316313 (Feb. 4, 2021); and HQ H317289 (March 25, 2021).

[3] See, e.g., GAO report on Offshore Wind Energy, GAO-21-153 at 9-11 (Dec. 2020).

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30

MARINE | ARBITRATION In association with Quadrant Chambers

Second bites at s.69(3): Around the course again Simon Rainey, QC Quadrant Chambers, welcomes a recent robust rejection of an attempt to re-open cases under the Arbitration Act 1996 which would have rendered the s.69 process more time-consuming and costly thus defeating the original aim of the act The English statutory regime for appeals against arbitration awards on questions of law under s.69 of the Arbitration Act 1996, as is well known, applies a two stage process: (i) the application of permission to appeal and, (ii), if permission is granted the appeal itself.

Section 69(3) sets out the matters on which the court is required to be satisfied as pre-conditions for granting permission to appeal. Where a party unsuccessfully resists permission on the basis that some or all of the requirements are not met, can it nevertheless reargue the point or points all over again on the appeal proper?

And where one of those matters is: was the question of law “one which the tribunal was asked to determine” (section 69(3)(b)), is the position different? How does the Court identify “the question” when granting permission?

The Commercial Court gave important guidance on these issues in CVLC Three Carrier Corp v Arab Maritime Petroleum Transport Company [2021] EWHC 551 (Comm), in allowing an appeal under section 69 on an important guarantee issue.

HIGHLY UNUSUAL The welcome (and very firmly expressed) answer from the Court is that there must “highly unusual” circumstances before it will ever be permissible to ask the Court to revisit the The Marine Insurer Americas Edition | June 2021

component parts of the section 69(3) decision giving permission to appeal. That goes for the identification of the question of law (69(3)(b)), as much as for any other component.

HOW THE ISSUE AROSE The claimant CVLC sought permission to appeal against an arbitration award on a question of law arising from the award. The defendant AMPTC opposed permission on various grounds including a submission that the tribunal had not been asked to decide the relevant question and therefore that the threshold requirements of s.69(3)(b) of the Arbitration Act were not met.

The issue as to the question of law came up in the context of an urgent application by AMPTC, as guarantor, for a declaration to prevent CVLC from maintaining an arrest of AMPTC’s vessel in support of a claim by CVLC for breach of the guarantee.

AMPTC argued that it was an implied term of the guarantee that beyond the issuance of the guarantee itself, CVLC impliedly promised that it would seek no other security in any circumstances. The arbitrator found that there was a term as alleged. AMPTC had sought to bolster the term by relying (a) on the wording of the guarantee and (b) various factual matters. The arbitrator declined to make

MARINE | ARBITRATION In association with Quadrant Chambers

31

“The issue as to the question of law came up in the context of an urgent application by AMPTC, as guarantor, for a declaration to prevent CVLC from maintaining an arrest of AMPTC’s vessel in support of a claim by CVLC for breach of the guarantee.’’

any findings on the facts, given that these were contested and it was an urgent documents only hearing, but found for the implied term solely on the basis of the wording.

AMPTC said that the question of law framed by CVLC (as a general question of law potentially applicable to all guarantees) was not the question determined by the arbitrator (which was tied to the particular facts).

The Judge granting permission disagreed, but, felt that the question of law in fact addressed in the award was different from that formulated by CVLCC and reformulated the question which in her view had been determined and which gave rise to the question of law. Permission was granted on this basis.

On the hearing of the appeal (which, unusually, was heard by the Judge who granted permission), AMPTC sought to re-open the issue and re-argue its submission that the CVLC question had not been the question left to the arbitrator and also to argue that, contrary to what the Court had ordered in granting permission, the Judge’s reformulated question had not been left to him either. It was therefore argued that the Court had no jurisdiction to entertain the appeal.

RE-OPENING’ SECTION 69(3) ISSUES On the s69(3)(b) point, AMPTC argued that the judge’s deci-

sion on all matters at the permission stage is purely “provisional” and therefore one which can be revisited at the main hearing “with the benefit of the “Socratic dialogue” provided by oral argument” (as it was put).

While the Judge accepted that the judge’s decision at the permission was not in law necessarily finally binding, she rejected the suggestion that this meant that it was always open to respondent to seek to go back over what it had lost on at the permission stage.

As she put it, that argument “is a novel one and one which is not reflected in the way in which appeals have been conducted in this Court for the last 25 years” [33].

She held that: i. the permission stage is intended to be a qualifying hurdle which is not revisited; ii. while it may not be impossible to revisit the various component parts of the permission decision, “there will have to be highly unusual circumstances justifying this course”; iii. the reason for this was that were the course for which AMPTC contended to be adopted, appeals would become much longer and more expensive, with all or most of the questions being relitigated in written and oral argument. “This would be consistent neither with the policy of the 1996 Act, nor with the overriding objective.”

In doing so, she endorsed a previous decision grappling with the same issue and dismissing a similar attempt to re-open a debate at the permission stage as to whether section The Marine Insurer Americas Edition | June 2021

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MARINE | ARBITRATION In association with Quadrant Chambers

69(3)(b) had been satisfied: see the judgment of HHJ Waksman in Agile Holdings v Essar (“The Maria”) [2018] EWHC 1055 (Comm), which deserved much wider recognition.

Cockerill J. found that there were no “highly unusual circumstances”. However, like HHJ Waksman in Agile, she nevertheless went on to consider the (re-) argument of AMPTC on the merits and to dismiss it as plainly wrong, the relevant question of law on the appeal having been one which the arbitrator was asked to determine.

IDENTIFYING THE “QUESTION OF LAW” UNDER S.69(3)(B) In doing so, Cockerill J set out a useful summary of the principles to be applied in identifying for the purposes of section 69(3)(b) whether “the question [of law] is one which the tribunal was asked to determine”.

The Court adopted a pragmatic and sensible approach, contrary to the extremely technical approach adopted by AMPTC. AMPTC’s argument drew a purported distinction between (i) its original argument for an implied term based on (a) the wording of the guarantees and (b) various factual matters which, in its view, alone was “the question of law” put to the arbitrator, and (ii) the decision of the arbitrator that there was an implied term, based on (a) alone and without (b), which, while an award in AMPTC’s favour, was not the question of law but a different question and therefore one which could not be appealed.

Cockerill J. in rejecting that argument held as follows (at [36]): i. The question on appeal has to be one arising out of the award and it has to be one which the arbitrator was asked to determine. ii. However it is not the case that the question must have been asked in exactly the form in which it is now posed at the section 69 stage. As she put it: “Were that the case almost no applications for permission would succeed.” iii. She gave a useful practical test: “What is necessary is that the question of law is inherent in the issues for decision by the tribunal. It is often necessary to strip away the accretions of case specific drafting to arrive at the real issue of law.” iv. By the end of the procedure before the Award, the actual question being asked and being left to the arbitrator was whether, even without the factual matters, there was an implied term preventing arrest or not. That was the “macro question” and that is what mattered.

COMMENT Appeals under section 69 of the Arbitration Act 1996 are frequently depicted in international arbitral circles as The Marine Insurer Americas Edition | June 2021

“While the Judge accepted that the judge’s decision at the permission was not in law necessarily finally binding, she rejected the suggestion that this meant that it was always open to respondent to seek to go back over what it had lost on at the permission stage.’’

Simon Rainey, Quadrant Chambers

undesirable and as undermining arbitral finality. While this is misplaced (as the Commercial Court statistics show that number of challenges is small and successful challenges are very far and few between), the Commercial Court in this decision (as before in Agile) makes it plain that attempts to undermine the streamlined two stage system instituted by the Act, which was designed to deal with proposed appeals (especially at the permission hurdle stage on the papers) in a straightforward way will not be welcomed.

It is to be hoped that this robust approach will discourage defendants who are unsuccessful at the permission stage from re-opening such points thereby rendering the s.69 process more time-consuming and more costly.

However, one parting thought. If there are no “highly unusual circumstances” meriting the re-opening of the section 69(3) matters, then perhaps the court should simply state that, with brief reasons and end the matter there, i.e. without going on to deal with the argument for completeness’ sake (somewhat defeating the purpose of the summary dismissal). Similarly, the court should seek wherever possible to short-circuit oral argument on the appeal dealing with the attempt to re-open, confining it (in the first instance) to the respondent explaining why there are “highly unusual circumstances”. > Simon Rainey QC appeared for the successful appellant, leading Gavin Geary and instructed by Reed Smith (Nick Austin and Charles Weller).

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34

MARINE | Risk modelling In association with RMS

Location is all Sam Lucas, who focuses on specialty lines within the Product Management team at catastrophe modelling company RMS, explains how knowledge of the exact location of a cargo in storage is fundamental to producing an accurate understanding of the exposure The first step to understanding risk to a given item of cargo from a natural disaster is to know where that product is and thus which perils that product could be exposed to.

