This article originally appeared in The Circle 04.16. Read all Circle issues here.
Shipping in the Arctic is changing with data showing more ships, longer navigation seasons, and new entrants among ship operators in the region. DNV GL, the world’s leading ship and offshore classification society, wants to ensure shipping in the Arctic is safe. But Steven Sawhill asks is the insurance industry prepared to ensure the safety of people, property and the Arctic environment?
A first step is to do a temperature check on safety and Arctic risk from key stakeholders in the maritime community, including the community’s insurers. In a study sponsored by the Gordon and Betty Moore Foundation (USA), DNV GL asked more than 1000 individuals from the world’s leading marine insurers to give us their perspectives on Arctic shipping risk.
Marine insurers are professional risk managers, and insurance is one of several tools in the risk management toolbox. Insurers do not want to lose money by insuring bad risks, thus good underwriting involves a degree of risk assessment to set an insurance policy’s conditions. Moreover, insurers’ loss prevention activities help their customers to identify safety weaknesses and fix them before they lead to incidents and claims. These practices can promote higher shipping standards.
At the same time, marine insurance operates in a competitive environment. Market conditions and an insurer’s competitive position strongly affect the extent to which an insurer can influence standards. Today’s depressed shipping market has pushed insurance rates to historic lows.
Moreover, the nascent nature of Arctic shipping presents additional challenges to insurers. For new, emerging or developing risks, insurers do not have sufficient historical information to establish an actuarial relation between activity, incident, claims, safety measures, deductibles, premiums and settlement costs.
We learned, not surprisingly, that insurers are very interested in safety. A good safety record is good for business – both for insurers and their customers. They are also keenly aware of the growing interest and activity in the Arctic. Although insurers lack solid risk management information for the Arctic, they expect incidents in the Arctic will be more costly due to the difficulty of rendering timely and effective assistance to ships in need in this remote region.
Most importantly, we learned that insurers see themselves as part of the solution for safe Arctic shipping. They believe the insurance industry can take additional measures to improve safety. One prominent example is the Arctic Marine Best Practice Information Forum, an initiative of the International Union of Marine Insurers in cooperation with the Arctic Council.
Their positive attitude is important and we at DNV GL want to build on this. We are currently looking for ways to collaborate with marine insurers on implementing the Polar Code, improving our information and methods for Arctic risk assessment, and helping shipowners prevent incidents.
STEVEN SAWHILL is Principal Consultant, Arctic Operations & Technology, Maritime Advisory DNV GL, Norway