How maritime risk is changing – ICS webinar

Sep 16 2021


The maritime risk landscape is changing in multiple ways – much of it driven by Covid and environmental issues, and also cybersecurity. ICS held a webinar to discuss, with speakers from IGP&I, Marsh and Suardiaz Group.

Covid has caused the maritime risk landscape to change in multiple ways, including that it leads to financial risks or withdrawals of insurance coverage. Environmental issues also change risks in multiple ways, including risks from people not being familiar with the new fuels and technologies, and from new regulation.

 

The International Chamber of Shipping put together an expert panel for a webinar on Apr 14 to discuss how shipping risks are changing. The participants were Nick Shaw, CEO, The International Group of P&I Clubs; Louise Nevill, CEO Marine and Cargo, Marsh Specialty; and Juan Riva Francos, CEO of shipowner Suardiaz Group.

 

The International Group of P&I Clubs has 13 of the largest P&I Clubs as members. Together these clubs provide around 90 per cent of the world’s ocean going tonnage with marine liability cover. Liabilities above $10m are shared between club members, so individual members do not risk going out of business due to a single large claim.

 

Group members also share experiences, in a number of specialist committees. The members also have a very good view on the changing maritime risk picture from the claims submitted to them.

 

There are “a number of new and emerging risks which International Group is considering,” said Nick Shaw, CEO of IGP&I.

 

Covid

IGP&I saw Covid as a major risk in multiple ways. Although so far, “apart from the crew change crisis,” the shipping industry has managed the risks “pretty well,” he said.

 

Some of the biggest claims came from cruise ships which were stranded for some time with passengers onboard.

 

A main risk for shipping after Covid is, “if the insurance markets take fright and start to impose too many exclusions on coverage available, as a result of what they perceive to be systemic risks.”

 

“We will work very hard with those markets, to try to provide information and discuss with them, how cover can still be provided to enable global shipping still to trade, trying to proactively manage risks, and not reacting.”

 

The global insurance system “is a very fragile system.” It can break “if there's too much interference in one part of it, or something is taken away.”

 

Mr Shaw was asked if he had seen any increase in incidents following the growth in remote inspections replacing physical inspections during the pandemic. “I’m not aware of any data that suggests that has been a major trend,” he replied.

 

IGP&I set up a working group to address Covid related risks. The working group provided information to shipowners about changing port regulations for crew changes. It also shared detailed information about claims submitted. This helped the re-insurers to better assess the risk and have confidence that the situation was being managed.

 

Environment

One risk concern related to the environment is that regulations are implemented on a non-global basis, such as with the EU making its own rules for emissions.

 

“Our concern here is that where there's a lack of uniformity, that can lead to more difficult technical and commercial decisions for shipowners. We promote uniformity of regulation, [then] it is easier to manage risk, frankly,” Mr Shaw said.

 

It is important that insurers don’t withdraw offers of insurance for ships which don’t meet high emissions standards, because those ships might then take out insurance which doesn’t fully cover them, he said.

 

“You end up with a major situation where the marine environment is damaged and there isn't backup from insurance markets to pay for restoration.”

 

“You can't cut shipowners at the knees and impose regulation which creates lots of obsolete vessels,” he said. “That isn't going to work.”

 

Cybersecurity

Another issue is the risk of cybersecurity attacks, such as ransomware.

“The threat of cyber isn’t completely new, but I think the insurance industry and re-insurers are looking closely at that [now] to assess the risk.”

 

One question is “whether there are manual overrides on vessels” (which can be activated if an automated system gets hacked). Another question is, “are there backup solutions which can operate immediately.”

 

However, “we did a data trawl last year which said there had been no claims with a cyber element,” he said.

 

Guy Platten, Secretary General of the International Chamber of Shipping, moderating the webinar, noted that was “really interesting. Maybe shipping companies are adopting and getting robust systems in place?”

 

Mr Shaw replied, “we’re on a journey, there will be attacks on vessels, but [the outcome] depends on the resilience of the system and backup plans. “We're led by classification societies on that. They are looking at that very closely.”

 

Other risks

“Another big issue is a possible rise of geopolitical tensions, and increased use of sanctions by governments. China has started its own sanctions issues. We think this is unlikely to go away. There's a growing threat of US–China tensions leading to more uncertainty,” Mr Shaw said.

