Gallagher warns of growing financial threat from undersea cable disruptions
Gallagher warns of growing financial threat from undersea cable disruptions | Insurance Business Australia
Marine
Gallagher warns of growing financial threat from undersea cable disruptions
Firm issues advice on mitigating financial risks
Marine
By
Roxanne Libatique
Gallagher has identified undersea cable disruptions as a significant financial risk for businesses worldwide, including those in Australia.
Undersea cables are responsible for carrying 99% of global intercontinental internet traffic, enabling essential business functions like data transfers, video calls, and email communication. Alongside pipelines that transport gas and electricity, these cables form the backbone of global energy and communication networks.
Recent geopolitical events, including attacks on undersea cables in the Red Sea and the 2022 Nord Stream pipeline explosion, highlight the growing risk of sabotage. Meanwhile, the 2021 ransomware attack on the Colonial Pipeline underscored the exposure of subsea assets to cyber threats.
Businesses urged to include undersea cable disruptions in risk assessments
Gallagher urges businesses to include potential undersea cable disruptions in their risk assessments and scenario planning.
Max Richardson, consultant at Gallagher’s crisis and security strategy division, emphasised the importance of robust business continuity planning and diversification of supply.
Financial impact of undersea cable disruptions
The financial consequences of damage to these cables can be severe, with the greatest risk faced by regions dependent on a single cable.
Gallagher noted that while the effects of cable disruptions are often underestimated, they can result in billions of dollars in losses.
While the number of global shipping losses continues to decline, with 26 losses in 2023 compared to 41 the previous year, the report highlighted new challenges linked to geopolitical instability and environmental factors.
Captain Rahul Khanna, Allianz Commercial’s global head of marine risk consulting, pointed to the impact of conflicts in Ukraine and Gaza on global shipping operations.
Despite a reduction in losses, fires on board vessels remain a critical concern, with more than 200 incidents reported in 2023. These fires, especially on larger ships, pose a serious risk to safety and can lead to substantial insurance claims.
Rerouting and environmental impact
Increased geopolitical tensions have also caused shipping route disruptions, particularly in areas like the Suez and Panama Canals. These disruptions are forcing vessels to take longer routes, resulting in higher operating costs and increased carbon emissions.
The report stated that such diversions through the Red Sea contributed to a 14% rise in emissions from EU shipping operations in 2023.
The shipping industry also faces the challenge of reducing its carbon footprint while maintaining operational safety.
Allianz Commercial noted that transitioning to greener technologies and fuels will require significant investments in new vessels and infrastructure. However, with shipyard capacity currently constrained, the industry’s ability to meet decarbonisation targets may be delayed.
These shifting risks are likely to impact marine insurance premiums, as insurers assess the rising frequency of claims tied to evolving geopolitical and environmental factors.
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