Marine insurance companies are currently assessing the potential risks and rewards of insuring ships for transit through the Arctic, insurance company Marsh said in a media briefing Tuesday.
In recent years, receding polar ice caps and the development of nuclear icebreakers has made the shipping industry consider the possibility of dramatically cutting transit times on certain routes by navigating through the Arctic, rather than the traditional Suez and Panama Canal options.
The northern sea route would cut the distance between Southeast Asia and Rotterdam to 6,900 nautical miles from 11,350 nautical miles and could potentially reduce the transit time by 10-15 days.
There have been huge oil and gas discoveries in Russia since the 1990s, and it is likely to be this industry that will be key to the development of the Arctic shipping routes.
“The oil and gas development in northern Russia is significant. Ports such as Dickson, which is currently fairly unknown, will become commonly known ports because the oil and gas industry will develop them. It won’t be the containership industry that leads the way, it will be oil and gas,” said Marcus Baker, chairman of Marsh’s Global Marine Practice.
A relatively weak marine market has encouraged insurers to closely study all avenues for potential business, and the potential Arctic shipping routes are ones that merit particularly sharp attention due to the unique set of challenges involved.
“The marine insurance market is soft so underwriters are happy to entertain new product development. This is one such area. The market is happy to consider this as there isn’t enough other business to go round at the moment,” said Baker.
According to Marsh, the main worry for insurers is the risk of pollution as oil reacts differently in cold temperatures, with the effectiveness of chemical dispersants greatly reduced.
At the same time, as this is such an underdeveloped area of shipping, there is a severe shortage of crews with the experience to operate in such cold and dark environments.
Underwriters traditionally rely heavily on historical data when assessing the risks and thus the premiums required for certain journeys, but such historical data is almost non-existent for the potential Arctic routes.
“The number of commercial ships going through the northern sea (route) is not giving enough data to satisfy underwriters at the moment,” Baker said.
Marsh’s overall conclusion is that the risks involved currently make insurers nervous of getting involved in the potential new routes.
“While marine insurers are largely supportive of the development of Arctic shipping routes, they are extremely wary about incurring large, high profile losses while the market is still in its infancy,” said Baker.
He added that with the lack of experienced crews and support facilities currently in place and in the absence of hard facts: “It is extremely difficult for marine insurers to price an insurable risk, or even agree to cover a voyage in the first place.”