Understanding the peril is key, as damage mechanisms that could affect a product depends both on the storage method, and critically the peril. For instance, automobiles in an open lot are much more susceptible to hail than to ground shaking caused by earthquakes.

The RMS marine cargo and specie model allows users to consider losses from earthquake, windstorms, storm surge, inland flood and the perils collectively referred to as severe weather (tornado, hail straight-line wind).

RMS has since expanded the model to be included in the China inland flood and the Southeast Asia inland flood HD models. Considering the damage mechanisms for the peril of inland flood, we find that even for what might be considered a similar peril, the damage mechanisms are variable.

The Marine Insurer Americas Edition | June 2021

WATER-BASED PERILS Storm surge and inland flooding, are both water-based perils, potentially inundating the cargo. While certain product types, such as electronics, will be severely damaged by water no matter the salinity, saltwater storm surge has higher potential to damage certain cargo types, as salt is more likely to cause issues such as corrosion. Hence the importance of understanding what your exposure is.

The location of product storage is another important consideration.

For instance, compare the damage caused by earthquake to that of flood. For a product such as auto stored in an open lot there is minimal damage potential from earthquakes because cars are designed to handle vibrations/ movements. Whereas, for flood waters all vehicles within the inundation area will be impacted.

Compare this to autos stored in a stack of containers, that are elevated above ground level. In this case, we can expect the opposite. Flood waters do not reach the higher contains, limiting the damage, while in earthquakes we can expect movement of the containers resulting in damage to the autos stored inside.

The way the cargo is stored will have a significant impact type on the possible damage mechanisms from the various natural hazards.

The interplay of different damage mechanisms is important to consider when assessing the risk posed to the various product and storage mechanisms found within cargo and specie exposures. It is critical to know where and what your exposure is to understand the risk faced. RMS continues to expand the marine cargo and specie model to additional peril regions, providing clients with a complete view of catastrophe loss potential.

Legal Advice Enabling You to Arrive Safely in Port

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Montréal: 514.879.1212; Toronto: 416.367.6000; Vancouver: 604.687.5744; or after hours: Montréal Nigah Awj | Associate 514.663.1151 | nawj@blg.com Jean-François Bilodeau | Counsel 514.923.0701 | jbilodeau@blg.com P. Jeremy Bolger | Counsel 514.836.4088 | jbolger@blg.com Jane Chong | Paralegal 514.706.4455 | jachong@blg.com Jean-Marie Fontaine Partner & Group Leader 514.295.8028 | jfontaine@blg.com

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36

MARINE | Latin America In association with Liberty Specialty Markets

Tide turns on Latin America’s marine market

Arturo Posada, Senior Vice President, Head of Marine, Latin America, Liberty Specialty Markets, reviews the impact and implications of the recent hardening in the Latin American marine insurance market

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

As someone who’s worked in the marine insurance industry long enough to witness quite a few pricing cycles run their course, it has been fascinating to observe the current hardening of rates in Latin America’s marine sector.

The question is whether we can maintain this momentum on rates and what impact will it have on the marine market in this part of the world.

The Marine Insurer Americas Edition | June 2021

LOSS-MAKING BEHAVIOUR The first signs in this region that the market for marine risks was hardening became apparent two to three years ago.

Since then, those indicators have intensified.

On the hull side, we’ve experienced increases of 30–40%.

Stock throughput programmes (STP), which protect businesses engaged in importation, exportation and distribution of goods, including the stock exposure in the ordinary course of transit have experienced similar rises.

The reasons behind these rate adjustments go back several years. Back then, many new entrants into the Latin American marine market needed to grow their books of business and market share.

Capacity in the insurance market internationally was plentiful so marine business was a prime target for that capital. New entrants piled in and, in response, underwriters cut rates to maintain their portfolios, ultimately to levels that would prove unsustainable.

While the Latin American market was not impacted by any high-profile or large claims, low rates and soft underwriting conditions meant that premium volumes were no longer sufficient to support the day-to-day attritional

MARINE | Latin America In association with Liberty Specialty Markets

losses characteristic of any marine sector. This was most evident in hull.

Considerable capacity was also directed towards writing STP risks. As Latin America is a region affected by natural catastrophes such as earthquakes and some Atlantic windstorms, it is no surprise that losses followed. The trough of the market cycle was making itself felt.

“The impact of this reduction in global trade on claims was mixed. With

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this time around there are a few wild cards that could change the cycle’s dynamics.

PANDEMIC IMPACT

Chief among these is the impact of the COVID-19 pandemic. There is no doubt that this hit ports and place, the volume of attritional losses was shipowners in Latin America hard.

Expectations of volumes of trade flowing through South American ports and less than usual. However, this must be routes proved much higher than the IMPROVING OUTLOOK reality of a locked-down world. Cargo Conditions began to change in 2018 balanced against other claims arising and containers did not move back and when Lloyd’s of London focused on the forth as usual. The routes between sustained poor performance of some of directly from the pandemic.’’

China and the US were particularly its syndicates and launched its Decile 10 adversely affected. initiative.

Arturo Posada, The impact of this reduction in Syndicates that had sustained losses Liberty Specialty Markets global trade on claims was mixed. in three consecutive years were told With fewer ships at sea and less trade to develop remediation plans, while taking place, the volume of attritional losses was less all syndicates were instructed to draw up plans for the than usual. However, this must be balanced against other worst-performing 10% of their business. claims arising directly from the pandemic.

The result of this process was that a significant With lockdowns affecting large parts of the globe, number of Lloyd’s syndicates lost their authorisation to restaurants stopped buying food; retail outlets closed. write marine business in the Americas. Others simply With their normal income stream affected by the decided that their skill set was not best suited to the Latin pandemic, policyholders start to review their outgoings American marine market. and expenses. Insurance is one of the items that was top In parallel, many non-Lloyd’s insurers that had been of their list and with less activity the marine policies were incurring losses in the sector withdrew from it. The net an obvious target for review. result of this was a sharp reduction in capacity available, Post-pandemic, the long-term financial impact of thus giving the remaining underwriters, including Liberty COVID-19 has yet to play out fully.

Specialty Markets, greater sway in rate negotiations.

With such a huge impact on GDP and government Today, market conditions have put the focus firmly on borrowing in so many countries, we could be facing technical underwriting. Terms and conditions have also several years of economic difficulties around the world. become more technically based. This is clearly good news For the marine sector, this may materialise as reduced for underwriters, but equally it bodes well for clients. standards of risk management or health and safety by A market that rises and falls dramatically, with insurers clients as their profits are squeezed. pulling out, is ultimately unhealthy for clients. By contrast, For insurers, the challenge now is to prove to clients continuity, measured pricing and a sensible renewal process and brokers that they will behave proportionately and are all in the client’s interest. fairly during what could be difficult times.

The question this leads to is whether the Latin American Liberty Specialty Markets has been an active player for marine market can maintain this hardening, or will its many years and remains committed to Latin America’s increasing profitability attract additional capacity and thus marine market for the long term. The company is keen to begin a fresh down-swing? show clients what itcan achieve when it works in From a personal perspective, I wish more insurers would partnership, particularly with itsability to offer both use the data at their disposal to develop a more accurate primary insurance and facultative reinsurance. picture of their exposures and their claims experience.

Latin America’s marine market is poised at a crossroads.

The marine sector, it can be argued, is less data-driven If underwriters behave sensibly and fairly, the potential than market segments such as property. It is a blind spot for for healthy returns is good. The key is for underwriters to our industry and one that needs to be addressed. The better rely on data and sound judgement rather than the age-old the data our industry has access to, the more sustainable its pressure to chase market share. That ship has most decisions may become. certainly sailed.

But no matter how you sort the data, it is hard to argue against the inevitability of the insurance cycle. However,

fewer ships at sea and less trade taking

The Marine Insurer Americas Edition | June 2021

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MARINE | Cargo data In association with Concirrus

Cargo market needs to embrace data revolution Recent events such as the Maersk Eindhoven and Essen container losses in the Pacific have put into sharp focus the need for digitalisation in the cargo market. Until recently, the data has not been available, but this is quickly changing. Juan Carlos Martinez, (left) CEO of CargoCorp Underwriters and Edward Ronayne, (below left) Cargo Subject Matter Expert at Concirrus, examine why the market must grasp the benefits that data can deliver The move towards a more digital future for the cargo market is not simply a case of driving efficiency.

Recent high-profile losses, coupled with the disruption that COVID-19 has caused across the globe has only highlighted the need for underwriters to better access data to both understand and manage their exposures.