 

Hopes are that the mutual need between US and China will stop them from trying to hurt each other too much, he said.

 

Another issue being considered is whether risks increase if vessel sizes get bigger, perhaps driven by an enviromental drive to reduce emissions per ton mile. “In our view I think it’s too early to reach any firm conclusions,” he said. “We are monitoring that.”

 

The group also did research on incidents with vessel pilots, looking at 20 years of data. “There's some really good data coming out of that, how we can improve pilotage, and the interaction between vessel and pilot. We’ve just published a training animation video looking at lessons learned.”

 

Another issue is deaths in enclosed spaces, of both seafarers and people attending in port.

 

At the IGP&I, “we're there to support shipowner members and ensure they get necessary guidance,” he said.

 

Shipowners want to feel they can trust insurance companies and markets to work with them, and not just slam on new ‘exclusions’ if any new risks emerge in future.

 

“We need insurance markets to assess the risk with us, look at the data and help make constructive solutions,” he said.

 

Marsh

Louise Nevill, CEO Marine and Cargo, Marsh Specialty,” said that COVID 19 has increased risks to shipping in many ways. “The majority probably weren't as prepared for what's happened as we should have been.”

 

Marsh Speciality is a division of insurance brokers Marsh which looks at “specialty risks” (unique requirements). Marsh co-publishes the “Global Maritime Issues Monitor”, together with the Global Maritime Forum, and the International Union of Marine Insurance.

 

In the latest (2020) edition, issues described as being of high impact and likelihood, and where the industry is least prepared, included pandemics, a global economic crisis, decarbonisation of shipping / new environmental regulation, and big data, AI and cyber security.

 

Some of these risks of particular concern, “would not have appeared ‘red’ five years ago, and some we wouldn't have thought about 18 months ago,” she said.

 

One of the highest perceived risks is that the pandemic leads to an economic crisis, which could impact shipping’s risk in a multitude of ways. There  could be further consolidation of companies, more likelihood of bankruptcies, more difficulty securing finance, and perhaps a failure to invest adequately in shipping overall.

 

In the survey, “93 per cent said the pandemic made a global economic crisis more likely,” she said.

 

“We could see a post pandemic disparity between companies out of lockdown, with cases under control, and those stuck in a vicious cycle. Some economies [may] remain severely impacted with no obvious end in sight.”

 

“There could be increased nationalism, more political interference in trade. Geopolitical tension could well be enhanced as a result of Covid.”

 

“Decarbonisation of shipping is ranked number two [highest perceived risk], 2 years in a row. You don't have to go back that far for it not to be recognised as a risk at all.”

 

“The industry is still not entirely sure which technology will be adopted. LNG is viewed by many as an interim solution. The end answer could be ammonia, hydrogen or battery cells.”

 

“The industry is having to hold back investment decisions until there's more clarity.”

 

Some insurers are bringing ESG factors into the choice of insurance policies they issue, stating they will no longer write new insurance for oil sands production or thermal coal power plants, she said.

 

Some insurers are refusing cover for vessels which are heading for breakup in countries which are not signatories to the Hong Kong Ship Recycling Convention.  Insurers may also refuse to cover vessels which do not meet EEXI (energy efficiency on existing ships index) standards.

 

But it is important that insurers “move with the times”, and offer insurance for emerging risks.

 

Ms Nevill was asked how much insurers had prepared for pandemics, or other ‘black swan’ events.

 

She said Marsh had modelled many different scenarios, including pandemics and solar flares. “but we got the quantum [size of the risk] really quite wrong.”

 

She was asked how insurers balance the need to charge high prices to cover some unknown risks, and how they keep prices low to attract business.

 

“We're in a relatively hard market in insurance at the moment,” she replied. “it is all about supply and demand. There are more customers and fewer underwriters, so prices are driven up.”

 

“Then everyone gets quite excited, new investors start coming in, new underwriters start coming in, and the tables start to turn.”

 

“You've got to know when you're about to tip the balance between profit and loss and take the appropriate measures. But it doesn’t often happen. Underwriters keep following the cycle down and red ink starts hitting the balance sheet.”

 

Suardiaz Group

Juan Riva Francos, CEO of roro and car carrier company Suardiaz Group, and a former European Community Shipowners’ Associations president, said uncertainty “is not something new for those of us in this business.”

