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Insurance

Business Interruption Tops Risks for Marine and Shipping Companies in ‘22

Allianz last month released its 11th Risk Barometer highlighting the most important corporate perils for the next 12 months and beyond, based on the insight of 2,650 experts in 89 countries and territories, including CEOs, risk managers, brokers and insurance experts.

By Rich Soja, Global Head of Inland Marine and North American Head of Marine at Allianz Global Corporate & Specialty

Copyright Photon_Photo/AdobeStock

Cyber perils are the biggest concern for companies globally across all industries in 2022, according to the Risk Barometer. The threat of ransomware attacks, data breaches or major IT outages worry companies even more than business disruptions, natural disasters or the Covid-19 pandemic, all of which have heavily affected firms in the past year.

For Marine and Shipping companies, Business Interruption (BI), including supply chain disruptions, takes the top risk spot this year with 42 percent of industry responses, up from second position in 2021. In a year marked by widespread disruption, the extent of vulnerabilities in modern supply chains and production networks is more obvious than ever. According to the survey, the most feared cause of BI is cyber incidents, reflecting the rise in ransomware attacks but also the impact of companies’ growing reliance on digitalization and the shift to remote working. Natural catastrophes and pandemic are the two other important triggers for BI in the view of respondents.

Natural catastrophes, which include storm, flood, earthquake, wildfire and other weather events, ranked as the second most important business risk in 2022 for the maritime respondents at 33 percent, up from the number three spot in 2021. Annual insured losses from natural catastrophes in 2021 are estimated to be around $105bn, which would make it the fourth highest since 1970, according to Swiss Re. Hurricane Ida at the end of August was the year’s costliest natural disaster -- expected to cause somewhere in the region of $31-44bn in estimated insured damages, according to modeler RMS. Ida is the sixth costliest tropical cyclone ever and the fourth costliest Atlantic hurricane in the US, occurring in the sixth consecutive above-normal Atlantic hurricane season.

Although Ida was the year’s dominant natcat event, Winter Storm Uri and other secondary peril events (such as flood, hail, storm or wildfire) caused more than half of total losses in 2021. Such activity shows businesses and insurers have to become more resilient against extreme weather events. Previous once-in-a- century events may occur more frequently in future.

At the same time, with secondary perils accounting for a growing number of losses, current modeling capabilities and risk mitigation strategies for these perils will need to be reassessed. Business continuity planning (BCP) needs to become more robust. Insurers help and support their clients in this area, whether it be advising on flood mitigation or facility reinforcement measures, or aiding preparation for crisis events. BCP can make a real difference when disaster strikes, ensuring companies get back operating as quickly as possible.

For the first time in the marine/shipping sector, Fire/Explosion hit the top five risks coming in at number three for 2022 with 25 percent of the responses. An analysis of over 470,000 insurance industry claims in over 200 countries in which AGCS was involved between July 2013 and July 2018 revealed the largest single cause of loss for businesses was fire/explosion (excluding wildfires), causing in excess of $15bn worth of damages during this period. In many cases it’s not even the material damage of such an incident that results in the biggest losses, although this is often costly. A major fire or explosion can prevent companies from operating for some time and such incidents are the most frequent drivers of business interruption (BI) insurance claims.

Cyber incidents, which include cybercrime, IT failure/ outage, data breaches, fines and penalties, come in as the fourth most feared risk in 2022 for the maritime industry with 23 percent of responses.

The main driver of cyber incidents is the recent surge in ransomware attacks. Recent attacks have shown worrying trends such as ‘double extortion’ tactics combining the encryption of systems with data breaches; exploiting software vulnerabilities which potentially affect thousands of companies (for example, Log4J, Kaseya) or targeting physical critical infrastructure (the Colonial pipeline in the US).

Rounding out the top five risks for marine and shipping companies with 18 percent of responses is Climate change, which includes physical, operational, financial and reputational risks as a result of global warming. Climate-related weather events affected numerous companies around the world in 2021, causing massive property damage, business interruptions and insured losses in excess of $100bn – the fourth highest annual total on record.

More and more companies are presenting strategies for reducing greenhouse gas emissions in their operations and also analyzing business opportunities for climate-friendly technologies and sustainable products. They are rethinking protection measures for sites and production plants to make them more robust against increasing extreme weather events, implementing climate and energy regulations and, increasingly, preparing to meet comprehensive reporting requirements.

According to Transport and Environment, by the year 2050, greenhouse gas emissions from the shipping industry are expected to make up for 10% of the world’s emissions. If the marine sector does not address this threat, operators will be facing numerous burdens, including frequent route changes, increased port infrastructure damage and elevated operational costs. Thus, it is in the industry’s best interest to promote and invest in renewable sources as soon as possible.

More information on the report is available here: Allianz Risk Barometer 2022

About the Author:

By Rich Soja, Global Head of Inland Marine and North American Head of Marine at Allianz Global Corporate & Specialty

March 2022