“Cargo insurers have, in the past, been in a position where they have not had the ability to access the data to understand the impact of an incident on their clients and their own exposures,” explains Carlos Martinez, of CargoCorp Underwriters.

“For instance, when a port has closed, it may well be they have two insured vessels in port, but another three in the approaches which had been seeking to access the terminals, The Marine Insurer Americas Edition | June 2021

creating not just a two vessel but a five-vessel accumulation risk, due to the closure,” he adds.

Mr Martinez says that the lack of data creates delays in reaction and decision-making which, in turn, increases the threats of additional costs and greater damage to the cargo by failing to take the necessary actions in time.

“The ability to assess the impact of future events is essential to ensuring the long-term stability and profitability of a portfolio, which is why regulators expect insurers to be able to articulate the impact of certain events on their book,” adds Ed Ronayne, of Concirrus.

“Virtually, all cargo insurers will perform catastrophe modelling on their storage exposures because they have the data that enables them to do so. Until now, the fluid and fast-moving nature of global trade means that transit exposures are continuously changing. This means that

MARINE | Cargo data In association with Concirrus

you are modelling moving targets and the only way to solve this issue is to embrace data to help you understand what those exposures are and when and where they might occur,” he explains.

One of the key factors that will open up the ability for the better use of data according to Mr Ronayne is around how it is delivered. “What we are seeing is a development of data standards across the market,” he explains.

“At present, while the data is available across the various supply chain participants, from the logistics firms to customs authorities, there is still the challenge of first getting access to it, and then making sense of data being captured in a range of different ways.”

FASTER REACTION The benefits of digitalisation are clear according to Mr Martinez.

“We will be able to react quickly to a vessel or cargo on the move and adapt prices and coverage in real time to manage risks more accurately,” he adds.

“It will allow better understanding and control of accumulations in real-time for cargo in ports, customs and other points across the logistics chain.”

As climate change and more extreme weather events increase, Mr Martinez believes that weather related data will allow underwriters and clients to be more proactive, moving cargo and assets away from the path of bad weather events in time to avoid delay or damage.

“Digitalisation opens up the door to a host of capabilities that are not possible in a purely analogue market,” adds Mr Roynane. “Things like analysis of big data for decision-making, improving process efficiency, or even automation of simple tasks to allow skilled experts to focus their attention where it is most needed. These are things that other areas of the financial sector are already capitalising on.”

Mr Martinez agrees saying the use of machine learning and data would also allow the market to focus their human expertise where it is needed most.

“The use of machine learning has the potential to deal with the range of risks which are more straightforward, allowing insurers to use their experienced underwriters to focus on those risks which are more complex,” he says. “It allows insurers to better use their expertise for the benefits of clients.”

DATA QUALITY For Mr Ronayne, one issue is the quality of the data that insurers have captured through the years. “Insurers need to

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capture data in a way that enables analysis,” he explains. “All too often, it is captured in an inconsistent or unstructured way. Insurers who are looking to capitalize on their data assets need to take steps now to improve how they manage their data, otherwise your competitors will, and in five years’ time, you will find yourselves struggling to compete.”

Partnerships will be key to the future with Concirrus and CargoCorp already working on a new partnership that will have data at the core.

Mr Ronayne adds that the industry’s move from analogue to digital has begun and will not stop. However, firms need to understand that success will not be measured in quick wins.

“You need to think about the end goal that you are seeking to achieve with the process,” he says. “You need to view the digitalisation journey as a series of steps that will allow you to achieve that long-term goal.”

Mr Martinez adds that insurers need to understand that digitalisation will require a level of investment, but the longterm benefits are significant. “The more efficient use of data will deliver a deeper product knowledge, which in turn will increase insureds’ confidence,” he says. “It will enable insurers to troubleshoot quicker and tailor coverage to individual clients. That in turn, will enhance client retention.”

While the benefits are significant, Mr Ronayne warns that failure to digitise will leave cargo insurers exposed to the threat of disruption. “Digitalisation will bring with it efficiencies and make the market more attractive to new entrants, who will be able to use data to more accurately price the risks, and better monitor exposures” he explains.

“However, these new technology-fuelled entrants will arrive in the market without the legacy issues of the existing players and as such will have an advantage. Harnessing data will become non-optional. Data-driven decision making will be the standard and anyone who doesn’t start their journey now risks being left behind,” concludes Mr Ronayne.

“As climate change and more extreme weather events increase, Mr Martinez believes that weather related data will allow underwriters and clients to be more proactive, moving cargo and assets away from the path of bad weather events in time to avoid delay or damage.’’

The Marine Insurer Americas Edition | June 2021

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MARINE | Firefighting at Sea In association with Jensen Hughes

Holistic path to safer ships John Gow, Technical Director Marine & QA: Senior Investigator, Forensics at leading risk engineering and fire protection consulting firm Jensen Hughes explains the challenges faced by the maritime sector brought by fire and what needs to be done to rise to the task ahead

The most significant of all the international conventions dealing with maritime safety is the International Convention for the Safety of Life at Sea. The first version was adopted at a conference in London in 1914. The catalyst for this conference was the now-infamous sinking of the White Star liner Titanic on her maiden voyage in April 1912.

This started the development of a regulatory framework to protect those who worked and travelled by sea. However, it was not until the introduction of the 1960 SOLAS (Safety of Life at Sea) Convention that many of the safety measures, applying only to passenger ships, were extended to cargo ships.

RISING DISASTER EXPOSURE Fast forward to present times and cargo carrying capacity is increasing as is the size of the vessel. Combined with smaller crew sizes there is no doubt that the potential for more shipping disasters exists.

At the Marine Insurance Asia 2021 conference, industry leaders came together to consider what lessons could be learned from past disasters and what measures could be put in place to reduce the risk from fire or explosion at sea.

The key element of any safe ship concept should, among other things, consider the Regulatory Framework. Relevant regulation is set out in the International Convention – SOLAS - Chapter II-2; Part A, Regulation 2. This sets out first, the fire safety objectives and second, the functional requirements applicable.

Recently, a joint proposal submitted by the Bahamas, Germany, IUMI, BIMCO and CESA outlined the need for amendments to SOLAS regulations to improve the provision of fire detection and consider measures for the control of The Marine Insurer Americas Edition | June 2021

fire in cargo stowed both on and under deck.

These proposals have been accepted and now the real work begins. The challenge facing the industry will be to develop new detection and protection measures that are suitable for the challenges ahead!

DETECTING, PREVENTING AND RESPONDING Whilst the fire peril affects many ship types, there has been a renewed focus on container ship safety since the Maersk Honam fire. The difficulties associated with the detection of fire below and above deck are recognised by the industry.

The operating principals of hold detection systems used today are reliant on the same design principles as those produced in 1918.The challenge of detecting fire in above deck cargo is even greater, relying principally on discovery by crew.

The design of ships is also a key factor that may affect how quickly a crew can respond to a fire. As ships become larger in size the longer it will take to muster and deploy firefighting teams.

The control of fire is reliant on a crew’s ability to limit the availability of oxygen or to cool the fire by the application of water. These are tasks that are labour intensive and, in an emergency, physically demanding. The industry must look to automation to relieve some of the burden that crew face.

The introduction of firefighting monitors on deck is a recent innovation that will no doubt offer some additional protection. However, consideration should also be given to the protection of the navigation bridge and accommodation.

External drenchers around the structure may help protect the command centre and those within.

Training of on-board firefighters as well as a clear command

MARINE | Firefighting at Sea In association with Jensen Hughes

structure is also a critical component of fire safety on ships.

The success of any operation is dependent on the maintenance of a unified command, the absence of which results in delays in decision-making and loss of strategic oversight. Equally, a realistic training programme at sea must be considered.

Finally, the emerging risk from new fuel types such as ammonia, hydrogen as well as electricity will all have an impact on training, equipment and resources.

WHAT’S NEXT? These are only some of the fire safety challenges facing the marine industry today. There is no single solution to the problem of fire at sea and any future works must consider the regulatory framework, ship design, fire detection and protection and crew competency.

As a fire investigator, often, it is the larger events with which I become involved - investigations that can take many months with many parties involved.

There is no doubt that the information gleaned from these investigations can be used to improve ship safety, but it is worth noting that there are many, smaller fire incidents that do not progress beyond a few containers.

Understanding how these smaller incidents are successfully dealt with may provide the industry with a greater understanding of how they can prevent fires in the first place and how to provide a more effective response when the unthinkable does happen.

It is clear that no single solution will meet all the challenges of firefighting at sea and that a holistic approach must be adopted. The concept of a safe ship with respect to the fire peril is not beyond reach.

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“The control of fire is reliant on a crew’s ability to limit the availability of oxygen or to cool the fire by the application of water. These are tasks that are labour intensive and, in an emergency, physically demanding. The industry must look to automation to relieve some of the burden that crew face.’’

