Lloyd’s reveals the top risks in shipping

There are many untested waters that marine insurers will need to take control of

Lloyd’s reveals the top risks in shipping

Insurance News

By Lyle Adriano

Disruptive technology, the untested waters of the Arctic, and piracy – these are some of the top shipping risks Lloyd’s discussed in its latest release.

The insurance market has stressed the importance of planning for shipping’s major risks, saying that “90% of world trade is still carried by the shipping industry.” The list Lloyd’s came up with was created with insight and input from marine insurance professionals across the specialist insurance market’s operations.

The threat of a cyberattack that can sink ships was one of the leading issues Lloyd’s drew attention to. What sounds like something out of science fiction is now a real threat that shipping companies have to plan for.

“It’s the new piracy and it is generating a lot of heat and noise at the moment, but very little light,” said Lloyd’s Market Association Marine and Aviation manager Neil Roberts.

While the shipping industry depends on on-board computers, such hardware is often self-contained, which gives the shipping industry some resilience from cyberattacks. Despite this, ship owners still have their cyber concerns.

“Usually the threat comes from an insider or a disgruntled employee,” explained Roberts.

That does not mean ship operators are completely untouchable from outside breach attempts. In one experiment, the University of Texas managed to spoof a ship’s GPS-based navigation system, sending the ship hundreds of yards off course, without triggering any alarms.

Roberts said that there is currently not enough understanding of the difference between what’s theoretically possible with cyberattacks on shipping companies and its likelihood, but the “fear of the unknown is a concern for many.”

Autonomous vessels were another risk identified by Lloyd’s.

“We are working hard to understand what might happen with autonomous ships,” stated Roberts. “The technology is moving faster than the regulations. And before that regulatory change happens it’s difficult to see autonomous ships taking off in a big way. At the moment there must be a human master at sea.”

Self-driving watercraft and their possible risks are not new to insurance, Roberts explained. He cited remote underwater vehicles, which have been used in wreck diving. He, however, considers that a human element might still be required for absolute safety.

“If you’re insuring an asset, then the asset is the same whether there’s a crew on board or not,” he said. “The question is: does getting rid of the humans make it more or less safe? We know that there are many times when human intervention has led to collisions being avoided.”

With the polar regions opening up for tourism, exploration and commercial operations, further risk exposures could appear.

“This is at the new frontier of risk,” commented Roberts. “Within the Lloyd’s market there are specialist underwriters who will consider coverages for ships that specifically want to take Arctic sea routes.”

The “salvage gap” remains a large concern for underwriters, however.

“There are very few salvage options in the high north,” Roberts explained.

“No ship captain wants to be the first to pollute the pristine Arctic ocean,” added Lloyd’s controller of agencies David Lawrence. “Protecting polar waters and the people who live in these extreme environments is paramount.”

Piracy remains a major risk for shippers, and earns a spot among Lloyd’s shipping risk highlights.

“Piracy is the direct result of social conditions. Provided the opportunities and means are present someone will always do it. It’s like a balloon. If you squeeze it in one place it pops up in another,” said Roberts.

Following the 2010 hijacking of 49 ships by Somali pirates, ship owners were pressed to come up with ways to combat the threat. Some armed their ships with water cannons, while others chose to employ armed guards. A transit corridor was even established, and many countries contributed naval support.

“Now that uneasy truce is gradually being eroded and there have been some close calls recently. Nobody knows what will happen when the naval support is withdrawn at the end of next year,” Roberts pointed out.

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