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Data, risk, mairne, insurance

Polar incursions: a case for Active Risk Management

This article was written for IUMI Eye.

The insurance industry is utterly dependent on change. Change creates uncertainty, which creates unquantifiable risk, and the insurance industry has thrived off the resulting opportunities to pool this risk.

For a long time, this change has been largely unquantifiable, and the market leading insurers have built their success off the back of strong partnerships with their insureds. But, with increasing amounts of data (on just about everything) becoming available, insurers’ pursuit of prosperity has more recently become a race to the top in terms of who can accumulate the best information and make use of it.

Those insurers and brokers who better understand the changing world around us can respond swiftly in helping their clients come to grips with the latest thing keeping them up at night.

The race to understand climate change

One global issue which is currently one of the biggest sources of uncertainty for insurers is climate change. Northern hemisphere sea ice extent, according to the National Snow & Ice Data Center (NSIDC), is currently at its lowest level (in terms of area) since records began [see below].

 

Figure 1: Comparison of sea ice extent in the Bering Sea, March 2013 vs. March 2018

Quite aside from the environmental implications, this dearth of sea ice presents an extended window of opportunity for sea passage for shipowners, and data shows that operators are in fact capitalising on this opportunity.

Insurers, on the other hand, will be concerned with both measuring the impact on their exposure, and ensuring their policyholders are taking appropriate precautions for passage of such treacherous waterways.

 

Figure 2: Number of unique vessel incursions, by month and year, into Bering Sea, north of 60oN. On an annual basis, the number of vessels entering this region increased by 18% between 2012 and 2017.

On the 1st of January 2017, the International Maritime Organisation (IMO) introduced the Polar Code which includes both mandatory and recommended actions covering safety and pollution prevention.

The code, which covers all cargo ships of greater than 500 gross tons, all passenger vessels, and all new builds will, in theory, see the risks mitigated over time. In the meantime, the process of declaring incursions into polar waters to insurers, and payment of the resulting additional premium, remains a largely manual, reactive process - making it cumbersome for insurers to assemble an accurate profile of exposure. 

A real-time view of risk

With onboard technology and more accurate GPS partly contributing to the increase in data availability, insurers are able to harness this data and monitor exposures on an ongoing basis, meaning that incursions into these zones can be brought to their immediate attention.

With this process in place, operators no longer  need to declare each and every ice breach to their insurer, and their insurer can both assess their exposure, as well as tailor the coverage they offer, based on the operator’s willingness to comply with the Polar Code before it becomes mandatory for them to do so.

Not only that, over time, by tracking this behaviour, the insurer will be able to better identify the behaviour that gives rise to claims in these waters, allowing them to price more fairly,  and to work with operators to stop the claims happening in the first place.

Polar waters - just the beginning

In this competitive market, if information and technology are the key to getting ahead of claims and actively managing risks, you can start to see why the race is on for insurers to understand all the information that is out there.

Identifying which vessels in your fleet are travelling through polar waters is just one application of active risk management; it’s exciting to think about all the other areas this new way of looking at risk could be applied. 

Check out IUMI's article here

About Concirrus

Concirrus’ software, Quest Marine, accesses and interprets large sets of data, such as vessel statistics, movements, localised weather, and machinery information and combines this with historical claims information to reveal the behaviours that correlate to claims. Through their analytics work with leading London and Global insurers, they have proven that behavioural data is a better indicator of risk than traditional demographics. With every customer, they’ve delivered insights and new rating factors that simply did not exist before allowing increased profits, the ability to write more business without claims history, and reduced administration costs.

By: Gareth Maddock

Gareth (ACII) is one of Concirrus’ talented Business Analysts and is passionate about combining his experience within insurance with his analytical roots. With over five years experience within the marine insurance market, Gareth has worked as a Cargo and Specie Claims Adjuster and as an Underwriting Analyst. His most recent expertise included working for QBE as a Claims Adjuster in their Marine & Energy team, where he investigated cargo and specie losses, including some of the more high profile losses of recent years.

4th Jun, 2018