John Gow, Jensen Hughes

The Marine Insurer Americas Edition | June 2021

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MARINE | Digital technology In association with Waves Group

Digital revolution in FFO claims Dennis Kelly, (left) Director and Maritime Civil Engineer, and Julian Hodnett, Maritime Civil Engineer, Waves Group explain how the application of digital technology and data collection to the world of fixed and floating object (FFO) cases is having a dramatically positive effect for the company and wider market The integration of new digital sources of information and techniques into the investigation of fixed and floating object (FFO) cases has allowed Waves Group’s team of maritime civil engineers to maintain its position as the leading experts for many P&I Clubs and owners, and to further develop the FFO services on offer to the industry.

FFO damage incidents range from the minor inconvenience of a lost fender to the major loss of an STS crane in a container terminal or a loading platform on an oil berth, resulting in significant business interruption (BI) claims.

The early identification of the nature of the incident and potential impact on port operations is a critical first step in The Marine Insurer Americas Edition | June 2021

the management of the FFO claim. This is where digital technology and data collection has become a fundamental part of the investigation and ultimate resolution of FFO claims.

IMMEDIATE ASSESSMENT CASPARs (Casualty Preliminary Assessment Reports) are usually prepared by the lead discipline on a case, be they naval architects, mariners, marine engineers, crane engineers, offshore engineers, cable specialists or maritime civil engineers. Over the last few years CASPARs have become an integral part of Waves Group’s procedures when responding to a marine incident, including FFO. A CASPAR uses inputs from a broad but carefully chosen

MARINE | Digital technology In association with Waves Group

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CASPAR (CASUALTY PRELIMINARY ASSESSMENT REPORT)

Source: Waves Group

range of digital sources, to prompt better understanding of an incident during those critical first few hours and days. They have frequently been prepared as our attending experts travel to the airport!

If produced within hours of an incident, a CASPAR gives claims executives and attending experts a valuable and timely first insight into the incident.

The CASPAR can contain historic details of the development of the facility, its pre-incident condition and the way it has been used in the past. This background knowledge can prove invaluable when forensically investigating alleged damage following an incident.

Data on the prevailing weather conditions in a port, as well as those at the time of the incident, along with tide, wave and current data, all of which can be accessible remotely within minutes/hours of an incident, can be crucial in making an initial assessment of causation.

Coupled with almost “real-time” details of vessel movements, be they passing vessels, tugs or the subject vessel, a clear understanding of the incident can be reached very quickly.

engineers to attend on site for the investigation phase of FFO cases.

To mitigate the loss of experienced “eyes on the ground”, Waves Group in close collaboration with local surveyors, have started to produce accurate 3-D models of damaged port infrastructure based on high definition video footage collected by surveyors on the ground or sometimes in the air by drones!

The “walk through” functionality of these 3-D models is not limited to the path taken by the cameraman and detailed measurement of the geometry is also possible. The ability to merge the 3-D models with electronic construction, as-built or survey drawings makes the identification of pre-existing damage and historical repairs possible.

Separate from FFO cases, Waves Group is exploring the use of 3-D modelling, along with other video-based techniques, to provide cost-effective assessments of berths for owners and charterers prior to the start of a new service or on berths where there is on-going concern over the condition of the facility.

REMOTE DATA

The quality, in terms of scope and focus, of the 3-D models is improved when the video is taken by a cameraman who fully understands the purpose of it.

The models allow our engineers to “return to site” for additional measurements or closer inspection of particular components. The importance of this becomes more apparent as a case develops, and, very importantly, provides an accurate, comprehensive record of the condition to a level of detail that multiple photographs and survey notes could not hope to achieve.

To supplement the more engineering-orientated 3-D

Waves Group’s maritime civil engineers are now benefitting from the developments in the processing of photogrammetry pioneered by the company’s digital development team.

A CASPAR can set the scene and provide the initial “priming” data for a spectrum of different investigations. But, the collection of contemporaneous evidence and data from site remains fundamental in reaching a clear understanding of the property damage.

Unfortunately travel restrictions have meant that in recent months it has not always been possible for our maritime civil

RECORD OF DAMAGE

The Marine Insurer Americas Edition | June 2021

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MARINE | Digital technology In association with Waves Group

models, the use of 360° cameras during attendances has allowed our engineers to provide clients with high quality guided tours of facilities, either across a meeting room desk or remotely when back in the hotel after a day on site.

3-D MODELLING OF PORT INFRASTRUCTURE AND DAMAGE

CHALLENGING BI CLAIMS Property damage claims tend to settle down after the initial flurry of activity to ensure as much contemporaneous information as possible is collected and assessed, and the more deliberate development of repair options, procurement and supervision of construction works, and assessment of quantum takes over. However, in the case of the associated business interruption claims the search for data continues!

There is little publicly available data on the day to day, hour to hour, onshore operations within a port.

There is, however, for most waterways and ports, an incredible volume of data covering marine operations!

A CASPAR will dip into this pool of data to prepare, with only a little processing, a clear image of the vessel movements during an incident.

The same pool can provide, with the right level of filtering, validation and processing, invaluable data to rebut excessive BI claims without having to rely solely on the claimant for “supporting” information.

By adopting a thorough and methodical approach, it is possible to investigate changes in berth time alongside and at anchorage, changes in vessel type and size, changes in tug usage and changes in vessel interactions for a single berth, an entire port or waterway over a few days or a couple of years.

Waves Group, in close collaboration with local surveyors, have started to produce accurate 3-D models (below) of damaged port infrastructure based on high definition video footage collected by surveyors on the ground or sometimes in the air by drones!

CAUSATION When investigating causation, the need to understand the movement and interaction of vessels can be fundamental. VDR and ECDIS records from the subject vessel are crucial; our CASPAR reports include a reminder to hit the save button!

The same records from other vessels involved in an incident, such as tugs or passing vessels in wash damage cases, can be harder to obtain which is when having resources to filter, validate and interpret the less detailed but more readily available data sources becomes more important. The same is also true when the causation investigations start looking at historical movements and use of a facility.

Waves Group has always made best use of the available data and there is no doubt that the digital collection and storage of potentially vast quantities of data has brought many benefits to FFO investigations.

However, it remains that it is the processing, interpretation, and presentation of that data, coupled with the active management of the case, that can be the difference between a speedy and amicable settlement of The Marine Insurer Americas Edition | June 2021

a claim and a long and drawn-out affair.

While the remote assessment of data has been so useful over the last 12 months, having first-hand experience of the location and context where that data was collected adds another level of understanding. More importantly, a positive outcome on a claim is dependent on maintaining good relationships and open communications between all parties.

The on-site attendance by a maritime civil engineer allows establishment of a professional relationship with the facility operator, consultants and contractors. This encourages open discussion on the extent of damage, scope of repairs and the procurement of those repairs, all of which leads, hopefully, to an amicable settlement of any claim.

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MARINE | EVER GIVEN LESSONS In association with Loadsure

The Ever Given: One gut punch after another

The Ever Given, one of the world’s largest container ships, became jammed across the Suez Canal in high winds on 23 March 2021.

Johnny McCord, CEO of Loadsure says that the Ever Given case once again underlines the criticality of understanding your risks to protect your balance sheet The Marine Insurer Americas Edition | June 2021

To the international press, the dramatic story of the Ever Given has reached its happy conclusion. The canal has been reopened, the backlog of canal transits has been made up, and the ripple effects of supply chain disruption simply are not newsworthy enough to warrant column inches.

For the individual cargo interests on board the Ever Given, however, the story is far from over.

MARINE | EVER GIVEN LESSONS In association with Loadsure

And, deluged by this continuous stream of shockingly bad news within the industry, unaffected cargo owners are scrambling to gain a better understanding of their true risk before they find themselves on the receiving end of disaster.

The evolving situation in the Suez Canal certainly produced a lot to take in. And, while the scale of the losses won’t be fully understood for months, the Ever Given offers some critical lessons to the supply chain industry right now.

It is common knowledge that the shipowner, Shoei Kisen Kaisha, declared general average. This means that cargo owners will share in four-fifths of the losses—losses which, at the time of writing, currently include a claim of US$916m for lost revenue, salvage costs, and damage to reputation and infrastructure, courtesy of the Suez Canal Authority.

It is, however, not generally understood that cargo owners that shipped under-and uninsured containers have just been hit with a double whammy.

CASH COUNTER GUARANTEES Not only do they have to put up the cash counter guarantees demanded by the shipowner— bonds that could have been covered by all risk coverage—but their cargo is still stuck on that ship; and very well could be for the next 12 months.

