Global ocean hull premiums increased by 5.7% to $8.4 billion in 2022, driven by heightened activity, rising vessel values, and reduced market capacity. Despite a modest increase in early 2023, claims remained moderate, contributing to declining loss ratios over the past three years, starting at the lowest point since 2015 in 2022.
Inflationary Pressures
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:
“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.
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.”
Alternative Fuels
Looming 2050 targets for greenhouse gas (GHG) emissions; newbuilding projects focusing on dual-fuel systems; evolving IMO guidelines; and international sustainability initiatives, are the key drivers for the industry’s search for viable alternative fuel technology solutions. 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.
Ilias Tsakiris explains the implications for hull underwriters:
- “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. 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 we need to train the global seafaring work force 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. The world is not equal and some regions will struggle.”
- “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, including refineries and oil companies. The world must work together if a workable solution is to be achieved.”
Thermal Runaway
Lithium-ion (Li-ion) batteries / Electric vehicles (EVs)
Fires on containerships and car carriers are becoming more common and many of these vessels are now carrying li-ion batteries or transporting EVs.
“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.
A major concern relating to Li-ion batteries is the potential for ‘thermal runaway’, a chemical reaction which causes rapid heating, fire and sometimes an explosion. 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.
Ilias Tsakiris continued:
“Earlier this month, IUMI released a position paper on “Best practice & recommendations for the safe carriage of electric vehicles (EVs)” emphasizing the importance of early fire detection; the installation of drencher and CO2 extinguishing systems; and the establishment of well-defined cargo acceptance protocols. An issue requiring particular consideration is the charging of EVs on ropax vessels, contingent on comprehensive risk assessments and the implementation of appropriate safety measures.”
“Dark Fleet”
- The “dark fleet” poses a growing threat to insurers, particularly since the Ukraine invasion and sanctions.
- Challenges stem from aging vessels, ships with shifting identities owned by questionable entities, and dubious classification societies.
- Russia appears to be circumventing insurance regulations, with around 20% of the global tanker fleet avoiding sanctions.
“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”, said Ilias Tsakiris. “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.”
The IMO’s Legal Committee identified a “dark fleet” of 300 to 600 tankers, largely older vessels with deactivated AIS transponders, poor maintenance, unclear ownership, and inadequate insurance. This clandestine operation raises risks of oil spills and collisions.
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Source: IUMI
