While the ongoing conflict in Ukraine loomed large, the challenges of climate change and technology were prominent pieces of the IUMI’s agenda
This year’s annual International Union of Marine Insurance (IUMI) conference, held last week (17-20 September 2023) in Edinburgh, opened as Ukraine sought to break the Russian blockade on the exports of grain and other products across the Black Sea.
While underwriters said they were waiting to see whether Russia would react, the maritime industry’s voyage to net zero remained a prominent challenge on the agenda.
The International Maritime Organisation (IMO) has strengthened its environmental goals, with IUMI president Frédéric Denèfle telling delegates that insurers needed to act now to support clients in meeting the new targets.
He explained: “IUMI welcomes the recent announcement from IMO that greenhouse gas emissions from ships will be reduced further.”
New IMO targets require net zero emissions by 2050, with a 20% to 30% reduction stipulated by 2030 and a 70% to 80% reduction needed by 2040 – these figures are based on a 2008 baseline.
Denèfle added that the industry would need to adopt a series of immediate measures, intermediate technologies and –finally – a long-term technology shift.
He explained: ”It’s gratifying to see that leading shipowners, supported by charterers, have already made the first steps with some trailblazing their way to early decarbonisation.”
Denèfle added that it was vital for the marine insurance community to keep pace with innovations to properly understand developing risks, allowing it to support shipowners to mitigate risk in their operations.
Helle Hammer, chair of IUMI’s policy forum, added that shipowners were already feeling pressure to decarbonise, with insurers needing to play their part in supporting these efforts.
“Compliance with this ambitious new strategy will fall mainly on the shoulders of the shipowners, but they will be fully supported by the marine insurance community who will underwrite much of the risk,” she added.
“Therefore, there needs to be comprehensive cooperation and knowledge sharing between owners, class, flag states, underwriters and others. This will be particularly important as the first movers begin implementing new technologies that will then, inevitably, be taken up by the remainder of the industry.
”It will be essential for a comprehensive regulatory regime to be in place before the bulk of the fleet starts to comply.”
Hammer warned the world’s seafarers needed to be engaged were they to make the changes necessary to achieve net zero requirements.
She explained: “Protecting the environment is essential, but so is protecting the welfare and safety of our seafarers.
“We should ensure that environmental and crew safety initiatives are progressed simultaneously to ensure those at sea are not compromised in any way.
“At the same time, we need to recognise that significant and new training programmes will need to be implemented to ensure our seafarers are fully trained and compliant with the new technologies and can operate them safely.
“We will face many challenges and unknowns as we move to net zero and, as an industry, we must work together to ensure people are kept safe and the environment is protected. New risks must be understood, insured and mitigated – and underwriters are likely to seek more information outside their loss records as a result.”
Ilias Tsakiris, chair of the Ocean Hull Committee, told the conference that the rapid move to alternative fuels and new technology was already underway, with insurers needing to react quickly to ensure they were delivering the coverage their clients required.
Tsakiris said: “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 decarbonisation and greenhouse gas 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.
Tsakiris also noted: “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.”
Despite discussion of the challenges inherent in implementing environmental systems and associated technologies in the marine sector, there was good news for underwriters.
IUMI’s latest figures revealed that all lines of business reported an increase in global premiums year-on-year, with the total reaching $35.8bn (£28.2bn) for last year – an 8.3% increase on the previous year.
Transport and cargo accounted for 57.3% of these premiums, followed by global hull at 23.4%, offshore energy at 11.5% and marine liability – other than protection and indemnity covered by IG clubs – accounting for 7.7%.
However, Astrid Seltmann, vice chair of IUMI’s facts and figures committee, said risks remained despite positive figures.
“Marine underwriters have suffered poor returns over several years but, from 2020, results started to improve,” she said.
“2021 and particularly 2022 have shown a relatively strong growth in the global premium base across all lines of business. In combination with a benign claims impact, this has translated into a much better performance in terms of loss ratios, specifically for hull and cargo.
“The reasons are complex, but are likely due to the post-pandemic rebound in global trade coupled with reduced market capacity, particularly for hull. We’ve seen a continued strong performance from Europe after many years of decline but, while still increasing, Asian market growth appears to be slowing.”
Seltmann added: “For sustainability, claims trends need to be monitored, being coupled with vessel activity, value accumulation, natural catastrophe impact, the use of new technology and inflation impact on repair costs. In addition, fires continued to be a concern in 2022 and also into 2023.”
Denèfle concluded had the industry had the ability and track record to adapt to the changing landscape.
“As the world’s oldest insurance business, our sector has demonstrated its ability to flex to new needs and conditions, both market and macroeconomic,” he added.
“I foresee a return to dedicated, experienced teams, a heightened reliance on intelligence and data systems to anticipate the consequences of geopolitical uncertainty, the emergence of local teams underwriting local business in their own areas to challenge fragmentation, an adjustment of market capacities and pricing to fight inflation pressures and the creation of specialist teams to fully understand the implications of new technologies.
”Of course, much of this is already happening.”