Marine Insurance Increasing risk of extreme weather events requires insurance re-think By Marcel Krol, International Business Development Manager, FDR Risk
W
hen the Phoenicians ruled the seas of the
is still being calculated, but
Mediterranean from approximately 1000 to 200
estimates suggest billions of
BC, it is likely that the seascapes they had to
dollars in losses.
combat were not dissimilar to those witnessed in the 1950’s.
From an insurance
After all, the maritime industry has forever contended with
perspective, this incident
seasonal weather events.
raised a number of critical
Known for their maritime skills, and the first people
questions. How will insurers
to introduce curved bottom boats, the Phoenicians -who
address similar congestion-
occupied modern day Lebanon - would have been skilled at
related delays in the future?
tackling extreme weather events. Yet, while these events have
Will premiums rise to account for these climate-driven
always been a mariner’s foe, their frequency and intensity is
disruptions, and how will underwriters respond to increasing
likely to have only radically changed from those ancient times
claims related to weather perils, once considered “atypical,”
in recent years; a signal of a broader, more persistent threat
now becoming routine? It’s not just the Panama Canal. Ports around the world
driven by the changing climate, and one that the marine
are vulnerable to climate impacts that will reverberate across
insurance market cannot ignore. Reams of data confirm the inescapable trend of increased
supply chains. In particular, low-lying ports in regions such
frequency and intensity in weather events. According to the
as Southeast Asia, the Caribbean, and North America are
World Economic Forum’s (WEF) Global Risks Report 2024,
facing rising sea levels and increased storm intensity. A study
extreme weather ranked as the most likely global risk to
reviewed by the Environmental Defense Fund (EDF) found
trigger a material crisis this year. Not only does it rank highest
that climate impacts on ports alone, including infrastructure
in the short term, but it remains a top concern over the next
damage and operational disruptions, could cost the shipping
decade. This aligns with the scientific consensus that the global
industry up to $10 billion annually by 2050—and this number
temperature rise will surpass 1.5°C by the 2030s, triggering
could skyrocket to $25 billion per year by 2100. Ports are also increasingly forced to shut down due to
more intense weather patterns. For the maritime industry, these environmental shifts are
extreme winds. Most recently, Super Typhoon Yagi temporarily
creating a “new normal,” where droughts, floods, and intense
closed critical economic hubs like Vietnam’s Nam Dinh Vu.
storms will be the standard rather than the exception. This
Meanwhile, other major ports such as Shanghai and Ningbo
reality places pressure on marine insurance firms to adapt
face an average of five to six days of weather-related
their policies and pricing models to reflect the heightened
operational disruptions each year, primarily due to extreme
risk climate change poses to global shipping operations.
wind conditions. In the past, catastrophic events such as
If we cast our minds back to the drought that affected the
Hurricane Katrina in 2005 and Hurricane Harvey in 2017 leave
Panama Canal in 2023, it was a watershed moment for the
even longer lasting effects, with the aftermath of both storms
shipping industry. The extended dry season severely restricted
resulting in port closures across the USA’s southern states.
the canal’s water supply, leading to an unprecedented backlog
Many were shut down for up to four months with estimated
of over 200 vessels. Shipments were delayed, supply chains
costs again reaching into the billions ($), illustrating the massive
were disrupted, and the financial cost to the shipping industry
economic repercussions of extreme weather events.
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Ship Management International
Issue 111 September/October 2024