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Shipping is at the heart of global trade, with 90% of the world’s goods transported by sea. But as we know, this vital industry also contributes to climate change. The increasing climate change challenges are reshaping how marine insurance works, as both shipping companies and insurers adapt to new risks and regulatory pressures.
In 2021, the International Maritime Organization (IMO) set an ambitious target to reduce the carbon intensity of all ships by 40% by 2030. Yet, as global awareness of climate change grows, this target is starting to feel inadequate.
The IMO is already planning to revise its greenhouse gas strategy by 2023 to make it more aggressive in the face of these pressing challenges.
So, what is the current situation? Read on to discover more in this article.
Why Is This a Big Deal for Marine Insurance?
These climate change challenges are putting pressure on the shipping industry to change, and marine insurance needs to keep up.
Recent reports, like the one from the International Energy Agency (IEA) in 2023, highlight that while emissions from shipping have decreased slightly, they still account for a large portion of global CO2 emissions.
The IEA has called for more stringent policies and innovations in the shipping industry, and this directly impacts marine insurance. As shipping companies work toward meeting stricter emissions targets, insurers will need to reassess their coverage strategies.
The European Union’s Green Deal is another game-changer. They have set up new regulations that will demand a major reduction in emissions from vessels operating in EU waters by 2030. And for marine insurers, this means not only dealing with new compliance risks, but also adjusting policies to handle the increased pressure from environmental regulations.
Innovative Solutions: LNG and Wind Power
As the industry adapts, we are seeing more and more vessels making the switch to liquefied natural gas (LNG), which is a cleaner alternative to traditional marine fuels. This shift is essential in reducing carbon emissions and aligns with the IMO’s updated goals. But it does not stop there.
Some companies are also experimenting with wind power to supplement traditional propulsion. By harnessing wind energy, shipping companies can cut fuel consumption and reduce emissions even further.
As these technologies evolve, marine insurance must adapt to cover the new risks and ensure that vessels making the switch are properly protected.
How Are These Challenges Changing Marine Insurance?
The climate change challenges are not just affecting shipping practices, they are also forcing the marine insurance industry to evolve. As more vessels turn to LNG and wind power, insurers need to factor these technologies into their risk assessments.
The unique risks of these new systems like performance and maintenance concerns will need to be evaluated to ensure adequate coverage.
Also, we cannot ignore the fact that climate change is bringing more extreme weather events, such as rising sea levels, hurricanes, and floods. These events are becoming more frequent and severe, which is a major concern for insurers.
A 2022 report by Allianz Global Corporate & Specialty (AGCS) confirmed that weather-related incidents were among the leading causes of shipping losses, making it even more important for insurers to update their coverage models to protect against these risks.
What Is Next for Marine Insurance in the Face of Climate Change?
The climate change challenges that the shipping industry faces are not going away, but they do present an opportunity for innovation. As the industry moves toward cleaner technologies like LNG and wind power, marine insurance will need to keep up, offering coverage that aligns with these greener practices.
As regulations get tighter, shipping companies will need to be more diligent about compliance. Marine insurers will have to adjust their policies to cover potential risks from non-compliance and ensure that their clients are well protected against new liabilities.
Also Read: Is Marine Insurance Coverage Important for Your Business?
At Azure Risk, we understand the evolving landscape and the importance of adapting to climate change challenges. Our team is dedicated to helping shipping companies navigate these complexities, offering solutions that make sure you are not only meeting sustainability goals, but also protected every step of the way.
Need Help Navigating These Changes?
We specialize in marine insurance and can guide you through the challenges posed by climate change. Reach out to Azure Risk today to discuss how we can help safeguard your business and stay ahead of the curve.
For more insights or to ask questions, do not hesitate to contact our experts at: [email protected].
