Changes in ice conditions is opening the high Arctic as a trade route, fishing ground and potential tourism destination; but more infrastructure support is required to facilitate the provision of adequate insurance, said the International Union of Marine Insurance (IUMI) in a paper it issued last week.
Following the first transit of Western-owned vessels through the Northern Sea Route in 2009, traffic increased up until 2016, before plummeting due to declining freight markets and fuel costs, difficult ice conditions, and scarcity of commercial ice-strengthened vessels, which markedly reduced the economic value of the time saved by using the shorter sea route. However, cargo volumes picked up again in 2017 with an increase of nearly 40%, although from a small number.
With changing ice conditions, a gradual increase in the volume of Arctic shipping can be expected, particularly for destination traffic in connection to energy, fisheries and tourism, said IUMI’s paper.
Risks of operating at the poles
Despite the introduction of the Polar Code (International Code for Ships Operating in Polar Waters), which entered into force in 2017 and sought to lower risks of operating at the two poles by making owners better prepared and prevents transits that do not meet the defined safety standards, there remains an ongoing challenge to ensure infrastructure and ability to bring Arctic-faring vessels back to a place where repairs can be performed.
This availability mitigates the risks of sailing in the Arctic, where even a small engine failure occurring in the harsh Polar environment can result in a large claim due to the remoteness of the region.
Other inherent risks to the region include harsh and fast-changing conditions with less reliable ice and weather forecasts, restricted visibility up to 90% of the time, insufficient charts based on inadequate and old surveys, unreliable positioning systems and compasses in high latitudes, drifting sea and icebergs, inadequate training of the crew, and limited access to communication links and search and rescue facilities.
Marine insurance calls for enhanced safety in the Arctic
IUMI's chair of its Policy Forum and co-author of the position paper Helle Hammer said, “The marine insurance sector, like all sectors, wants to see enhanced safety for ships operating in Arctic waters. We would strongly encourage an improved infrastructure to provide the required level of search & rescue capacity alongside suitable places of refuge. We would also like to see updated surveys and more reliable charting of the region. This would assist marine underwriters to quantify the risks involved.”
IUMI's position paper lists a number of considerations to be taken into account when assessing individual voyage risk. These include regional rescue and salvage facilities, potential places of refuge, expected weather conditions, experience of crew and the operational performance of the vessel itself.
Historical information, due to the current limited number of sailings and constantly changing ice condition, is not available and this is forcing marine insurers to take a more cautious approach to risk assessment.
"When assessing risk for insurance purposes, historical loss data is a key factor, and that's missing for polar operations. This means that underwriters must assess each voyage on a case-by-case basis. Alongside the availability of suitable infrastructure, IUMI is encouraging insurers to consider the vessel's Polar Ship Certificate and take into account the vessel operator's level of preparedness and planning,” said Ms Hammer.
While IUMI is an active supporter of the Polar Code as a method for lowering the risks associated with Arctic sailings, it said that it would also like to see an instrument in place for non-SOLAS vessels (ships of less than 500 GT, including fishing vessels) to ensure there is a safer regime for all vessels operating in Arctic waters.
Hard to insure, but more data will help in coming years
With heightened probability and the potentially severe consequences of even small incidents occurring in the harsh Polar environment, insurance will only be available on a case-by-case basis - if at all in certain defined areas of the region.
In the coming years, more traffic related to energy, fisheries and destination cruises is to be expected. Over time, this will gradually provide marine insurers with more statistical data to assist in the risk assessment, concluded IUMI.
The position paper can be found here.