Adapting Marine insurance to meet the global transition

The acceleration of the ongoing energy transition brings opportunities as well as challenges for insurers of marine and energy risks, according to Chaucer’s Head of Marine and Energy, Simon Schnorr. Having witnessed globalisation boom during his career, Simon is an industry expert using his expertise to prepare for the even bigger changes ahead.

The marine and energy industries and their insurance partners have long been inextricably linked. The energy sector relies on marine trade for the construction of facilities both on and offshore, which requires the transportation of raw materials and components, and transportation of the end product.

Given the global need to dramatically reduce greenhouse gases, the development of renewable energy technologies will require huge infrastructure upgrades which will require a great volume of project cargo, shipping, installation and storage across the globe. Being prepared for these changes will require an uptick in specialist expertise and innovation in the sector.

Simon has watched the growth of the market throughout his career, as globalisation has taken hold the past twenty five years. Having joined marine mutual group Thomas Miller as a graduate and subsequently worked with global marine brokers and insurers in London and Dubai, Simon has gained a deep understanding of the international industry, from shipbuilding to retail-facing logistics. What’s coming with the acceleration of the energy transition, he says, is going to be potential growth of a magnitude the industry hasn’t seen for decades, if ever.

The World Economic Forum estimates a spend in the region of £125 trillion will required to achieve transition by 2050. As the process evolves, the global fleet will need to adapt to not only cope with demand, but also to appropriately support the associated new technologies.

Moreover, the shipping industry itself requires a shift in order to meet decarbonisation goals by 2050. The move to green fuels and propulsion-assistive green technologies will take considerable time and demand new kinds of shipbuilding, and a refit of the fleet. There will also need to be changes to the ports and terminals which service them – another set of risks for the marine insurance market.

The expected increase in automation will bring varying degrees of automation up to fully autonomous vessels controlled by artificial intelligence. This will bring about a parallel increase in marine cyber risk management to ensure the safety of life, protection of the environment and the security of goods and vessels.

For Simon, the oncoming transition represents great challenges and opportunities which the market as a whole must embrace sooner rather than later.

In addition to Chaucer’s marine offering, the company’s Lonham brand is a leader in marine specialty risk, providing both facilitated and open market solutions for cargo, logistics operators and marine liabilities, which provides access to a broader range of clients at a regional level.

“We’ve put a lot of thought into our holistic marine offering in the past five years,” Simon says. “In addition to integrating the well-established Lonham brand, we’ve invested a great deal into our analytics and proposition for our global marine.

We’ve invested in our data to better understand vessels and their behavioural patterns, to drive improved underwriting and claims experience. This allows us to hone our risk appetite and the quality of the risks we are writing to support our growth plans.”

As the characteristics of vessels change however, it’s clear that supplementary skills will be needed to complement Chaucer’s offering. According to Simon,

One of these considerations is the shift in exposure associated with the fossil fuel industry versus the renewable industry. In the renewable space individual asset values aren’t nearly as high as traditional energy sources – solar panels and wind turbines, for example, cost significantly less than an oil rig and at face value present significantly less environmental risk.

Supply chains for electronic components and other new technologies, however, are easily impacted by global weather and geopolitical events.

As companies in this segment mature, they may choose greater capacities or storage solutions to avoid supply chain issues – but these in turn become vulnerable to catastrophe risks such as hurricane or flood.

Controlling the supply of renewable energy also poses interesting questions around aging electrical distribution and inadequate infrastructure ill-suited to more complex energy supply, as the elements cannot be controlled in the same way fossil fuel supplies can.

Chaucer’s non-catastrophe parametric team are also likely to see increased interest in products which provide protection against weather-related non-performance losses such as excess heat or insufficient wind to ensure fulfilment of contractual obligations.

All these myriad considerations will shift over time – but it’s clear that time is fast approaching and insurers need to be preparing now for the face of marine and energy to change completely in the coming years.