Climate change is considered one of the most pressing issues of our time. It has also been identified by IUMI as a major concern to marine insurers. The effects of global warming are already evident and are changing the nature of the insured assets. The frequency of weather-related catastrophes has increased significantly driving up losses and leaving some assets uninsurable.
The potential impact of climate change is also a fundamental issue for regulators. International shipping emits around 940 million tonnes of CO2 annually which corresponds to approximately 3% of global greenhouse gas (GHG) emissions. The Paris Agreement on Climate Change and the work of the International Maritime Organization (IMO) are examples of regulatory efforts to address climate change. In April 2018, the IMO adopted the initial GHG reduction strategy with a view to decarbonise shipping as soon as possible within this century. With 2008 as a baseline, the IMO strategy aims to reduce total GHG emissions from shipping by at least 50% by 2050. The average carbon intensity (CO2 per tonne-mile) is to be reduced by at least 40% by 2030.
While IUMI fully supports the necessity of a transition to green energy, it is crucial to assess potential safety concerns associated with measures to reduce the carbon footprint. In light of the urgency to decarbonise shipping, proper risk management is critical and safety must not become an afterthought. An important aspect of using alternative fuels safely is not only a comprehensive review of risks associated with the new fuels and propulsion methods, but also thorough consideration of how human performance may be influenced by new equipment, new procedures, and processes for bunkering.
In addition to regulatory authorities, a significant push for decarbonisation emanates from industry initiatives comprised of a diverse range of maritime stakeholders such as lenders who launched the “Poseidon Principles” or cargo owners with the “Sea Cargo Charter”. A number of insurers and reinsurers in cooperation with the UN Environment Programme are working to establish the “Net-Zero Insurance Alliance” (NZIA). The NZIA is expected to be launched at the 2021 UN Climate Change Conference in Glasgow this November (COP26). The seven companies (AXA, Allianz, Aviva, Munich Re, SCOR, Swiss Re and Zurich Insurance Group) take the view that the global (re)insurance industry can play a key role in accelerating the transition to a resilient, net-zero emissions economy, in line with the 1.5°C target of the Paris Agreement on Climate Change.
Such industry initiatives are helpful to accelerate decarbonisation efforts in the maritime industry. Swift action to convert the existing fleet will be crucial as many vessels are going to be non-compliant with IMO requirements fairly soon. Changes in ship design, fuel and propulsion types, and infrastructure will affect the risk landscape for marine underwriters going forward. They must therefore be prepared to assess new risks and potential safety concerns. Marine insurers are also likely to act as facilitators for decarbonisation by providing guidance and advice to their insureds.
Given the technological challenges inherent in replacing bunker fuel on long-distance routes, the International Energy Agency stated in a recent report that they do not expect the maritime industry to achieve 100% decarbonisation of its own operations by midcentury. With various options being explored it is not clear yet which low/zero carbon fuels or propulsion methods will be dominant in the future. An overview of green(er) conventional or alternative fuels can be reviewed in section 7 of IUMI’s Policy Agenda.