A look at Insurance premiums for Northern sea route voyages.

The Northern sea route also known as the Arctic sea route is a shipping lane between the Atlantic Ocean and the Pacific Ocean along the Russian coast of Siberia and the Far East, crossing five Arctic Seas: The Barents Sea, the Kara Sea, the Laptev Sea, the East Siberian Sea and the Chukchi Sea. With accelerating energy and mineral resources in the Northern Region, effective alternative transportation solutions between Europe and the Far East will be of increased importance. 

As climate change opens new sea routes, experienced polar captains are coveted for Artic voyages that can save money on the run between Europe and Asia. But as activity in the Arctic’s waters picks up, insurance companies are grappling with a fundamental question of; who pays when something goes wrong?

Over 10 insurance companies or brokers interviewed by Reuters have said that they have too little knowledge of the Northern Sea Route (NSR) to resolve the questions about liability. Helle Hammer, Chair of the policy forum with the International Union of Marine Insurance, (IUMI) said, “It’s very much a new territory and impossible to do risk modelling”.  So far, it’s unclear that the cost of a major accident in the region would be completely covered by insurance. Damages from a ship spilling oil, hitting an iceberg or becoming marooned can run into the hundreds of millions of dollars.

Michael Kingston, an Arctic marine consultant and adviser to the Arctic Council, an intergovernmental forum on Arctic affairs, said “it’s not like the rest of the world, with tried and tested shipping routes and known risks”.

However, the risk can be worth it. A journey between Europe and Asia via the North Pole takes roughly 30 days; at least 10 fewer than the Suez Canal route. That can save a cargo ship carrying iron ore or grain $200,000 or more on fuel, food, crew wages and tolls. Such potential savings are attracting big ship owners to haul cargo including natural gas and oil mostly from Russia, Canada and China to waters where so far mostly fishing trawlers have ventured.

So far, the most common problems traversing the NSR have not involved hitting icebergs, but equipment that freezes and seizes up. Out of 512 incidents reported through 2019, machinery damage or failure accounted for almost half, according to a 2020 shipping and safety report by insurer Allianz Group. Other incidents included a crack in the hull, onboard explosions and sinkings.

In assessing Arctic risks, insurers effectively improvise. In interviews with Reuters, insurers that cover Arctic voyages said they conduct their own assessments, then add up to 40% to the basic premium of $50,000 to $125,000 for the ship alone to guarantee a single Arctic journey. The final price depends on the ship, the route and how near an icebreaker is, the insurers said.

In the past few years, marine insurers in general have been paying out more for ship damage than they collected in premiums, according to IUMI data. Brokers say some are pulling out of the market completely. So the appetite to underwrite risks in the Arctic market is not high.

Source: Hellenic Shipping News

Louis Gyan Kofi
Author: Louis Gyan Kofi

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