Marine insurers urged to work with clients to mitigate cyber risk

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1^st January 2024.

The EU ETS is limited by a 'cap' on the number of emission allowances. Within the cap, companies receive or buy emission allowances, which they can trade as needed. The cap decreases every year, ensuring that total emissions fall.

Each allowance gives the holder the right to emit:

One tonne of carbon dioxide (CO2), or;
The equivalent amount of other powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).
The price of one ton of CO2 allowance under the EU ETS has fluctuated between EUR 60 and almost EUR 100 in the past two years. The total cost of emissions will vary based on the cost of the allowance at the time of purchase, the vessel’s emissions profile and the total volume of voyages performed within the EU ETS area. The below is for illustration purposes:
~A 30.000 GT passenger ship has total emissions of 20.000 tonnes in a reporting year, of which 9.000 are within the EU, 7.000 at berth within the EU and 4.000 are between the EU and an outside port. The average price of the allowance is EUR 75 per tonne. The total cost would be as follows:
~~9.000 * EUR 75 = EUR 675.000
~~7.000 * EUR 75 = EUR 525.000
~~4.000 * EUR 75 * 50% = EUR 150.000
~~Total = EUR 1.350.000 (of which 40% is payable in 2024)
For 2024, a 60% rebate is admitted to the vessels involved. However, this is reduced to 30% in 2025, before payment is due for 100% with effect from 2026.
Emissions reporting is done for each individual ship, where the ship submits their data to a verifier (such as a class society) which in turns allows the shipowner to issue a verified company emissions report. This report is then submitted to the administering authority, and it is this data that informs what emission allowances need to be surrendered to the authority.
The sanctions for non- compliance are severe, and in the case of a ship that has failed to comply with the monitoring and reporting obligations for two or more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of an EEA port of entry may issue an expulsion order. Where such a ship flies the flag of an EEA country and enters or is found in one of its ports, the country concerned will, after giving the opportunity to the company concerned to submit its observations, detain the ship until the company fulfils its monitoring and reporting obligations.
Per the EU’s Implementing Regulation, it is the Shipowner who remains ultimately responsible for complying with the EU ETS system.

There are a number of great resources on the regulatory and practical aspects of the system – none better than the EU’s own:

‍https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A02003L0087-20230605

‍https://climate.ec.europa.eu/eu-action/transport/reducing-emissions-shipping-sector_en

‍https://climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets/what-eu-ets_en‍

The maritime industry has fallen behind when it comes to dealing with the cyber threat, the president of the International Union of Marine Insurance (IUMI), has told IHS Fairplay. Ships have in the past been regarded as single and isolated risks but now the industry is embarking on a new age in terms of digitalisation, Dieter Berg said.

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Berg, who is also a senior executive at reinsurance company Munich Re, said the insurance industry needed to grow its products alongside the rising use of technology both on board vessels and in ports across the world.

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Berg said there was now growing use of technology such as electronic navigation systems that require vessels to exchange real-time data and other central data sources and sea vessels communicating with shore-based facilities.

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“Shipping is now far more connected in terms of global communications, ship-to-ship and ship-to-shore contact. There is a lot of discussion about autonomous shipping, which has been similar to the aviation industry, and will see more support for captains to enhance safe navigation,” he added.
“I do not believe we will see the day when ships are operating without any humans on board but it may well become a case where the captain and the engineer are the only crew and will rely heavily on systems, data, and technology.”

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Berg suggested that greater links between vessel via satellite date exchanges and the internet of things will bring with it greater potential for shipowners to drive cost efficiencies but it will also create new risks for firms and marine insurers.

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“There will be threats,” he added. “There will be the danger of malicious intrusion into the systems and also the accidental interference with systems. I believe we will see cyber risks get physical.

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“In the past cyber attacks have concentrated on the intangible targets such as access to credit card information and personal data, but as we have seen in recent years there is now a move to mount physical attacks on systems that affect the function of the target such as hospitals, power grid, and oil platforms. We will have to look to address the physical threats that cyber risks pose to the industry,” Berg added.

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Berg believes that the use of ‘smart containers’ equipped with GPS tracking, multiple sensors and the technology to regulate temperate and other systems inside the container itself will drive real benefits with logistics companies able to end the long wait at ports as the systems will allow truck drivers to be informed exactly when the container will be unloaded and ready for collection.

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It will also aid the movement of fresh food and valuable cargos as they can be monitored and tracked during their carriage.
“For insurers we will need to provide new and innovative products for our clients,” said Berg. “One of the issues currently is the lack of claims data and with it the difficulty in modelling accumulation risks.

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“We as an industry will need to work closely with our clients to understand their individual risk profiles to more adequately provide cover for cyber threats. As an industry we are good in risk assessment but in the early stage of the process.

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“There are some grey areas to be tackled; one of which is what is deemed to have been a cyber risk. If cargo is stolen by manipulating the alarm system with a computer, is that any different to if it has failed due to impacted by a hammer? We need to define what we regard as cyber risks.”
Berg said the issue will be discussed when IUMI meets for its annual conference in Genoa in September.

SOURCE: IUMI / IHS FAIRPLAY

Marine insurers urged to work with clients to mitigate cyber risk

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1st January 2024.

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1^st January 2024.