How Will the Marine Insurance Industry Respond to New Sources of Risk?
The effects of new technologies on maritime risk have been paradoxical. Better vessel designs, improved tracking technologies, new training methods and smarter on-board systems have all made the risk of an accident befalling a vessel at sea lower today than it has ever been. The annual number of losses worldwide declined from 171 in 2007 to 85 in 2016, according to Lloyd’s List Intelligence figures. And despite the world fleet growing every year, last year featured the lowest number of losses on record.
But declining rates of losses pose a problem to insurers and safety professionals alike. With insufficient data and few casualties to learn from, it is difficult to assess how the nature of risk is changing, or what may need to be done to head off emerging threats. New technologies are themselves also new sources of risk, with improving connectivity and more integrated systems making the sector more vulnerable to cyber attacks.
Ahead of the Lloyd’s Maritime Academy Marine Insurance Seminar taking place this 22nd – 23rd of May, we asked three leading Marine Insurance experts one simple question: how will the marine insurance industry respond to new sources of risk? This is what they had to say.
Stephen J. Harris, Senior Vice President, Marsh Marine Practice
"30 years ago, the idea of commercial cyber attack was a matter for science fiction novelists. Sadly, it has now become all too real. Over recent months, a number of high profile attacks have cost the maritime industry many millions of dollars in detecting, repairing and protecting against future incidents. These figures have been inflated by the potential for ransom payments, and by consequential losses such as interruption to business, reputational damage and potential liabilities to other parties.
My interest is in exploring the relentless pace of such disruptive technological change, including the types of cyber attack that the maritime industry is exposed to, and the development of such things as autonomous vessels and blockchain technology. It must always be remembered that while technological developments present great opportunities, they are also a source of potential new threats.
The role of insurance in providing financial cover against the consequences of successful cyber attacks – although it is becoming increasingly sophisticated and well developed – has to be balanced with other efforts to thwart attacks. What is needed is a mix of protections that will be unique for each company in the maritime sector."
Carrie Radford, Managing Associate, Ince & Co LLP
"Cyber risk is one of the most pressing issues facing the marine insurance industry today. The risk from cyber events threatens all the components of the maritime industry: ships themselves, shore side operations, owners and operators, ports and terminals, transport and logistics companies and individual seafarers. In recent years, this risk has increased exponentially with the networking of operating systems and information systems, and their connection to the internet. This means that anyone with access to the internet can, with the right skills, access (for example) a ship’s operating systems, including bridge computer systems, engineering control systems, the AIS system, and data such as manifests or information about the location of cargo.
The maritime industry is beginning to think seriously about the threat it faces and how it can best protect itself. The marine insurance industry is similarly becoming more aware of the all-pervading nature of cyber risk. Steps have been taken, for example, to refine the Institute Cyber Attack Exclusion Clause Cl.380, in an effort to make clearer what is and is not covered insofar as marine losses involve the operation of computer systems, software etc. For insurers, clauses are being looked at to seek to address the risk of ‘silent cyber’ cover. To the extent that both insurer and insured are developing a clearer understanding of the threats, and how far the traditional form of marine insurance coverage extends, it is to be anticipated that new products will enter the insurance market to meet demand from the maritime industry for more complete protection to cyber threats."
Steven Sawhill, Discipline Leader of Cold Climate Advisory Services, DNV GL
"How will the marine insurance industry respond to new sources of risk? To those outside the marine insurance sector, the answer appears both conservative and opaque. The responses we received from insurers during a recent study we conducted on marine insurance and Arctic risk would indicate that insurers will take a slow, measured approach.
As we learned from our respondents, insurers don’t have sufficient information to adequately assess new or emerging risks in the Arctic or elsewhere, particularly on the potential cost of claims. Their challenge is in obtaining adequate information to establish an actuarial relation between activity, incident, claims, safety measures, deductibles, premiums and settlement costs.
Perhaps a better question to ask would be how should the marine insurance industry respond to new sources of risk? Where the number of incidents is very low, the challenge is how to fulfil insurers’ informational needs from other sources. Condition monitoring and big data analytics may promote operative risk management and enhance our understanding and management of shipping risk. DNV GL believes significant advances in risk analysis may be possible through collaboration between insurers and those with access to relevant big data sources (such as classification societies and equipment manufacturers)."