This lack of insurance is a pervasive problem. Today, 80%–90% of containers are moved without adequate coverage, exposing businesses to massive liability.

How will the situation be resolved? It’s too early to tell.

Right now, we’re watching an expensive game of chicken play out with each party hoping the other moves first.

Unfortunately, it is hard to see the Suez Canal Authority backing down from its original demand or releasing the ship and its cargo, which strengthens its bargaining position.

Even if the innocent cargo interests could be released, the logistics of discharging a 20,000 TEU ship are simply prohibitive. Neither the Suez Port nor Port Said has the infrastructure necessary to discharge the Ever Given.

Meanwhile, ship and cargo interests will argue that the canal’s revenue was largely not lost but rather delayed and that the actual canal repair and salvage costs are not remotely equivalent to the canal’s demands. Further, the damages claimed by the authority far exceed the value of the venture. Why would they ever agree to such demands?

FLOATING IDLY At the time of writing, the Ever Given rests quietly in the Great Bitter Lake, midway through the Suez Canal, which is in sharp contract to the financial storm that’s just begun.

Until an agreement with the Suez Canal Authority has been completed, the vessel and all of its cargo will be detained.

Even simply determining how to apportion the losses will prove a massive headache.

Consider this: The Ever Given had 20,000 containers on board. In theory, that means 20,000 unique cargo owners, even more, if the vessel was carrying consolidated containers.

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The shipowner, Shoei Kisen Kaisha, must obtain an average bond, an average guarantee, a bill of lading and the basis of valuation from every cargo owner. If it takes an hour, on average, to pull those documents together, that will lead to 20,000 labour hours just for the guarantees.

In the end, if negligence is proven, cargo owners that have incurred a loss will have a claim against the shipowner. That said, the vessel is responsible for damage to the canal regardless of provable negligence.

However, it is important to consider that the shipowner will not have insurance to cover third-party business interruption issues. If the grounding was outside the crew’s control, cargo owners will have no claim whatsoever.

I understand why it’s so easy to see insurance as a cost.

Some, 95%–98% of transits run without a loss, after all.

Cargo owners often experience only money going out and not a lot of value coming in.

It is when situations like this occur, however, that the value of insurance becomes abundantly clear.

As marine insurance expert, Peter Townsend said during one of our recent Icebreaker sessions: (a monthly networking session for the supply chain industry) “Don’t think of insurance as a cost. Think of it as a balance sheet stabilizer.

It’s a cost that you’re paying, but when things do go wrong, they don’t go wrong for you.”

Peter is right, shipping your loads with full cargo coverage is the only way to ensure your business continuity.

“It is common knowledge that the shipowner, Shoei Kisen Kaisha, declared General Average.

This means that cargo owners will share in four-fifths of the losses—losses which, at the time of writing, currently include a claim of $916m for lost revenue, salvage costs, and damage to reputation and infrastructure, courtesy of the Suez Canal Authority.’’

Johnny McCord, Loadsure The Marine Insurer Americas Edition | June 2021

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MARINE | ROUND TABLE In association with AdvantageGo

Following what works rather than just avoiding what doesn’t: Data-driven underwriting The application of data analytics to the marine insurance sector relies on providing something which workers in the industry want, as well as something they need, was one of the messages put forward in a roundtable discussion (click to play) at Marine Insurance Americas on June 2nd, hosted by AdvantageGo. Peter Birks reports The lead message of the roundtable was that current platforms and systems might not be agile enough to enable insurers to improve risk profiling and add new lines of business and products. Many marine insurers were operating on legacy platforms and these could make it difficult-toimpossible either to leverage data assets or to use analytics to improve underwriting decisions and risk selection.

The roundtable looked at how algorithmic-based underwriting could drive underwriting profitability and efficiencies through the use of multiple sources of data – internal and third-party-supplied – to help marine insurers maximize data insights, spot new and emerging markets, cross-sell opportunities and consider new business models.

The panelists brought a range of experiences to the table and provided insights into the practical implications of

THE PARTICIPANTS Tom Anderson- Director of Sales, AdvantageGo Andrew Kinsey- Senior Marine Risk Consultant, Allianz Mike Karbassi- Chief Underwriting Officer, Corvus Insurance, Drew Feldman- Head of Marine, CNA Hardy Vitor Ribeiro - Head of Data, AM RE Syndicate Inc Luke Wolmer,- Senior P&C Analytics Manager, Swiss Re Susan Carr- AVP Technology and Operations, Great American Insurance – Ocean Marine Division

trying to gain the benefits of data analytics, while not throwing out much valuable data that resided either within the legacy systems or even on paper-based records.

Moderator Tom Anderson, director of sales at AdvantageGo, asked the panel about the complexities, delicacy and specificities of the marine insurance sector. With global shipping networks growing ever more complex and “intelligent”, what were the implications for the marine insurance marketplace?

Andrew Kinsey, Senior Marine Risk Consultant, Allianz said that for him the key factor was addressing the human element, ensuring a service for the customer. “When we talk

“With global shipping networks growing ever more complex and “intelligent”, what were the implications for the marine insurance marketplace?”

Tom Anderson, AdvantageGo

The Marine Insurer Americas Edition | June 2021

MARINE | ROUND TABLE In association with AdvantageGo

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“When we talk about the use of data, we have to give something that the client is interested in”, Kinsey observed that ever since marine insurance started the decisions made by underwriters had been “written in blood.”

Andrew Kinsey, Allianz about the use of data, we have to give something that the client is interesting”, he said. Kinsey observed that ever since marine insurance started the decisions made by underwriters had been “written in blood”. By that Kinsey meant that action was taken after severe losses. But the result of this was that we had been teaching underwriters and customers what to avoid, rather than teaching them what to emulate. The reason for this was that, historically, collecting data had been expensive and difficult.

Spending money on analyzing events where nothing went wrong was not seen as an efficient deployment of resources.

Now, however, with data analytics, it was possible to analyze successful voyages, using those as a pattern. Saying “do it this way”, rather than just saying “don’t do it this way”.

thing to do was to find out the right questions to ask. At the beginning one might not know what the right questions were to ask, so the analysis side tended to consist of asking a lot of questions, in order to find out what is relevant and what is not. After that has been done, the real analysis of the data can begin. “The data can tell us where we should ask more questions and where we can ask fewer questions”.

Feldman said that everyone was looking to drive down combined ratios, and there were two ways to do this – lower the expense ratio or lower the loss ratio. Feldman said that it was probably less difficult to reduce the expense side by one, two or three percentage points than it was to knock four points of the loss ratio on a consistent basis.

Mike Karbassi, Chief Underwriting Officer, Corvus Insurance, said that the company tried to think how data could be leveraged to benefit the client, the broker and the underwriter in the value chain. This made for better risk selection and for a better-informed policyholder. “I think that data aggregation has helped us become more precise underwriters, relying on objective analysis and the pro-active mitigation tools such as real time alerting that we can bring to policyholders to make sure a claim is avoided altogether”. Karbassi felt that, with data aggregation and analysis, the interests of all those in the insurance value chain were combined.

Anderson asked Vitor Ribeiro, Head of Data, AM RE Syndicate Inc, about his company’s experiences through the past year and a half with the impacts of the Covid-19 pandemic. Ribeiro said that virtual meetings tended to be more focused, with “15-minute stand-ups” in the morning to define the key issues that needed to be addressed that day.

However, some things were missed, particularly not being able to meet your colleagues face to face. Ribeiro noted that AM Re Syndicate had decided to generate its data analytics in-house, but they were a small well-knit team on target to write $725m of business this year.

Drew Feldman, Head of Marine, CNA Hardy, observed that it was important to differentiate between data collection, aggregation, and analysis. He thought that it was important at the moment to look closely at the analysis part of data analytics. Data was arriving in huge quantities. The important

Luke Wolmer, Senior P&C Analytics Manager, Swiss Re, observed that insurers tended to have a pricing plan that they had been using for some time, not fully integrating new data into existing pricing plans. “The greatest lift we have seen in delivering value to clients is introducing new data

“I think that data aggregation has helped us become more precise underwriters, relying on objective analysis and the pro-active mitigation tools such as real time alerting that we can bring to policyholders to make sure a claim is avoided altogether.”

Mike Karbassi, Corvus Insurance The Marine Insurer Americas Edition | June 2021

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MARINE | ROUND TABLE In association with AdvantageGo

“I spend time with our data analysts and it is incumbent upon me to educate them as to what we do. The more they understand about the industry, the more likely it is that they will avoid the wrong paths.”

Drew Feldman, CNA Hardy models”, he said. This was achieved both by making better uses of clients’ internal data. Wolmer noted that a number of insurers had a considerable amount of information provided to them by their customers, sitting there in text form but not collated or analyzed in group form. Applying text mining to this could compile useful data sources for analysis. Also, new third-party data had been introduced to help primary insurer clients. Satellite data had been useful in certain lines.