 

“[but] I think the pressure is getting more and more unbearable.”

 

As an example of an unexpected risk, Mr Francos’ car carriers business is impacted by the shortage of microchips for car manufacturing, which is leading to stops in car production in some plants. This shortage is created by the increased demand from PCs from people working at home during the Covid period.

 

Another possible impact from Covid is that it may lead companies to consider shortening their supply chains. We will still depend on China, but to a lesser extent,” he said.

 

Decarbonisation drives a number of risks, including regulatory change, and challenges meeting demands from shippers that goods are transported with a lower carbon footprint. We still don’t know what technologies will be used in future, but shipowners need to commit money to build ships which need a payback over 20 years, he said.

 

“The main risk is for those who don't realise that business as usual is no longer an option in maritime transport,” he said. “We don't need a plan B only, we need plan C and D.”

 

“There is a cost to all that flexibility - I wonder if customers are willing to pay.”

 

Mr Francos said there should be comprehensive analysis of new fuels like ammonia, to avoid the risk of companies pursuing fuel choices which don’t work well.

 

Shipping companies need to find ways to balance their ‘traditional’ side, relying on many years of experience, with an exploration of new technologies, he said.

 

Machine learning

Speakers were asked how much machine learning can be used to help assess risk. Ms Nevill replied that assessing risks is the foundation of the insurance business, and companies are increasing the amount of data they use to do this.

 

“One view is there are no bad risks, only bad pricing. Companies could technically accommodate most risks so long as they find a good match in price.”

 

“Until recently most insurers relied on traditional methods - such as historical data and loss history. But this is changing. The majority of underwriters now use extra data such as frequency of port calls and miles travelled.”

 

Machine learning could be used as part of methods in calculating risks, including analysing historic, static or behavioural data, and running models through multiple iterations to see the likelihood of different outcomes, she said.

 

We have already seen the launch of the first “digital and algorithmically-driven Lloyd's of London syndicate”.

 

“But there's still an underwriter at the end of the process sense checking the output,” she said.

 

AI based tools might also be used to make it more efficient to settle and pay claims, and detect fraud.

 

“We need to continue to put more technology behind the shipping industry. We all need to get a better understanding to get maximum value for all of our clients,” she said.

 

Nick Shaw from the International Group of P&I Clubs said, “every club in the international group has data analysts and actuaries to help them with processes, looking at risks, assessing claims, using that to help them with pricing for shipowners.”

 

Data is shared between clubs where there is an argument that it can be used to improve safety, for example in pilotage and enclosed spaces.

 

Juan Riva Francos, CEO Suardiaz Group said that he anticipates data analytics being used to optimise supply chains, support condition based maintenance of ship equipment, and help reduce the bureaucratic burden and duplicated work on board.

 

Extreme weather risks

Speakers were asked how they see the risks caused by actual climate change – such as more extreme weather.

 

Extreme weather conditions could lead to more vessel re-routing, speed reductions, actual damage, and an impact on maritime choke points, said Marsh’s Ms Nevill. It could lead to geopolitical tensions. “There's going to be more for us to think about unfortunately.”

 

IGP&I’s Mr Shaw said that any increase in direct risks from climate may affect ports more than ships. Ships are already “built to withstand most severe weather conditions. With improved technology and data on meteorological factors, ships can move from ports quite readily, where they see an extreme weather event materialising.”

 

Suardiaz Group’s Mr Francos said that climate problems may affect shipping more when it leads to problems with infrastructure, “as you saw in the incident in the Suez Canal.”

 

Attraction of seafaring

Mr Francos was asked about the attractiveness of shipping as a career, and how a shortage of seafarers might affect shipping risks.

 

One of the negatives for people considering seafaring is the restrictions on mobility. These are not due only to the pandemic, they have been increasing since around 2000, he said.

 

“A few years ago I went to deliver final degree awards to a few nautical graduates. The vast majority didn't intend to navigate at all. Either they were already in a company on shore, or waiting to finish 12 months at sea to look for land work.”

 

“The problem is that the idea of being a seafarer as a vocation has been lost. The maritime profession has been losing attractiveness for young Europeans. That is something we will need to deal with in the short term.”

 



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