IMO 2020: The Marine Insurance Perspective

20 April​ 2020

20 April​ 2020

Rama Chandran, Chairman of the Ocean Hull Committee at the International Union of Marine Insurance (IUMI) and member of the Marine Insurance Committee at the General Insurance Association of Singapore (GIA), shares with SMF the impact of IMO 2020 on shipping and marine insurance.
2020 began with one of the most significant changes to the global maritime industry: the enforcement of the International Maritime Organisation (IMO)’s 2020 Sulphur Cap. Vessels operating outside designated emission control areas have to adhere to a drastic reduction of sulphur oxide emissions from 3.5% to 0.5%. The bold but necessary move to reduce sulphur oxide emissions was implemented with the goals of improving air quality and health, and making shipping a more sustainable and environmentally friendly form of transportation.
In the lead-up to 2020, ship owners were presented with the options of installing exhaust gas cleaning systems, also known as scrubbers, on their vessels or switching to compliant fuels such as marine gas oil, ultra-low sulphur fuel oil (ULSFO) or very low sulphur fuel oil (VLSFO).
Traditionally, most ships run on Heavy Fuel Oil (HFO). Some ship owners chose to install scrubbers on their vessels as they foresaw a fall in HFO prices with the introduction of IMO 2020. However, this was not an easy option in view of the cost and off-hire expenditures required.
The alternative of switching to compliant fuels was made easier with the assistance from various parties within the shipping community, including classification societies, engine manufacturers and bunker suppliers. However, such a transition was bound to introduce unprecedented risks. At present, the adoption of compliant fuels is still in its infancy for most ship owners, thus there are still some uncertainties with regards to its implications. Apart from potential damage to the vessels’ main and auxiliary engines as well as fuel systems, there is a risk of grounding and collision arising from the failure of the main propulsion engines. It is imperative that shipowners engage all service providers to ensure that such risks are significantly mitigated or eliminated. Three months into the implementation of IMO 2020, the maritime industry is starting to settle down, albeit still facing some challenges.
The Impact on Marine Insurance
Globally, machinery claims have remained at elevated levels in recent years. In fact, in the last five years, it has averaged 40% to 45%. Currently, it does not provide much allowance for large losses that might happen from time to time. With the implementation of IMO 2020, the possibility of increased machinery claims is a significant concern to underwriters.
Hull and machinery underwriting has always been a difficult task, with many variables to be considered, including the quality and risk management processes employed by ship owners. At this point in time, underwriters are still monitoring the impact of IMO 2020 on hull and machinery premiums, and it is hoped that premium adequacy will be achieved in the next year or two.
At IUMI, a professional body representing national and international marine insurers, we are gathering information to establish any clear trends to update the global underwriting fraternity, in order for them to better engage their clients and provide them with more adequate prices. As Chairman of IUMI’s Ocean Hull Committee, I hope to discuss this extensively at the IUMI conference in September this year.
In addition, as there have been a few cases where ISO 8217-2017 (fuel standard for marine distillate fuels) was found inadequate, we are engaging relevant parties to improve the risk of bunkers not meeting the requirements of ship owners. Besides keeping track of the impact of low-sulphur fuel on the vessels’ main and auxiliary engines as well as fuel systems, we are also observing the impact of scrubbers fitted on vessels.

“It is imperative that ship owners engage all service providers, including engine manufacturers, lubricant suppliers and bunker suppliers, to ensure that any risks resulting from compliance with IMO 2020 are significantly mitigated or eliminated.”

Navigating the Road Ahead
As the maritime industry continues to navigate through changing currents, the marine insurance sector should be on a constant lookout for new opportunities and challenges in the market, and proactively engage its clients to ease them into changes.

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Mr. Lars Kastrup

CO-PRESIDENT & EXECUTIVE DIRECTOR, PACIFIC INTERNATIONAL LINES

Mr. Lars Kastrup is the Co-President and Executive Director of Pacific International Lines (Pte) Ltd (PIL).
Prior to joining PIL, Mr. Kastrup was CEO of NOL/APL, and subsequently assumed the role of Executive Vice President, Strategy and M&A at CMA CGM Group. A veteran in the global shipping industry with over 30 years of experience, Mr Kastrup’s other roles include Executive Vice President of Assets at CMA CGM Group heading up CMA Terminals, CMA Ships, Container Logistics as well as regional carriers such as MacAndrews, OPDR and Mercosul; as well as Vice President at AP Moller-Maersk.
Mr. Kastrup complemented his tertiary education with leadership and management training at Penn State University and The Wharton School at the University of Pennsylvania.

Ms. Angeline Teo

MANAGING DIRECTOR & HEAD, GLOBAL TRANSPORTATION & OFFSHORE, OCBC BANK

Ms. Angeline Teo is the Managing Director and Head of Global Transportation and Offshore, Global Corporate Banking at OCBC Bank which focuses on the maritime, aviation, land & port ecosystems.
Ms. Teo has spent over three decades in maritime finance. Prior to OCBC, Ms. Teo was working at ING Bank, ABN Amro and DnB in Singapore focusing on maritime and offshore.
Ms. Teo graduated from the National University of Singapore with a degree in Business Administration.

Mr. John Martin

CHIEF EXECUTIVE OFFICER, GARD SINGAPORE

Mr. John Martin began his career in London in 1989 with Richards Hogg Lindley Average Adjusters, and qualified as a Fellow of the UK Association of Average Adjusters in 2000.
At RHL he worked in their offices in Australia, Taiwan and Hong Kong. In 2003 he joined Gard Hong Kong, as a claims handler. Mr. Martin also worked in Gard Japan, and in 2014 he moved to Singapore to set up the Gard Singapore office.
Besides running Gard Singapore, Mr. Martin also heads the P&I and H&M claims units and is the Senior Claims Representative for Gard in Asia.

Mr. Cyril Ducau

CHIEF EXECUTIVE OFFICER, EASTERN PACIFIC SHIPPING

Mr. Cyril Ducau is the Chief Executive Officer of Eastern Pacific Shipping Pte Ltd, a leading shipping company headquartered in Singapore for the past 30 years.

He is also currently the Chairman of Kenon Holdings Ltd and a member of the board of directors of Gard P&I (Bermuda) Ltd. and of the Global Centre for Maritime Decarbonisation Limited, which was established by the Maritime and Port Authority of Singapore. He was previously Head of Business Development of Quantum Pacific Advisory Limited in London from 2008 to 2012 and acted as Director and Chairman of Pacific Drilling SA between 2011 and 2018.
Prior to joining Quantum Pacific Advisory Limited, Mr. Ducau was Vice President in the Investment Banking Division of Morgan Stanley & Co. International Ltd. in London between 2000 and 2008.
Mr. Ducau graduated from ESCP Europe Business School (Paris, Oxford, Berlin) and holds a Master of Science in business administration and a Diplom Kaufmann.