Andrew Kinsey said that the important thing with the data was to incorporate it and use it. Some metadata was not always being utilized; for example, near-miss reporting. Kinsey also said that progress with the analysis of data worked better if it was incremental, both in terms of efficiency and acceptance.

“Rather than reinvent the wheel, find out how it will fit best with what exists. There’s a wealth of knowledge in the legacy systems and you can’t just throw that out.”

Looking at the data submission/data ingestion side, Susan Carr, AVP Technology and Operations, Great American Insurance – Ocean Marine Division, said that Great American had just implemented a new workflow system. She said that the quality of incoming submissions was “fair, but we could do better”.

Another topic that generated conversation was third-party software versus internally developed software. Carr said that Great American had experimented with building its own software but that it was now coming down heavily on the side of buying it. The idea was to let the external source provide the packaged stuff which could easily be tweaked to be company-specific, leaving Great American the time to focus on the products being sold and the needs of the customer. She said that she had been “very pleased” with the quality of third-party products – ease of use and ease of configuration. “It was quite rapid for us to get in there and build the nuts and bolts of a project”.

Great American was automating the basics of it, with the intention of allowing experienced employees to classify the risk and determine the product it might be good for. One possibility that Carr said might be considered was augmenting internal data with external sources, which would mean that brokers would not be pressed to supply information that was available relatively easily from third-party sources. “That is something on the radar screen. But there is definitely room for improvement to free up time for higher value things in the chain”, she said.

Anderson noted that in the Marine Insurance Nordics conference there had been an interesting discussion around the thorny topic of data sharing. Drew Feldman said he thought that the marine industry did a better than average job of sharing data.

Ribeiro said that AM Re decided to develop its own proprietary software, but without a single overriding focus. “We try to help the specialists do the best they can”, he said. This meant that data literacy was important. The specialists needed to understand the data that was being gathered and what it represented to generate questions on the data that we hold. “We can create relevant bespoke dashboards for employees to help us here. The small team could iterate quickly, which meant that, although the right answer might not be arrived at first time, it took only a short time to iterate again.”

“We can create relevant bespoke dashboards for employees to help us here. The small team could iterate quickly, which meant that, although the right answer might not be arrived at first time, it took only a short time to iterate again.”

Vitor Ribeiro, AM RE Syndicate Inc The Marine Insurer Americas Edition | June 2021

MARINE | ROUND TABLE In association with AdvantageGo

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“The greatest lift we have seen in delivering value to clients is introducing new data models”, he said. “This was achieved both by making better uses of clients’ internal data.”

Luke Wolmer, Swiss Re

Feldman observed that differentiating between key information and noise was a growing issue. “I spend time with our data analysts and it is incumbent on me to educate them as to what we do. The more they understand about the industry, the more likely it is that they will avoid the wrong paths.” He noted, for example, that it might be observed that people with three vowels in their name had been making a larger number of claims. If you didn’t understand the industry you might say “we’ll stop writing policies for people with three vowels in their name”, but that would not be a sensible way to go, as anyone with any familiarity with insurance would know.

Feldman also noted that the bigger the move to telematics, the more the insured began to understand how important information was when it came to solid underwriting.

Wolmer agreed that domain expertise was a challenging matter. For data analysts, there was a certain system shock when it came to insurance when compared with, for example, manufacturing. In the latter, the cost and expense elements tend to be relatively clear-cut and predictable. But in insurance the data was messy. When you add in limits and deductibles, it gets messier, and this could lead data analysts not familiar with the business down the wrong paths. “Data scientists can be brilliant with data but if they lack the insurance context what they build might not suit the adjusters or the underwriters”, he said.

Kinsey observed that connecting the data correctly was vital. The key was to make sure that the data was supporting the experts.

On the topic of future developments, and disruption, Karbassi said that he anticipated new and existing markets leaning

more on data for product launches. It could perhaps be used to cross-sell. One area for example was that of cyber-liability, something which many in the marine sector were not buying as a separate product, but for which they were not covered in their marine insurance policies.

Feldman saw the future as being underwriters needing to raise their game. By that he meant, just as data analysts working in the insurance sector need to gain some familiarity with the business to become effective, so did underwriters need to transition towards the concept of portfolio management rather than just individual risks, and to understand the basics of data analysis – regression and p values, etc. Wolmer agreed, adding that the presence of portfolio metrics on an underwriter’s “dashboard” would improve the efficiency of underwriting in the company.

The general conclusion of the panel was that data collection, aggregation and analysis had much to offer the industry on a macro and micro level. It could give insurers ideas for potential new products, it could tell them which of their customers would benefit from such products. And it could help in the correct pricing of those products.

From an individual standpoint, data analytics and application could help automate some tasks, freeing up staff for more high-value work. And the presence of “dashboards” meant that the role of individual underwriters would expand far beyond that of just writing individual risks within a certain limit. By connecting the dots of information, every underwriter could see the position of the company, thus facilitating more effective and speedy decision making, generating lower costs and lower losses in tandem.

“Great American had just implemented a new workflow system. and the quality of incoming submissions was “fair, but we could do better”. Great American was automating the basics of it, with the intention of allowing experienced employees to classify the risk and determine the product it might be good for.”

Susan Carr, Great American Insurance Ocean Marine Division The Marine Insurer Americas Edition | June 2021

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MARINE | Surveying In association with EIMC

Rising to the challenge Tiina Ruhlandt, President & CEO of global supply chain experts EIMC, that specializes in risk management and claims services in the marine sector, decribes the challenges faced by marine surveyors brought by the pandemic and how they have been overcome The Covid-19 pandemic brought about many changes to our personal and work lives. The beginning of 2020 seems a lifetime ago. At the same time much of the 17 months since the first lock-downs seems a blur.

We learned to appreciate the most ordinary of things. We also learned to recognize the value of work and workers who were previously often overlooked.

Suddenly the supply chain was everyday mainstream news.

More people learned about the complex interdependent networks through which goods end up on our store shelves.

CRITICAL INFRASTRUCTURE WORKERS On March 27, 2020 the US Coast Guard issued Marine Safety Information Bulletin No. 11-20 which identified marine The Marine Insurer Americas Edition | June 2021

consultants and surveyors as essential critical infrastructure workers. Specifically, the US Coast Guard considered these workers to be “essential for maintaining the continuous flow of maritime commerce.” It is worth remembering that about 80% of global trade is carried by sea.

So, what did being a marine surveyor in the US during the Covid-19 crisis look like?

At EIMC we were already set up to work remotely from home. We were spared that business challenge.

We were grateful to be considered essential and to be able to continue to operate. The marine surveyor’s primary work is field work – be it at a port, aboard a ship, an airport, a rail yard, a warehouse, a retail store, and even in private homes.

It requires interaction with other people and so one immediate question to tackle was: How were we going to protect our team?

As the CDC (Centre for Disease Control) guidelines evolved, so did our safety guidelines. In the beginning that meant our surveyors needed to wear gloves, practice good handwashing hygiene, and maintain appropriate physical distancing.

We decided to ban air travel until more information about the risks was available. US-based surveyors, especially in the middle of the country, were used to long drives to attend jobs. Now some trips were even longer, frequently crossing state lines and involving hotel stays along the way.

MARINE | Surveying In association with EIMC

Was staying in a hotel safe? Was it safer than flying?

Then came various guidance on the use of face coverings.

We had to stay on top of 50 different guidelines in 50 different states. What was permitted and what was not?

What was open and what was not?

At one point, the state of Pennsylvania closed all of its highway rest stops to all activities, including parking and toilet facilities. Could our surveyor be stopped and questioned by law enforcement?

In preparation we issued letters on company letterhead identifying them by name as a key worker in an essential business. They kept that with them at all times together with a copy of the Coast Guard MSIB. On top of rules by authorities, marine surveyors had to comply with whatever restrictions and requirements the survey location imposed. These included temperature checks, pre-attendance testing and even hotel quarantine before project attendance.

ACCESS TO TESTING In the early months, access to testing was limited and turnaround time uncertain. Even in good circumstances, receiving the test results could take up to 96 hours. Shipping companies and authorities wanted a test no older than 72 hours. No test result, no access.

What should we do? Get a second test as a back up? Pay a higher fee at an emergency room to get a faster result? These were all charges we had to pass on to clients. When tests were scarce, was it ethical to “take away” a test from someone else? As rapid testing availability increased, for certain vessel inspections our surveyors had to have a daily test at the berth and wait for the result before boarding.

