Marine, Energy and Transport

The safe corridor through the Black Sea for grain exports from the Ukrainian ports still in the country’s hands will remain a focus of intense international interest. Alongside the agreement brokered by the United Nations and Turkey, the willingness of marine war risks underwriters in the London Market to provide cover has been an essential element of the agreement. The threat to the continuation of the agreement in early November after the aerial and amphibious drone attacks on Russian ships at Sevastopol promoted the temporary suspension of this facility, although it was quickly reinstated when Russia re-affirmed its commitment to the deal. It was a reminder that marine insurers will continue to be in the spotlight as the situation in Ukraine develops.

2023 will continue to see oil and gas underwriters grapple with the challenge of balancing the competing demands of climate change commitments, energy security and profitable underwriting. Joining other insurers and reinsurers, Munich Re Syndicate announced in October 2022 that it will cease to insure new oil and gas-field projects that are not under construction or operation as at 31 December 2022. While it was relatively easy for insurers to disengage from coal-based risks, moving away from oil and gas is a much more complex proposition. Careful thought needs be given to the timeframe and carve outs that will be required in order to support the global energy transition.

New powers to impose civil penalties for breach of financial sanctions may signal more enforcement activity in 2023. The Economic Crime (Transparency and Enforcement) Act 2022 imposes strict liability, rendering due diligence or the need to show any knowledge or suspicion of acting in breach of financial sanctions irrelevant. The Office for Financial Sanctions Implementation can impose fines of up to £1mn or 50% of the value of the breach (whichever is higher). It also has the power to name and shame companies, even where a monetary penalty has not been imposed. This will be a real concern where reputation is crucial. Identifying the ultimate owner of vessels/ cargo can be a hugely complex undertaking. Insurers handling claims will understandably be nervous about payments where the ultimate ownership may mean they have breached sanctions.

Russia’s invasion of Ukraine has significantly disrupted the fossil fuel market, with physical, political and financial risks affecting supply. Russia is a leading exporter of both natural gas and oil, in particular to Europe. In the face of a broad cost of living crisis, and potential for social unrest, world leaders need to think carefully about how to respond. For some, the need for energy security suggests a return to domestic fossil fuels. However, for others the response is to accelerate the support for clean energy technologies. The two options have materially different lead-in times, with renewables being more immediately achievable. This decision has the potential to create further division between countries. Either way, we can expect greater momentum behind energy transition in Europe.

With the increased prevalence of electric vehicles (EVs), ensuring the sufficient supply of electric charging infrastructure is an imperative, as was recognised as far back as 2018 and incorporated into Part 2 of the Automated and Electric Vehicles Act 2018. The issue of safety is paramount, owing to the fire risks associated with the size of high-voltage Lithium-ion batteries required to power an EV, and their propensity to burn at high temperature without the need for oxygen. This risk is most pronounced where large numbers of vehicles (including EVs) are contained in confined spaces, such as underground car parks, and especially roll on – roll off (ro-ro) ferries, where there is also a risk to life for passengers. In July 2022, the UK’s Maritime and Coastguard Agency issued safety guidance for EV charging on ro-ro ferries, which recommends charging infrastructure should, where possible, be positioned on the weather deck which is more easily accessible in the event of an electrical fire. Marine insurers will face increased exposure to loss events caused by on board EV charging on ro-ro ferries, and should undertake a comprehensive risk assessment when underwriting such business.

We expect an increase in coverage disputes arising out of the burgeoning climate activist litigation. The first cases of this nature have already begun in the US with Aloha Petroleum bringing a claim against its insurers. Aloha seeks to recover its defence costs (which currently stand at around £750,000) in handling claims from local governments alleging that big oil firms engaged in a co-ordinated effort to deny the threat of global warming, to discredit the science of the climate crisis and to deceive the public about the reality and consequences of the impacts of their fossil fuel pollution. Insurers deny coverage based on a general pollution exclusion. Key to this assertion is whether carbon dioxide and other greenhouse gases fall within the definition of pollution. We anticipate the market will respond with new products and wordings aimed at the risk of climate activist litigation. In the meantime, coverage disputes will appear with different policy wordings being tested in different jurisdictions.