50 Predictions: Marine, Energy & Transport - DAC Beachcroft

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50 Predictions: Marine, Energy & Transport

Published On: 1 September 2016

Cyber attacks will intensify in the marine market

While the advent of crewless vessels may be some way off, modern vessels and ports are increasingly automated, using remotely accessible interconnected systems that make them vulnerable to cyber attacks. The shipping industry has been slow to react but is now taking steps to respond to this risk, most recently evidenced by the publication of ‘The Guidelines on Cyber Security onboard Ships’ in January 2016, jointly produced by BIMCO, ICS, CLIA, INTERCARGO and INTERTANKO.

There remain few reported incidents of marine losses arising from cyber attacks, but these are only likely to grow as reliance on remote access automated systems increases. In the short term, losses are expected to be relatively small in scale (such as theft of cargo or damage to computer systems infected by malware), but it is widely accepted that significant physical damage losses will materialise in the future.

Marine insurers need to start considering how best to advise their clients on these emerging exposures, as well as developing innovative products that not only offer cover but also provide services on how best to manage cyber attack loss events.

Piracy likely to increase as geographical focus shifts

Piracy continues to be one of the main threats to global shipping and the marine insurance market. Constant vigilance is required to manage volatile exposures. Piracy is likely to return to the Indian Ocean unless an international naval presence can be maintained. While impressive results have been secured by armed guarding, Best Management Practices Version 4 and naval intervention, any withdrawal of support is likely to have significant consequences. In the meantime, piracy continues to escalate in the west coast of Africa, China and South East Asia, where difficulties with under-reporting exacerbate the problem. Elsewhere, the Gulf of Guinea initiative hopes to replicate the results achieved in the Indian Ocean.

Problems on the horizon for decommissioning

The lack of a market standard wording for decommissioning, along with the serious concerns regarding environmental losses arising during the decommissioning process, is likely to cause significant problems for insurers. Many major North Sea structures are still in operation over 40 years after construction. More than 5,000 wells and 475 platforms are expected to be decommissioned over the next 30 years in the North Sea alone. The maturity of such structures and the impact low oil prices have had in restricting maintenance programmes mean this is a particularly difficult area of risk to evaluate. There will be pressure to adopt a market-wide approach to decommissioning akin to the existing offshore construction market wording.

Increased focus on managing potential exposures to large cargo losses

Catastrophe modelling, exclusions and sub-limits will increase as methods of analysing and minimising cargo exposures are explored further. This is particularly the case in relation to vulnerable geographic regions and areas of dense static port warehousing. The Tianjin Port disaster has shown the market that there are still more lessons to learn after Hurricane Sandy. The current estimates of losses range from US$1 billion to US$3.5 billion although, if the speculation regarding cyanide contamination is borne out, they could be as high as US$6 billion. The introduction of tougher underwriting approaches is likely to encounter significant resistance from insureds.

Key developments in 2015/16