For a large project at a military site, one of our surveyors (JP) was required to quarantine for two weeks in a 14’x19’ hotel room before being allowed on the jobsite. He did this four times in 10 months.

MONOPOLY GAME He describes his experience: “It is like that monopoly game, do not pass go, go straight to jail! Quarantine means sacrifice, of my liberty, of normal contact with my wife and family, and loss of contact with the outside world; my whole work-life environment. The hotel room key is only good for entering one time and is programmed to alert security if you try to enter the room again before your 2 weeks are up. That first time being released feels strange, and you thank God you are alive and can take a long walk…and then get sunburned! All part of living the dream of a marine surveyor.”

Marine surveyors carried on and rose to the challenges.

We are used to working in challenging environments after a disaster. There is a certain high that keeps you going in those times, but we know that those times are finite. We were not

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“Marine surveyors carried on and rose to the challenges. We are used to working in challenging environments after a disaster. There is a certain high that keeps you going in those times, but we know that those times are finite. We were not used to the seeming endlessness of the pandemic.’’

Tiina Ruhlandt, EIMC used to the seeming endlessness of the pandemic. JP’s experience of quarantine is a condensed version what we all experienced this past year in one form or another.

Another challenge was how to deal with situations in which we were not permitted any access at all? Shipping companies refused vessel boardings. Facilities were semi-closed, operating with reduced personnel, forbidding or limiting access to outside visitors. How could we still give our clients the information they needed? How do you carry out a joint survey when the number of external visitors is limited?

The answer, of course, was technology. We conducted and continue to conduct remote surveys via video, including remote joint surveys with multiple parties. This trend was in its infancy prior to the pandemic. It is now increasingly accepted as another tool in the marine surveyor’s toolbox.

With the assistance of a person on-site we can virtually attend, direct and guide the filming process, obtain a video record from which we can pull still images for a traditional survey report.

We will continue to use these tools to improve our service to our clients and at the same time reduce our carbon footprint. Innovation has been spurred on by the pandemic circumstances. Time after time – through natural disasters, trade wars, labor disruptions, and now a pandemic – we have seen that planning for the unexpected and, above all, agility are key. As we slowly start to emerge from the Covid-19 crisis, we can use this opportunity to (re)define what it means to do the essential work of a marine surveyor today and in the future.

The Marine Insurer Americas Edition | June 2021

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MARINE | Digital transformation In association with Noria Software

No gain without pain Ronny Reppe, CEO of Noria, the Norwegian specialist software and consulting provider to the marine insurance sector, advises to tackle the most challenging tasks first to truly bring the insurance sector into the full automated future and deliver significant efficiencies for all

The same situation applies on an enterprise-level scale in terms of driving efficiencies through automation. The areas where it hurts most – the most inefficient in-house processes – are often the areas which would take the biggest effort to automate, but also will provide the greatest return on investment.

My advice is to start where it hurts most. Find the biggest inefficiencies, find a way to automate or otherwise make them more efficient, then move onto the next-most inefficient process.

INEFFICIENCIES IN INSURANCE What is the most painful task on your current to-do list?

Perhaps it’s a challenging piece of writing, a difficult conversation with a stakeholder, or a project that you know will take weeks to complete.

If you’re like most people, you will procrastinate by tackling the easiest jobs first; answering emails, organising your calendar and other small tasks that will provide a false sense of progress. Meanwhile, the bigger project remains unstarted.

The Marine Insurer Americas Edition | June 2021

I would love to report that the insurance industry is leading the way in process automation, but unfortunately, this is far from the case. We are not even close to where we should be in terms of work process efficiencies, which has led to a decade of stagnating productivity.

A 2019 report from consulting firm McKinsey report titled The Productivity Imperative in Insurance commented: “Unlike other industries, which have been able to capitalise on their investments in digital technologies,

MARINE | Digital transformation In association with Noria Software

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> Reviewing customer insurance hasn’t increased its overall satisfaction scores, feedback productivity in the past and complaints; ten years.”

“One of the main arguments people > Review IT expenses to find McKinsey offers four categories of where your IT team is productivity levers: 1) deepened make against automation is that a process spending most of its time; functional excellence, 2) structural > Track meeting lengths. What simplification, 3) business requires a human touch. I would point to issues require the most transformation, and 4) enterprise hours of discussion?; and, agility. the booming field of #HRtechnology to > Ask outside partners and Much of the lowest-hanging fruit vendors what they find most lies in the area of functional demonstrate that even the most “human” difficult about working excellence. This means corporate with you. functional improvements (making function is leaping ahead through the finance, HR, procurement more efficient), and insurance excellence power of automation.’’

BUILDING THE BUSINESS such as getting better at process CASE standardisation, claims efficiency and Ronny Reppe, underwriting.

When you have identified the first Noria Software In many organisations, the pain-point, it is time to build a problem lies in a hesitancy to tackle business case for solving it. the major pain-points. Instead, The business case should define exactly what needs to be insurers are automating around the edges; making invested in the project, and show the organisation what it incremental improvements while shying away from the will get in return for this investment. high-value opportunities.

Be sure to link your recommendations to overall Experience shows that the biggest pain-points are those business objectives, quantify the key benefits of making a that no one wants to talk about, and exist in the areas of process more efficient and put forward your proposed structural simplification and business transformation. solution(s) for doing so. Look beyond the tangible benefits None of these projects will provide quick wins and often to include factors such as increased employee satisfaction. involve a significant change of direction for the leadership One of the most powerful arguments to include in a team. Examples include: business case is to highlight the opportunities that will be missed if your recommendation is not adopted. > Moving from manual to digital operations; > Rethinking the product offering; AUTOMATE, AUTOMATE, AUTOMATE > Upgrading complex, legacy IT systems; “We’ll never be able to automate this”. > Creating a single, unified view of customers; My final piece of advice is to never accept that something > Building an advanced analytics capability; cannot be automated. The people who tell you so are also > Optimising the digital customer journey; likely to be the people who are the most resistant to change. > Simplifying the organisational structure; The inefficient process that you decide to keep > Automating via robotic process automation (RPA); manual today will be the process that continues to hold > Establishing single data entry; your organisation back two, five, or ten years in > Investing in artificial intelligence (AI); and, the future. > Tapping into the power of connected insurance (IoT One of the main arguments people make against sensors). automation is that a process requires a human touch. I would point to the booming field of #HRtechnology to demonstrate that even the most “human” function is INEFFICIENT PROCESSES IDENTIFICATION leaping ahead through the power of automation. It’s also Where to start? Don’t assume that everyone shares your worth keeping in mind the possibility of partial opinion of where the biggest inefficiencies exist in your automation that combines the best of robotic process business. automation (RPA) and human skill-sets.

Although the list above includes many endemic challenges in insurance, every organisation is unique in terms of pain-points and inefficiencies.

Identify the biggest pain-points by: The NORIA team leverages decades of software experience, in-depth > Launching a company-wide survey; knowledge and project management expertise to help clients identify and > Running a brainstorming solve inefficient process with smart solutions. Get in touch to learn more. session with your team; The Marine Insurer Americas Edition | June 2021

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MARINE | Data & Safety In association with North P&I Club

Technology driving safety and loss prevention Alvin Forster, Loss Prevention Executive, North P&I Club, explains how the Club is using shipping insurance data and collaboration to drive safety and loss prevention initiatives The use of data and technology in the marine insurance industry has taken great forward steps in the last decade. In an industry often portrayed as being more comfortable with tradition rather than disruption, there is a realisation that the vast amount of information available out there has huge value…if properly harnessed.

There are two key areas where we in North’s loss prevention department have really embraced the use of technology by partnering with innovative and forward-thinking companies.

The first concerns how we as an insurer can best assess the risk of the vessels we cover and any potential new business.

Traditionally, we used simple, but nonetheless effective, The Marine Insurer Americas Edition | June 2021

metrics such as historic claims performance and regulatory compliance performance (such as port state control inspection deficiencies and detentions) to help us evaluate the risk a vessel, a fleet or an operator presents.

These are still great indicators and we continue to rely on them. But harnessing the huge amounts of real-time shipping data available can tell us more.

For example, AIS data, which tracks vessels all around the world, when coupled with casualty and claims data, can identify higher risk operations and trades. Therefore, we have partnered with Concirrus to develop an analytics tool that not only gathers this data but also makes sense of it.

APPROPRIATE WEIGHTING So, instead of basing our assessment of risk solely on a

MARINE | Data & Safety In association with North P&I Club

small number of performance indicators, our analytics tool now has the ability to consider over a hundred metrics and give them the appropriate weighting.

Perhaps the most impressive aspect of this tool is that it learns. Using artificial intelligence (AI), it periodically undergoes a re-learning process to sharpen its accuracy in predicting the future risk profile.

The second area helps us to provide information and intelligence to our members.

