By Wendy Laursen 2015-07-19 20:38:32
“We must bring into stark focus the uncertainties and difficulties that will face operators in this formidable region,” said Ståle Hansen, President & CEO of marine insurer Skuld, in an editorial published after Shell received approval for its latest round of Arctic exploration.
Skuld was one of the pioneers of liability insurance for the offshore energy market, having set up the first liability insurance program for the industry in the 1970s.
The responsibility falls to us as an insurer to consider fully the risks and challenges that our members and clients will encounter and to prepare accordingly to meet them head on, says Hansen.
From an insurance perspective, the cost of an accident similar to the Deepwater Horizon blowout in 2010 is of great concern, and Hansen said that BP estimated its share of Deepwater Horizon liabilities totals roughly $42 billion. “It is not difficult to envisage that a similar-scale incident in the Arctic would cost even more. BP assumed most of its risk itself, so the insurance industry felt little impact. However, an insured accident of similar proportions in the Arctic would certainly test the market’s resolve.”
Another potentially significant exposure from a protection and indemnity (P&I) perspective is the removal of the wreck of any unit or vessel lost during Arctic operations. The costs of wreck removal operations are increasing significantly, and Hansen cites the removal of the container ship Rena that is estimated to have cost $500 million. In the Arctic, Hansen believes it is not difficult to foresee removal costs that will be greater than ever before.
These factors complicate the price of insurance. Hansen says: “As with the underwriting of any new risk category, the first real challenge is the lack of data that underwriters can bring to bear to draw a clear picture of the risk. The experience of Arctic operations on this scale is simply still too limited to have yielded any useful numbers.”
In an editorial published in Insurance Day, Hansen outlines some potential comparisons between Arctic oil and gas exploration and other sectors of the maritime industry:
“Cruise ships sometimes visit lower Arctic waters and may offer some insights (although intuitively, the loss of a cruise ship in the Arctic would probably be very much more serious than any event involving an offshore installation there).
“Hypothetically speaking – because they are unlikely ever to be a regular feature of Arctic water, risk pricing for ultra large container vessels may be similar, but only because of their massive size, which makes the cost of casualties much higher than for more regular-sized containerships. We can learn little, I believe, about possible frequency from this comparison.”
Hansen sees ocean mapping as a concern as appropriate charts for the Arctic are “sorely lacking.” This increases the risk of groundings and is complicated by the perils of floating ice as demonstrated by tragedies such as the Titanic.
As the energy sector currently has a surplus of capacity, rates have been pushed to very low levels compared to the real risk, he says. “With increased exposures, rates have to be priced realistically and fairly. A race to the bottom at the outset is not what the industry needs, now or in the future.”
Hansen concludes that the insurance market has absolutely nothing to gain from Arctic shipping and energy exploration and production. “It brings extremely large risks which are at present unquantifiable.”
This post was sourced from Maritime Executive: View original article here.