Marine, Energy and Transport

From cyber attacks to renewables, we offer our international experts’ predictions on the opportunities and challenges that the marine, energy and transport market may face in the coming year and beyond.

Marine, Energy and Transport predictions
#1 Improper shipbreaking drives continued increase in enforcement action by environmental regulators

Environmental regulations should remain a key consideration for vessel and rig owners hit hard by COVID-19 as they seek to manage the financial impact. Careful planning will be required when opting to reduce costs by scrapping and decommissioning vessels. Cost effective international options for decommissioning – such as those available in developing countries – are likely to attract scrutiny. Marine insurance may not respond to the costs of dealing with enquiries from environmental regulators leaving insured customers to look elsewhere in their wider insurance portfolio (for example to their D&O or environmental cover) for support.

#2 Cyber attacks on shipping companies highlight that the shipping industry is now a prime target

Cyber risk is now front and centre for the shipping industry after the International Maritime Organisation (IMO) suffered the same fate on 1 October 2020 as the four largest shipping companies, all of which have been the target of major cyber attacks in the last three years. With apposite timing, the IMO Resolution MSC.428(98), requiring ship owners and managers to assess cyber risk and implement relevant measures across all functions of their safety management system, comes into force on 1 January 2021.  This will be welcome news for marine and cyber insurers alike, who have been developing products to help limit the operational impact of cyber attacks.  To date, these impacts have been largely limited to shore-side operations, but with increased interconnectivity with vessels and use of automated systems, the spectre of a significant physical damage loss at sea looms ever larger.

#3 Beirut explosion provides cargo insurers with stark reminder of accumulation risk

Following the recent Beirut port explosion, cargo insurers will increasingly look to harness technology to develop more sophisticated risk modelling by monitoring cargo in real time to avoid accumulation hotspots. Beirut was for many cargo insurers worryingly reminiscent of the Tianjin explosion, a prime example of accumulation risk. Many insurers were left wondering where their cargo was and how much of it was at risk. The fallout from Beirut has been less costly, but will remind insurers that port-based CAT losses are not rare. With very limited scope for recoveries, marine underwriters have been looking to develop their underwriting methods to better limit their exposure to these unexpected large loss events.

#4 COVID-19 induced oil demand shock could accelerate offshore energy industry’s shift to renewables

With oil prices already struggling, the coronavirus pandemic has driven demand for oil to new lows. The pandemic, coupled with the ever-increasing scrutiny surrounding climate change risk, means energy majors may look to expedite the transition from oil and gas to renewable energy sources.  Energy giant Equinor has set a goal to reach net-zero emissions by 2050, in part achieved by a transition to renewables, carbon capture and storage and development of alternative technologies such as hydrogen. In line with this, the International Energy Agency has said the 2050 target for net zero will not be met without a notable acceleration in clean energy innovation.  The oil and gas industry is best placed to fund and drive this innovation.  For offshore energy insurers, the plight of oil demand has driven down premium volumes.  However, the expectation is that the increasing move to renewables will plug the gap in lost business.

#6 A Canadian perspective: marine spill risks due to anticipated West Coast tanker traffic increase

If proposed pipelines are approved, crude oil and petroleum-based products being transported on Canada’s West Coast are projected to increase, and with them the number of oil spills from groundings, collisions, allisions and hull and equipment failures is expected to rise. The environmental consequences of oil spills can be catastrophic to coastal communities and ecosystems and could cost insurers millions of dollars in losses and clean up. While shipping is far safer today than it was many years ago, claims related to increased tanker traffic could seriously impact insurers and the area remains high-risk for underwriters.

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