The expanding global project cargo market is pushing marine risk underwriters to keep pace with the ever-changing environment.
Specialized policies must now cover heavier weights and even more irregular dimensions for the sea transport of massive, complex equipment and machinery utilized by industries such as wind energy, petrochemicals, and modular construction.
Project Insurance: Each Day New Challenges
“These can be weather related, geopolitical events, war risks, the shallowing of the Panama Canal, labor unrest, piracy, port accessibility issues, new commodities such as lithium-ion batteries, increased size of newer containerships and a host of other yet unknowns.”
The oversized cargo transportation market size is expected to grow from $210 billion currently to $276 billion by 2030, at a CAGR of 4 percent, according to Maximize Market Research. And Astute Analytics reports the global marine cargo insurance market will increase from $20 billion to $34 billion by 2032, a CAGR of 5.9 percent.
Meanwhile, offshore wind capacity will grow 15.7% over the next five years according to S&P Global Market Intelligence.
Wolfe said a critical aspect for marine underwriters when entertaining offshore wind projects is to clearly define within their policy the specific point where marine coverage ceases, and erection/installation coverage begins.
“Establishing this coverage transfer point helps to remove any gray areas and clarifies which insurer is on risk in the event of an occurrence which may give rise to a claim,” he said. “Underwriter, insured, and broker collaboration early in the submission process is key to creating a comprehensive insurance program and avoiding certain pitfalls.”
“One Off” Out of Gauge
Capt. Andrew Kinsey, ISC’s Director of Marine Consulting, said risk assessment and risk mitigation in the project cargo arena differ from general, container, and regular breakbulk cargo. Underwriters and shippers must have clear agreement on a wide range of procedures including loading and handling, securing, routing and transporting lifting, rigging and crew experience.
“With project cargo you tend to deal with “One Off” Out of Gauge (OOG) shipments. As a result, the normal methodology for container stuffing or vehicle securing do not apply. In those cases, we refer to Annex 13 of the IMO Code of Safe Practice for Cargo Stowage and Securing (CSS Code) which provides methods for calculating satisfactory securing arrangements,” Kinsey said. “The role of Marine Warranty Surveyor (MWS) is to attend at loading, discharge, and transshipment to ensure that previously agreed upon cargo handling methodologies are adhered to.”
Wolfe agreed. He said project cargo is overseen by marine warranty surveyors at the initial shipping point, usually the manufacturers or supplier’s doorstep, and continues at each transfer point throughout the journey.
“This hands-on approach provides underwriters the ability to address feedback from the marine surveyors in attendance in real time and act promptly, if necessary, in coordination with our Insured(s) to avoid issues during the voyage that may increase the potential for loss or damage to the cargo in question and jeopardize the safe arrival of the cargo at the project site, Wolfe said. “The limits required for project cargo programs can be in the hundreds of millions. No matter what the limits involved, we wouldn’t entertain project cargo risks without having marine warranty surveyors engaged in the process.”
Wolfe said Delay in Start Up (DSU) coverage is required by most lenders to protect their interests. One scenario that tends to create issues is when a critical piece of equipment, which has the capacity to trigger a DSU claim, is being insured for physical damage by the supplier/manufacturer and not being insured under the main marine project policy.
“The financial structure varies from project to project and there is no “one size fits all” approach,” Wolfe said. “However, the DSU coverage is based upon what the Insured requests. In some instances, the marine project policy will only provide DSU coverage for debt service, standing charges and fixed expenses while other programs will also include net profit. The final decision as to extent of coverage is made by the client. Underwriters will then price DSU coverage accordingly.”
The Downside of Starting Up Projects
Matthew Yeshin, Managing Director - Global Digital Cargo Leader for Marsh, said the complexity of underwriting a project cargo DSU policy is compounded by the vast array of variables that could potentially cause a delay in start-up. Identifying these variables is quite different than evaluating perils that could damage cargo in transit, he said.
“Everyone involved should have a solid understanding of what is going into the project such as the incoming equipment and lead times and when that equipment needs to be installed per the expected timeline as well as what contingencies there may be for installing equipment outside the originally planned timeline,” Yeshin said. “And then the financial implications of running over the target start date as a result of a piece of equipment not arriving on time. This may also include the costs related to expediting replacement if that is an option, against the cost of not starting as planned.”
Yeshin said to provide properly priced DSU coverage, with adequate limits and the right warranties in place you need to ensure that you are working with insurers and brokers that can go through the process – plus it requires a project team that is aligned to having the project timeline and critical milestones suitably established in conjunction with insurance procurement.
Modular Construction
The emergence of modular construction as contractors seek lower costs has enlarged a market for project cargo insurers. Kinsey said marine insurance risk engineering is critical to projects using modular construction principles. Given the sizes and weights of the components, front end collaboration on the safety and efficient transport methodologies are critical, he said.
Wolfe said modularization created new and increased exposures for marine project cargo underwriters than site assembled stick-built construction practices which had low limit risks. He called it the “new normal” again emphasizing most insurers will not write modular projects without marine surveyors being involved in the entire process.
“It dramatically changed the exposure landscape for project cargo underwriters. These completed modules can now be in the thousands of tons in weight, several stories in height and have sizeable footprints. As a result, specialized heavy lift, semi-submersible or other purpose-built vessels including the use of ocean barge tows are needed to move the units from the fabrication yards to the project site,” he said. “Not only do the completed modules have substantially higher values, the DSU exposure is also greatly increased. In the past, a loss of a small module component (stick built) wouldn’t impact DSU to any great extent but a fully completed unit now exposes the DSU coverage to a much higher loss potential”
The whole process requires dynamic communication and collaboration. Wolfe said transparency is a must between stakeholders - project managers, contractors, insurers. Kinsey said block-chain technology - recording data to provide immediate, chronological, and transparent information, to sanctioned project cargo participants - has been well received.
“The importance of open and transparent communication cannot be overstated. This is one of the reasons why an in-person kick off meeting and on-site inspections of mod yards, loading and discharge location and proposed laydown sites are so critical. The days of turning to onboard the ship and figuring out the lifting and lashing arrangements have passed. The values are too high and the timelines too tight,” Kinsey said.
