New UK Insurance Act to change marine underwriting and claims handling process

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 new UK Insurance Act comes into force on 17 August 2016. Marine insurers have been told the implementation of the new UK Insurance Act will require a change in their approach to claims handling.

Speaking to the London markets Joint Marine Claims Committee Open Forum in London, Simon Todd, partner with law firm Ince & Co said the new law, which will come into force on 17 August, will require a new way of working for underwriters and claims managers.

The new Act that replaces the 1906 Act contains a fundamental change on the issue of full disclosure of information.

Under the terms of the old act the insured had a duty to declare all information that would affect the risk to the underwriter.

Under the new Act the onus has been placed on the underwriter to seek the information they require to write the risk. There is also an expectation that the underwriter will have a certain degree of knowledge of the risks that a client would face.

Todd said, “In the past if there was a failure to provide full disclosure the cover could be voided and the premiums returned.”

“It was an all or nothing test. This has changed from a duty of disclosure to a duty of fair presentation.”

He added, “It puts greater onus on insurers to obtain information at the placement stage. There is now more expectation on the underwriter to make enquiries to obtain the information they require.”

Todd said this may well mean that the lead time needed to place risks after August will increase and there is expected to be a greater degree of questioning by underwriters of specific areas of the risk given the change in emphasis on information.”

It will also reduce the ability of underwriters to void the claim in the case of a perceived lack of disclosure by the insured.

Todd said that if there is a claim and information subsequently becomes available that would cause an insurer to seek to void a claim and the policy, it will need more than simply the view of the underwriter that had the information been made available by the insured at the time the policy was enacted they would have refused cover or charged a higher premium.

“Underwriters will be required to provide evidence of what they would have done had they been aware of the information that had arisen,” he added. “It will require you to keep more thorough notes of the risks you have declined and the reasons why to prove that you refuse to write such risks and have done so in the past.”

SOURCE:FAIRPLAY

New UK Insurance Act to change marine underwriting and claims handling process

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.