Creating and delivering loss prevention information is a key aspect of our role, and over the decades, we have accumulated a huge knowledge base.

Our members rightly take advantage of this so they can take suitable precautions in advance of fixing new cargoes, trading in new areas or when encoun tering new problems and challenges.

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FUEL QUALITY

Another new addition regards fuel quality. Since the introduction of the IMO 0.50% sulphur cap on 1 January 2020, the proliferation in the use of “Another new addition regards fuel VLSFO (very-low-sulphur fuel oil) quality. Since the introduction of the products has – as previously warned – brought quality and operational issues.

To help our ship owner and charterer IMO 0.50% sulphur cap on 1 January members make more informed decisions on their fuel purchasing arrange2020, the proliferation in the use of ments, we have collaborated with fuel quality experts VPS to provide data on VLSFO (very-low-sulphur fuel oil) the products has – as previously warned bunkers from around the world.

VPS has a wealth of historic data based on the thousands of bunker – brought quality and operational samples it receives. By sharing this information, those buying the fuel – issues.’’ and just as importantly those using the fuel – have a better idea of what could be expected.

MyGlobeView was already proving to Alvin Forster, be a valuable resource for our members, North P&I Club but the events of the last year have INTERACTIVE MAP really shown its worth.

PORTAL The COVID-19 pandemic has affected almost every nation in the world. Each country has taken measures to In the past, we provided this information by posting articles on combat the outbreak and inevitably this impacts shipping – our website and by responding to enquiries from our memberwhich of course has ship. carried on through it all.

However, we have now partnered with geospatial Shipowners, charterers and ships’ crews need to know intelligence experts Geollect to provide our members with an the latest news about the measures in force at specific interactive map-based information portal called MyGlobeview. ports, and MyGlobeview has proven to be a useful way of This allows easy access to key information that is specific to a providing this information. port, country or region which can help a ship owner, operator By simply navigating the map and clicking on a country, or charterer assess the risks of a voyage – whether it relates to information such as port entry and reporting requirements, sanctions, maritime security, port quarantine arrangements and any restrictions on crew operations or cargo-related risks. movement and crew changes is at your fingertips.

Recent additions that enhance this tool include a ‘route risk In addition to the uploaded updates received from our advice’ function. This enables the user to plot the global network of correspondents and contacts, it includes vessel’s projected voyage onto the map, and a report is intelligence scraped by Geollect from numerous data produced that contains the required risk information. sources. It has become a powerful tool in helping our The report can then be sent to the ship’s operating team members to continue trading during these exceptional and master to allow them to take the necessary precautions. times.

Forewarned is forearmed.

This has proven so successful in keeping our members A ship owner considering fixing a charter to carry a bulk up to date with the latest COVID-19 news, that we, with grain cargo from the US Gulf to China provides a simple Geollect, have been instrumental in developing a similar example. tool for the International Group (IG). Although the P&I A quick check on MyGlobeview will tell of the risks of clubs may be competitors, there are times when we can piracy and robbery (identifying hotspots) in the Malacca Straits and work together for the good of the shipping industry and – the risk of cargo damage claims at outturn. This is supplemented more importantly – the safety and welfare of the seafarers with loss prevention advice and links to useful resources that will all around the world. help mitigate these risks should the shipowner decide to fix.

The Marine Insurer Americas Edition | June 2021

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MARINE | State of the market In association with AIG

A market in flux Michael Nukk, Head of Marine, North America, AIG, assesses the state of the marine insurance market during this period of significant change The marine insurance market is in an era of disruption, realignment, and most of all, opportunity. The long-term effects of the global downturn and ongoing trade disputes remain unclear.

By constricting capacity, more disciplined underwriting and a renewed drive toward technology and more efficient processes, the market could be poised for more profitable growth. Recent research indicates that the global marine insurance market could grow upwards of $8bn through 2024.

However, both developed and emerging risks continue to evolve and grow, with the potential to threaten sustained profitability in the market. Some of these are highlighted below.

EXTREME WEATHER AND CLIMATE CHANGE Last year the US alone endured a total of 30 named storms, The Marine Insurer Americas Edition | June 2021

with 13 hurricanes, of which six were classified as major.

This activity has caused an estimated $60-65bn in economic damage with the insured damage in the tens of billions.

Hurricanes are becoming more frequent and costly - 14 of the 15 costliest Atlantic hurricanes have occurred since 2004 and this increasing trend puts people, insurers, and governments in danger for larger and increasingly regular recovery bills.

Particularly exposed are companies that rely on efficiencies gained by utilizing warehouses in port cities to import or export goods, that insure these inventories in the marine cargo market. In addition, there are ever more expensive commercial and pleasure vessels that are damaged as these storms hit the coastline.

Developments in supply chain interconnectivity over decades represent another layer of vulnerability in these extreme weather scenarios.

MARINE | State of the market In association with AIG

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transfer, equipment and hardware, or Since 2000, the value of sensors critical for the operation of a ship. intermediate goods traded globally has tripled to more than $10 trillion, delivered through ever leaner global “Hurricanes are becoming more CONTAINER STACK FAILURES networks. However, these efficienThere have been four recent incidents, cies are particularly vulnerable to frequent and costly - 14 of the 15 cost- predominantly in the Pacific Ocean, in disruption. which 3,000 containers were lost and A recent example is airline flights. liest Atlantic hurricanes have occurred many more damaged.

Flights and passenger numbers are These incidents highlight the disasters way down and with airfreight prices that container ships, cargo and crew since 2004 and this for cargo up 10 times, their availcould encounter because of improper ability is very low. Therefore, clients lashing of containers, ship design, and increasing trend puts people, insurers, are looking for different ways to incorrect stowage planning. ship goods. Now we see very high While containers look the same on the and governments in danger for value electronics on rail and road outside, the insides remain unknown. transport which is changing the risk Thus, securing these containers to larger and increasingly regular landscape. withstand all sorts of extreme conditions As a market we need to continue is critical. Combine that with ultra large recovery bills.’’ developing innovative approachvessels and there are all the makings for a es and solutions enabled by data large loss.

Michael Nukk, analytics, geospatial solutions and There is a great randomness to vessel AIG modelling capabilities to address incidents but the data on routing, the increase in both frequency and weather forecasting and cargoes on severity of losses attributable to severe weather. This will board is providing us with insights on how to price these risks allow us to develop risk adequate technical pricing more accurately. approaches that are sustainable and offer necessary returns for capital providers.

ACCUMULATION RISKS The dramatic downturn resulted in an accumulation of both vessels and cargo at ports and storage facilities. There is cargo CARGO THEFT SHIFTS FROM PHYSICAL TO CYBER sitting in storage waiting for prices to go back up, and there are Theft and crime in logistics is a huge problem with no borstill cruise ships sitting idle at port. Accumulation in any one ders. Theft from a facility is mainly low with warehouse secuarea creates more risk than contemplated. rity generally good. However, goods in transit often only have While the industry is looking to tighten reactivation normal curtain sider trucks. procedures around vessels in lay-up, these issues could still lead Better security is now available via remotely operated electo potential claims down the line.However, from a risk tronic locks and seals, or coded (GPS GSM geofence) locks management perspective, substantial progress has been made attached on the inside of the container or trailer to avoid in identifying vulnerable concentrations of static cargo, and being opened before arriving at a predetermined measuring port accumulations using detailed insights into cargo location. fragility and exposure accumulation.

But cyber hacking is exploiting all electronic Insurers are now starting to collect and effectively analyse vulnerabilities. All four of the world’s largest shipping marine cargo and specie data that cannot be implemented in companies have now been hit by cyber-attacks involving ranstandard property catastrophe models. Further analysis can somware, malware affecting a data centre and a worldwide provide insights e.g. dwell time of specific product types and shipping container booking system being taken down. cargo seasonality of a port to understand the average and peak Over the past year, incidents have intensified with USB exposure at risk. malware spotted aboard a ship’s IT systems. Where malware gangs have done the most damage are attacks that targeted shore-based systems that sit in offices, business offices, and RISK MITIGATION VIA DATA AND ANALYTICS data centres.

Stronger engagement with clients and brokers has These are the systems that manage ships, and are used to highlighted the importance analytics plays in monitoring risk book container transports, create ship manifests, assign conexposure and optimising risk management, in addition to setting tainer ID numbers and monitor security. terms, conditions and pricing in a changing environment. But better As the industry rapidly turns to more advanced use of pricing tools, CAT modelling, loss trend analysis and total technology, for everything from navigation to cargo cost of risk are necessary across all risks affecting marine, to make loading and unloading, cyber threats can disrupt data our product offerings better and more sustainable for our clients.

The Marine Insurer Americas Edition | June 2021

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