The Poseidon Principles for Marine Insurance, an initiative backed by the Global Maritime Forum to drive decarbonisation of international shipping through transparency, has issued its second annual disclosure report.
This report arrives amidst a transformative year for the maritime sector marked by key events: the IMO’s adoption of the revised greenhouse gas (GHG) strategy at MEPC 80 in July, and ongoing challenges like congestion, personnel shortages, inflation, and sanctions linked to Russia’s war on Ukraine.
For the second year, signatories submitted two climate alignment scores based on the 50% and 100% CO2 reduction trajectories established against the 2018 IMO and Paris Agreement goals. The 50% CO2 reduction trajectory, as outlined in the 2018 IMO Initial GHG strategy, sets a target for a minimum 50% reduction in absolute CO2 emissions by 2050 compared to 2008. On the other hand, the 100% CO2 reduction trajectory takes steps towards alignment¹ with the Paris Agreement on climate and aims to achieve 100% CO2 reduction by 2050 to limit global warming to well below 2, preferably to 1.5°C, compared to pre-industrial levels.
Delving into the scores of ten marine insurer signatories and the continued support from nine affiliate members spanning nine countries, the second annual report serves as a comprehensive account of the initiative’s journey, shedding light on the ongoing progress toward alignment with the climate ambitions of both the IMO and the Paris Agreement. While more progress is needed, there are positive signals, with two signatories showcasing scores within +5% of the IMO’s ambition, detailing both progress and challenges.
We are dedicated to fostering continuous learning and progress, with a primary focus on advancing the decarbonisation of the global shipping sector and enhancing transparency.
…said Patrizia Kern-Ferretti, Chair of the Poseidon Principles for Marine Insurance.
This report aims to raise awareness of our endeavours, shedding light on the pivotal role marine insurance plays in the industry’s transformation. It also underscores the work demonstrated by a small but growing group of insurers, exemplified through their involvement with the Poseidon Principles for Marine Insurance.
..she added.
It’s important to note that comparing scores across different years in the realm of marine insurance isn’t a straightforward process. Vessel coverage within a portfolio composition can vary from year to year and is influenced by factors such as one-year contracts and the “leader follower” mechanism, implying numbers should be considered over a specific period.
The report highlights the importance of building connections and raising awareness, emphasising the affiliate members’ pivotal contribution to industry transformation. The Poseidon Principles for Marine Insurance will incorporate trajectories aligned with the revised 2023 IMO GHG in the upcoming phase, with checkpoints in 2030 and 2040, employing a comprehensive well-to-wake approach. Priorities involve refining data collection and expanding membership to enhance the initiative’s impact.
Environmental factor
Climate alignment is currently the only environmental factor considered by the Poseidon Principles for Marine Insurance. In this context, it refers to the degree to which a vessel or portfolio’s carbon intensity is in line with the decarbonisation trajectories of the IMO and close to the Paris Agreement. This scope will be reviewed and may be expanded by signatories on a timeline that is at their discretion, with the support of affiliate members.
The marine insurance ecosystem
Claims leader and follower dynamics
In the context of the Poseidon Principles for Marine Insurance, understanding the dynamics between a “claims leader” and “claims follower” is crucial. It is an industry practice that each vessel (or fleet) is insured by a primary insurer (“claims leader”) and several secondary insurers (“claims followers”) because of the extraordinary value of modern vessels. The term claims leader refers to the primary insurer responsible for handling and leading the claims process. A claims follower is an insurer that participates in the coverage but defers to the claims leader for the primary decisions regarding claims.
The claims leader plays an important role in:
- taking on the primary responsibility for managing and settling claims related to hull and machinery (H&M) coverage.
- coordinating the efforts of all insurers to ensure a streamlined and efficient claims resolution process in cases where there is more than one insurer involved in a claim.
- effective communication and information sharing with followers to ensure that all insurers are aligned in their approach and decisions regarding the claims.
The role of brokers in the marine insurance industry
Insurance brokers serve as central connection points within the marine insurance ecosystem, linking insurers with clients seeking coverage for marine vessel H&M. Furthermore, brokers assist clients in navigating the diverse options available within the marine insurance market, considering factors such as coverage specifics, terms, and adherence to environmental principles like the Poseidon Principles for Marine Insurance. This interaction fosters a collaborative approach,
incorporating diverse perspectives and support within the marine insurance ecosystem. The brokers’ engagement with insurers and affiliate members
contributes to the framework of the Poseidon Principles for Marine Insurance, expanding the scope to embrace a broader spectrum of industry stakeholders.
What about the other types of insurance coverage and organisations?
There are many other types of coverage and organisations in the marine insurance ecosystem besides brokers and insurance companies providing standard H&M coverage. This includes, but is not limited to, captives and P&I clubs. Captives are insurance or reinsurance companies owned by industrial firms or other types of organisations. They underwrite both related (their own) and non-related (third party) risks. Captives play an important role in the risk financing of a
large company for risks which are difficult to insure and to finance high deductibles. They also allow companies to respond quickly to changes and provide direct access to reinsurance. Protection and Indemnity (P&I) clubs are mutual insurance associations that provide liability coverage for carriers, forwarders, charterers and more. These clubs offer protection against third party liabilities that may arise while operating ships, such as damage to other vessels and
pollution. P&I clubs work on a mutual basis, meaning the club members participate each other’s losses by pooling their resources to collectively cover liabilities and share risks.
According to Frédéric Denèfle, decarbonisation will challenge marine underwriters in three key ways:
- The first is a requirement to understand and insure new risks emerging from new propulsion technologies;
- The second is to recognise that new types of “cleaner” cargoes such as lithium-ion batteries will be carried in greater numbers by sea – and that involves different risks;
- The third is to provide adequate cover to help de-risk increasingly erratic weather events.
We all have a role to play in making our world a cleaner place to live and so at IUMI we fully support the Poseidon Principles for Marine Insurance.
..said Frédéric Denèfle, President, IUMI.
Climate alignment and decarbonisation trajectories
Signatories of the Poseidon Principles for Marine Insurance have committed to reporting the climate alignment of their H&M portfolios each calendar year. Affiliate members are not required to calculate and disclose climate alignment scores but are expected to support the signatories in the process. The overall climate alignment score is based on the individual vessel climate alignment scores for each vessel in an insurer’s H&M portfolio.
Decarbonisation trajectories
The Poseidon Principles for Marine Insurance trajectories represent two climate ambitions and are used to measure the degree to which each signatory’s
portfolio meets the associated ambition. The two trajectories are as follows:
- 50% CO2 reduction trajectory is consistent with the 2018 IMO GHG ambition16 for GHG emissions from international shipping to peak as soon as possible and reduce by at least 50% by 2050 compared to 2008.
- 100% CO2 reduction trajectory supports the ambition to be consistent with the goals of the Paris Agreement, to achieve climate neutrality by 2050, and to limit global warming to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels.
Results
For the second Annual Disclosure Report, ten signatories have publicly disclosed the climate alignment of their H&M portfolios. This is two more signatories than last year. Additionally, nine affiliate members continued to support the initiative and its signatories, while engaging in conversations with clients to ensure general awareness and understanding of the Poseidon Principles for Marine Insurance.
