'Muddy waters': Ukraine war, mega ships among key maritime risks, AGCS says

Insurance claims impacts from the ongoing Russia-Ukraine military conflict may extend beyond specialist war policies, an annual Allianz Global Corporate & Specialty (AGCS) maritime review says.

The AGCS Safety and Shipping Review 2022 says mega container ships, pandemic-related challenges such as port bottlenecks, and decarbonisation of the shipping industry also carry risk challenges for the sector.

On the Ukraine war, the review says Russia’s invasion has caused widespread disruption to global shipping, exacerbating ongoing supply chain disruption, port congestion and crew crises caused by the Covid-19 pandemic.

While marine insurance losses are currently limited, the insurance industry is likely to see a number of claims under specialist war policies from vessels damaged or lost to sea mines, rocket attacks and bombings in the conflict zone in the Black Sea and Sea of Azov.

The review says insurers may also receive claims under marine war policies from vessels and cargo blocked or trapped in Ukrainian ports and coastal waters.

“More uncertain is the potential for non-war claims in hull and cargo insurance from vessels caught up in the conflict, which may ultimately involve complex legal questions and policy interpretation,” the review said.

The review says a prolonged Russia-Ukraine conflict is likely to have deeper economic and political consequences, potentially reshaping global trade in energy and other commodities.

“An expanded ban on Russian oil could push up the cost and availability of bunker fuel and potentially push ship owners to use alternative fuels,” the review said.

“If such fuels are substandard this may bring machinery breakdown claims in future.”

The review says the use of bigger container ships has translated into higher salvage costs, along with the burden of larger losses, if an incident occurs, as was seen in recent events such as the grounding of the Ever Given in the Suez Canal for nearly a week last year.

Such costs are increasingly borne by cargo owners and their insurers, the review said.

AGCS Global Head of Marine Claims Régis Broudin says general average – the legal process by which cargo owners proportionately share losses and the cost of saving a maritime venture – has become a frequency event.

He says it has also become a severity event, with the increase in the number of large ships involved in fires, groundings and container losses at sea compared with five years ago.

AGCS says over the past five years it has seen more and more claims in excess of $US100 million ($145 million), with the bulk of the cost due to wreck removal and pollution mitigation.

“Irrespective of the cause of an incident, when large vessels are in trouble, emergency response and finding a port of refuge can be challenging,” the review said.

The review says the decarbonisation of the industry will require big investments in green technology and alternative fuels but there will be challenges.

“Decarbonisation will transform the shipping industry over the coming decades, which will in turn alter the risk landscape,” the review said.

“As we have seen with container shipping, there can be unintended consequences with innovation. The transition to alternative fuels will likely bring heightened risk of machinery breakdown claims, as new technology beds down and as crews adapt to new procedures.”

Click here to access the report.