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Despite a record decline in shipping losses in 2018 to the lowest level this century, the industry faces increased risks from a changing climate and a range of environmental issues, according to a report by Allianz Global Corporate & Specialty SE released on Tuesday.
Current historic flooding in the Midwest following heavy rains and snow melt, record-high water levels along the Mississippi River, and aging infrastructure show the “complex, intertwined nature of these risks,” said Andrew Kinsey, New York-based senior risk consultant, marine for Allianz in an interview with Business Insurance ahead of the report’s release.
“We have never faced a situation where we had the Mississippi River at such a high level at the start of hurricane season. Instead of the level being at four feet, it is now over 16 feet. What happens if we get a hurricane with a storm surge on top of these record-high river levels?” he said.
Shippers are also beginning to implement lower sulphur fuels to comply with new emissions regulations from 2020, which means that vessels are having problems maneuvering in these conditions because their engines don’t perform as efficiently with lighter fuels, said Captain Kinsey.
While these regulations are meant to help the environment, present conditions are such that it is “adversely impacting our risk profile on these operations,” he said.
Even without a hurricane, insurers “are looking at a lot of different loss scenarios that have impacts on both cargo and hull interests, agriculture and business interruption,” Mr. Kinsey told Business Insurance.
In its Safety and Shipping Review 2019, Allianz said that changing weather patterns led to vessel groundings and collisions in the United States and supply chain disruptions in Europe, while the changing climate is opening up new shipping routes in hard-to-access areas like the Arctic, making rescue and salvage more difficult.
Insurers are also concerned about a potential increase in machinery breakdown claims after the introduction of low-sulphur fuels if the transition is not well-managed, Allianz said in the report.
Heightened political risks to vessel security, ongoing issues with large container ships and fires and a lack of improvement in overall shipping incidents are among the other concerns faced by the shipping sector, according to the report.
The number of total shipping losses dropped by more than 50% to 46 in 2018, from 98 in 2017, due to lower hurricane and typhoon activity, and improved loss experience in hotspots around the world, the report said.
South China, Indochina, Indonesia and Philippines remains the top region for total losses, Allianz said.
Since 2009, shipping losses have declined by 65% driven by better ship design and technology, stepped-up regulation and advances in risk management and safety, the report said.
However, there were 2,698 shipping casualties or incidents in 2018, a less than 1% decline that remains “challenging,” the report said.
Machinery damage/failure is the top cause of shipping incidents globally, accounting for 40%, with such incidents increasing by one-third over the last decade and causing $1 billion-plus in damage over five years, Allianz said in the report.
“A growing number of engine manufacturers are now installing “Internet of Things” devices to collect real-time data, which can be used to issue recommendations to vessels and carry out maintenance, potentially preventing breakdowns before they happen,” it said.
Fires and explosions on board continue to generate large losses with an incident occurring every 60 days on average, Allianz said. Fire activity increased in 2018 with 174 reported incidents, a trend that continued through early 2019, according to the report.
“Misdeclared cargo, including incorrect labeling and packaging of dangerous goods, is believed to be a root cause of a number of fires and is a problem exacerbated by larger vessels, which can make issues more difficult to detect, locate and combat,” the report said.
While technological advances such as autonomous shipping are expected to improve shipping safety, by removing crew from hazard, innovation should not be driven primarily by efficiency and accounting, Allianz said.
“Innovation and technology is not a panacea if the root cause of incidents and losses is not addressed,” the report said.
Technological advances also means “cyber losses will be an increasing feature of marine claims going forward,” Allianz said.
Human error remains a key safety issue and an underlying factor in many claims, and “some $1.6 billion in marine insurance losses involved some form of human error, based on an analysis of almost 15,000 liability claims,” the report said.
In October 2018, a Tunisian ferry Ulysse collided with the container ship CSL Virginia in the Mediterranean Sea after the officer on watch was found to have been distracted by a mobile phone, according to the report.
Germany-based International Union of Marine Insurers said that insurers are likely to face challenges covering ships navigating through the Arctic amid a lack of historical loss data and infrastructure, The Maritime Executive reported. The association said that marine insurers will assess Arctic voyages on a case-by-case basis with designated areas remaining either exempt from insurance cover or undertaken on conditional terms.