Marine and shipping
In this chapter of our Annual Insurance Review 2018, we look at the main developments in 2017 and expected issues in 2018 in the marine and shipping sector.
Key developments in 2017
Who would have thought marine insurance would be at the centre of the insurtech revolution in 2017?
Maersk announced in September 2017 it was collaborating with accounting firm EY and leading blockchain company Guardtime to build the world’s first blockchain platform for the marine insurance sector. The platform employs Microsoft’s internet-based data storage cloud platform, Azzure. Several well-known names from the insurance sector are participants in the collaboration.
Blockchain is an electronic, secure, distributed ledger, best known for enabling the use of cryptocurrency transactions. Within the ledger, the use of smart contracts converts contractual obligations into computer protocols,to facilitate, verify or enforce the contract’s performance. This promises to replace bills of lading and supporting transactional documents with a secure online mechanism to buy and sell goods. Electronic trading documents are not a new concept in the shipping world. But how could blockchain optimise the marine insurance sector?
In marine insurance, blockchain technology could reduce the need for intermediaries and increase overall transparency.The purchase of insurance, quoting and binding coverage could be made visible to all stakeholders. Payment of premium could be immediate and direct to the insurer, with the policy being issued on confirmation of receipt of funds.
With marine claims, smart insurance contracts could be programmed to pay immediately on notification and verification of a loss, provided pre-set criteria are satisfied. For example, attritional partial-loss cargo claims can often be easily proven and documented (often with pre-agreed proof-of-loss documentation). Payment of the agreed value could theoretically be performed, when specific criteria are inputted into the blockchain.
Conceivably, in general average (GA) claims the blockchain could be designed to immediately issue an average guarantee the moment the platform is notified of a GA incident – therefore reducing the time taken to release cargo (and perhaps eliminating the need for slot charterers to put up GA guarantees).
Blockchain is potentially a transformational technology, albeit not yet fully embraced by the maritime industry.Currently, blockchain providers to the industry are limited, with no dominant vendors or total solution to cover the full supply chain. However, the creation of a blockchain platform and the announcement by Maersk is an important first step for the industry and should be noted and monitored.
What to look out for in 2018
The demand for unmanned or autonomous surface vessels (ASVs) looks set to grow in 2018.
Certain developers anticipate commercial ASVs being in widespread use within the decade. Among others,Automated Ships Ltd. and Kongsberg Maritime are developing a prototype mono-hulled ASV – the Hrönn,intended for offshore support operations – to enter service in 2018.
Around 75% of marine insurance claims stem from human error, according to recent insurance industry publications. The use of ASVs has the potential to improve safety, reduce costs and eliminate the potential for losses due to human error. That is attractive to hull and machinery (H&M), and protection and indemnity insurers.However, the maritime insurance sector may need to develop its standard coverage terms in response to greater commercial use of ASVs. For example, how do you identify an electronic latent defect in an automated bridge and navigation system?
And of course there is the growing risk of cyber threats. For the marine insurance sector, the market’s solution to cyber risks has been the introduction of the Institute Cyber Attack Exclusion Clause CL 380, commonly incorporated to exclude cyber risk in H&M policies. With more ASVs in operation, cyber risks will become increasingly important, as new risks, such as loss of critical data links with the shore-based remote controller,become a reality. It seems questionable whether an outright cyber risks exclusion provision will be sustainable in future H&M cover agreed for ASVs.
Existing standard forms may need revision to assess whether current insured perils and policy terms work from an unmanned perspective. It is debateable how H&M wordings will develop to cover fully autonomous AVSs that are not navigated by remote control. How will the conventional claims process be affected where there is no crew aboard to report on the cause of the incident?
Finally, it seems possible that increased commercial use of ASVs could see a shift towards manufacturer responsibility and away from operator responsibility. If so, that could see both manufacturers and parts suppliers in the firing line when things go wrong on board ASVs, who may increasingly look to product liability insurers to provide the solution.
Download our full Annual Insurance Review 2018 for more insights.