Marine insurance premium, loss standards to be changed on the energy transition: sources
The parameters and criteria for providing marine insurance will change in the coming years as the shipping industry moves towards decarbonization and emissions reduction regulations become mandatory, several executives said. involved in the process at S&P Global Commodity Insights.
They point out that Protection and Indemnity, or P&I, is multi-billion dollar insurance coverage, which includes, among other things, pollution and crew.
Once carbon emission limits for individual ships are put in place, any breach of the cap will amount to pollution, a marine insurance official said on the sidelines of the Nautical Institute of Singapore conference this week. last.
What falls under current maritime law, normal carbon emissions, has the potential to become unwarranted pollution from next year, he said and added that this will have to be taken into account when calculating the premium and payment of claims.
The International Maritime Organization has put in place rules that shipping companies must cut emissions from next year. To this end, maritime organizations and companies are studying what might be the best fuel mix to reduce emissions without significantly increasing costs.
Research and infrastructure development is currently underway for the adoption of non-fossil fuels in ships.
“While such research is done by other agencies, insurance companies will use it to assess a vessel’s insurance premium,” said a senior executive at a P&I club.
The International Group, or IG, comprises 13 P&I Clubs, which alone provide maritime liability cover for almost 90% of the world’s tonnage.
Liabilities, which exceed the clubs’ individual retention, currently set at $10 million, are shared among the 13 clubs under the terms of a pooling agreement. These can potentially amount to several billion dollars.
Eventually, in the medium term, the use of greener fuels will be considered when purchasing insurance coverage, he said.
P&I Clubs provide cover for third party liabilities such as loss of life, injury and illness of crew, passengers and other persons, loss of cargo, shortage or damage, collision and pollution.
Until now, pollution from any potential oil spills had to be taken into account, but once alternative fuels are adopted, any harmful impact they may have on humans and the environment will need to be covered by insurance. , said the director of the P&I club.
A case in point is ammonia, which is now being touted as a “green fuel of the future”, but its use also creates a whole new range of risks, he said.
While ammonia will go a long way in helping businesses reduce carbon emissions, related risks will be assessed to calculate insurance coverage, he said.
As the insurance covers illness of crew while on board duty, illness due to inhalation of any fuel will therefore be taken into account when setting the premium and assessing any claim. potential, he added.
There will be a need for “phenomenal safety standards” if ammonia is used as fuel for ships, said Mark Cameron, executive vice president and chief operating officer of Ardmore Shipping.
Tiered insurance market
A P&I club underwriter said these factors are still a “work in progress” but that in the medium term the insurance premium will vary depending on the fuel used and this will be added to the existing criteria when a vessel is assessed based on its classification, compliance with the International Safety Management System and the International Ship and Port Safety Code.
The work of underwriters and experts involved in loss prevention is set to increase, he said.
As part of upcoming IMO standards, the grams of carbon dioxide emitted per cargo carrying capacity and per nautical mile for a ship will be calculated. The vessel will receive a grade from A to E based on a Carbon Intensity Indicator, or CII.
Ship owners will have to prove that there is a gradual decrease in emissions from year to year.
Marine insurance officials have said they will need to use this database in their assessment of risk coverage.