As Arctic operations expand, underwriters warn of ‘case-by-case’ coverage

The insurance sector has called for adequate search-and-rescue facilities in the Arctic
The insurance sector has called for adequate search-and-rescue facilities in the Arctic

Marine insurers have warned that future coverage for Arctic operations will be decided on a case-by-case basis, as their underwriting capacity is restricted by the absence of historical data on the region.

The International Union of Marine Insurance (IUMI) has published a position paper outlining the issues arising from the growing popularity of Arctic routes and warns that any incident that occurs in the harsh, remote environment could potentially be catastrophic.

“It is a well-known fact that the lack of infrastructure and ability to bring the vessel back to a place where repairs can be performed increases the risk of sailing in the Arctic. Even a small engine failure can result in a large claim due to the remoteness of the region. This challenge does not change with the Polar Code,” the paper says.

“Harsh and fast-changing conditions with less reliable ice and weather forecasts, restricted visibility up to 90% of the time, insufficient charts based on inadequate and old surveys, unreliable positioning systems and compasses in high latitudes, drifting sea and icebergs, inadequate training of the crew, and limited access to communication links and search-and-rescue facilities add to this risk.”

“The marine insurance sector, like all sectors, wants to see enhanced safety for ships operating in Arctic waters. We would strongly encourage an improved infrastructure to provide the required level of search-and-rescue capacity alongside suitable places of refuge. We would also like to see updated surveys and more reliable charting of the region. This would assist marine underwriters to quantify the risks involved,” said Helle Hammer, chair of IUMI’s Policy Forum and co-author of the position paper.

IUMI advises underwriters to consider certain factors when asked to cover Arctic activity. These include regional rescue-and-salvage facilities, potential places of refuge, expected weather conditions, crew experience, and the vessel’s operational performance.

The greatest challenge for underwriters is the absence of historical data on previously unused Arctic routes.

“When assessing risk for insurance purposes, historical loss data is a key factor, and that’s missing for polar operations,” Hammer explained. “This means that underwriters must assess each voyage on a case-by-case basis. Alongside the availability of suitable infrastructure, IUMI is encouraging insurers to consider the vessel’s Polar Ship Certificate and take into account the vessel operator’s level of preparedness and planning.”

The research paper added, “With heightened probability and the potentially severe consequences of even small incidents occurring in the harsh polar environment, insurance will be available only on a case-by-case basis, if at all in certain defined areas of the region. In the coming years, more traffic related to energy, fisheries, and destination cruises is to be expected. Over time, this will gradually provide marine insurers with more statistical data to assist in the risk assessment.”