Marine hull faces challenges over inflation, alternative fuels and ‘dark fleet’

Despite growth in premiums, inflation is likely to have a significant effect on marine hull insurance going forward, according to the International Union of Marine Insurance (IUMI), together with challenges around alternative fuels, lithium-ion batteries, electric vehicles, and the so-called “dark fleet”. Global ocean hull premiums rose in 2022 by 5.7%, while claims for the same period remained moderate although early 2023 has witnessed a modest increase. But inflation is a major concern, according to Ilias Tsakiris, chair of IUMI’s ocean hull committee. “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. The search for alternative fuels to meet looming 2050 targets for greenhouse gas emissions is leading to hybrid technologies such as hydrogen/fossil fuel or ammonia/fossil fuel expected to be employed until a fully clean and workable solution is developed, said IUMI, with 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,” said Tsakiris. “The rapid implementation of these technologies aligned with decarbonisation 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 we need to train the global seafaring work force accordingly.” IUMI noted that fires on containerships and car carriers are becoming more common and many of these vessels are now carrying li-ion batteries or transporting EVs. It said a major concern relating to lithium-ion batteries is the potential for ‘thermal runaway’, a chemical reaction that causes rapid heating, fire and sometimes an explosion. A growing threat for insurers is the so-called “dark fleet”, especially since the invasion of Ukraine and the sanctions regime, said IUMI, adding: “The global maritime industry faces significant challenges due to the proliferation of aging vessels, identity-shifting ships owned by dubious entities, and questionable classification societies. These trends also raise concerns about potential criminal activities and money laundering.” It pointed to issues of accountability and traceability in accidents involving the dark fleet. Responsibility for wreck removal, pollution response, ship-to-ship transfers of oil, and compensation for victims all remain unclear. Offshore energy The offshore energy insurance sector has seen an upward trend in global premiums since 2019. But over the coming few years, the fundamentals of the offshore energy insurance market are likely to shift much more significantly than other insurance sectors, according to Melanie Raven, vice chair of IUMI’s offshore energy committee. “As we approach peak oil, the growth in lower carbon technology is now accelerating. Floating wind capacity, as an example, is forecast to grow exponentially over the next few years as increased levels of investment are injected. The move to a low-carbon future represents a fundamental shift for offshore energy underwriters, and this will reach further and deeper into our sector of insurance than any other.” She said the evolution of energy production will give rise to a new set of technologies with new risks that will need to be insured. “Although we are facing a very different future, we are not having to reinvent every wheel”, said Raven. “Carbon capture and storage facilities are likely to feature large over the coming years but underwriters in our sector are used to insuring subterranean structures. It shouldn’t be a great leap for us to provide cover for these new facilities.” She added: “Lower-carbon solutions are moving very quickly and insurers must keep abreast of change and remain agile in order to respond to industry demands. We need to continue to support our customers with their existing needs as well as innovate and re-invent our insurance products so they remain fit for purpose. Insurance must be an enabler and not a blockage in this vital energy transition process. It is encouraging that there are many positive developments currently underway, including methane gas leak detection reducing GHG emissions and the electrification of offshore platforms using renewable energy sources. It’s our job, as underwriters, to get behind these innovations and support the transition to a cleaner future.”

Marine hull faces challenges over inflation, alternative fuels and ‘dark fleet’

Offshore energy insurance sector to see fundamental shift

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