The International Union of Marine Insurance (IUMI) has recently unveiled key findings from their annual conference, which serves as a platform for in-depth discussions on a wide range of pressing matters and emerging trends within the shipping industry.
Specifically, IUMI has recently shared significant findings from discussions that covered areas such as inflation, alternative fuels, the dark fleet situation, offshore energy, and the importance of cooperation and policies related to the industry’s transition towards achieving net zero emissions.
#1 Inflation
Global ocean hull premiums rose in 2022 by 5.7% to reach USD8.4 billion. This was largely due to a combination of growing activity, increased vessel values and reduced market capacity. Claims for the same period remained moderate although early 2023 has witnessed a modest increase.
Taken together, this has had a positive impact on overall loss ratios that have enjoyed a downward trend for the past three years with 2022 ratios starting out at the lowest point since 2015.
Despite this relatively good news, inflation is likely to have a significant affect going forward. Ilias Tsakiris, Chair of IUMI’s Ocean Hull Committee, explains that during the post-Covid period, there was a scarcity of materials such as steel coupled with an increase in their demand following the re-activation of global shipping. This was exacerbated by rising inflationary pressure, which has driven up the costs of materials, shipyards, and labour.
Ilias Tsakiris also added that from an underwriting perspective, inflation has not only been applicable to vessel repairs and claims but also to general office overheads. In the main, the underwriting community has not applied inflationary increases to the premium base and this may lead to a reduction in overall profitability over the coming year or two.
#2 Alternative fuels
Key drivers for the industry’s search for viable alternative fuel technology solutions, according to IUMI:
- Looming 2050 targets for greenhouse gas (GHG) emissions
- Newbuilding projects focusing on dual-fuel systems
- Evolving IMO guidelines
- International sustainability initiatives
In the interim, hybrid technologies such as hydrogen/fossil fuel or ammonia/fossil fuel are likely to be employed until a fully clean and workable solution is developed, IUMI adds,
Ilias Tsakiris explained the implications by saying that emission reduction technologies are inevitably more sophisticated than the current methods of ship propulsion. This will increase the value of the global fleet and, consequently, the level of risk to be covered.
The rapid implementation of these technologies aligned with decarbonization and GHG emissions, particularly where new fuel blends may be used with current engines, will give rise to new risks.
… suppled Ilias Tsakiris
He also pointed out that adequate regulations will need to be in place to ensure the safety of those who operate the new ships as well as the vessels themselves. Of course, this also means that the global seafaring work force needs to be trained accordingly.
We must also remember that shipping doesn’t exist in isolation. Vessels call at ports across the globe and adequate infrastructure must be in place to support these new technologies – and that is much easier said than done. Getting to net-zero will require a joined-up effort, not just from the shipping community but also from the many related land-based sectors.
… highlighted Ilias Tsakiris
#3 Lithium-ion (Li-ion) batteries / electric vehicles (EVs)
As a resent study by IUMI found, fires from EVs are no more common than those from conventional internal combustion engine vehicles. Traditional fuels such as petrol and diesel also carry substantial potential dangers but the maritime industry has acquired sufficient experience to manage those risks effectively and it must do the same for this new technology.
A notable recent incident in July 2023 was a fire on a Panamanian-registered car carrier the Fremantle Highway off the Dutch coast. Although the cause of the blaze remains unknown, it took days to finally control the fire. Out of the more than 3,700 cars on that ship, nearly 500 of them were electric vehicles.
… said Ilias Tsakiris
#4 The “dark fleet”
The so-called “dark fleet” is a growing threat for insurers, especially since the invasion of Ukraine and the sanctions regime. The global maritime industry faces significant challenges due to the proliferation of aging vessels, identity-shifting ships owned by dubious entities, and questionable classification societies.
These trends also raise concerns about potential criminal activities and money laundering. Issues of accountability and traceability in accidents involving the dark fleet and responsibility for wreck removal, pollution response, ship-to-ship transfers of oil, and compensation for victims all remain unclear.
Many report that Russia is managing to bypass insurance regulations, with approximately 20% of the global tanker fleet avoiding sanctions. It is worth mentioning that the sanctions and the invasion of Ukraine have driven certification providers, engine-makers, and insurers away from sanctioned oil carriers, at the cost of further reducing oversight.
Ilias Tsakiris reminded that there were eight incidents involving sanctioned oil tankers reported in 2022, including the destructive explosion of the aframax tanker Pablo which caught fire in Malaysian waters in May and left three crew members missing. Because this ship was part of the 600-strong “dark fleet”, salvors were not able to board.
Fortunately, there was no other vessel involved but had this been a collision, or a ship-to-ship transfer, it would have been a completely different story. As it stands, the burnt-out wreck remains at anchor and the owners are impossible to contact, leaving the authorities with a significant headache.
… Ilias Tsakiris explained
To remind, IMO’s Legal Committee in March revealed that a global fleet of 300-600 tankers, mostly older, with substandard maintenance, unclear ownership, and lack of insurance, is operating as a “shadow fleet”.
#5 Offshore energy
Offshore Energy underwriters have enjoyed an upward trend in global premiums since 2019 with the 2022 premium base being reported as USD4.1 billion at this year’s International Union of Marine Insurance (IUMI) conference.
The uplift of 7.3% was largely reflective of the oil price and the corresponding increase in offshore activity, particularly jack-ups and deep-water vessels. Inflation and its impact on asset values was also a factor. Once again, macroeconomic and geopolitical changes continued to be significant including ongoing concerns over energy security with no end in sight for the war in Ukraine.
As we approach peak oil, the growth in lower carbon technology is now accelerating. The move to a low carbon future represents a fundamental shift for offshore energy underwriters and this will reach farther and deeper into our sector of insurance than any other.
… explained Melanie Raven, Vice Chair of IUMI’s Offshore Energy Committee
Melanie Raven also noted that carbon capture and storage facilities are likely to feature large over the coming years but underwriters in the marine insurance sector are used to insuring subterranean structures. It shouldn’t be a great leap for insurers to provide cover for these new facilities, Melanie Raven supplied.
We need to continue to support our customers with their existing needs as well as innovate and re-invent our insurance products so they remain fit-for-purpose. Insurance must be an enabler and not a blockage in this vital energy transition process.
… highlighted Melanie Raven
#6 Policies and cooperation
According to Helle Hammer, Chair of IUMI’s Policy Forum, compliance with this ambitious new strategy will fall mainly on the shoulders. Therefore, there needs to be comprehensive cooperation and knowledge sharing between owners, class, flag states, underwriters and others.
This will be particularly important as the first movers begin implementing new technologies which will then, inevitably, be taken up by the remainder of the industry. It will be essential for a comprehensive regulatory regime to be in place before the bulk of the fleet starts to comply.
… Helle Hammer believes
Guidelines for the safe use of ammonia and hydrogen as propulsion technologies have already been published and most class societies have issued a range of relevant notations. However, it will be important for holistic regulations to be in place which must also place a heavy emphasis on crew safety.
We must work together to ensure people are kept safe and the environment is protected. New risks must be understood, insured and mitigated; and underwriters are likely to seek more information outside their loss records as a result.
… she concluded
