The changing climate conditions are affecting all the components of everyday life, and the maritime industry is no stranger to these experiences. Marine transportation enables global trade, and climate changes have affected oceans the most.
Thankfully, marine cargo insurance also evolves with the changes in the global climate scenario. Due to these changes, marine insurance now addresses new challenges. In this blog, we explore how marine insurance companies are impacted by climate change.
Understanding Marine Insurance
Marine insurance is a customised and specialised insurance policy equipped to shield vessels, cargo and other maritime assets from various marine perils. With the help of comprehensive coverage, you can ensure the security of your assets and commodities, protecting your income and profit.
There are different types of marine insurance, namely hull insurance, cargo insurance, etc. Businesses that regularly ship goods can also opt for open policy in marine insurance. Various factors and risks influence marine insurance policy premiums. One such risk is the climate during transit. With increasing climate-related risks around trade and transport, policy premiums increase.
Challenges Due to Climate Change Conditions
● Increased Storm Severity
Storms are a natural phenomenon that holds the power to cause significant damage to both cargo and vessel. This climatic condition is characterised by heavy rain and strong winds, such as typhoons and hurricanes. As global climate conditions shift, storms are becoming more frequent and intense.
● Rising Sea Levels
Rising temperatures are causing polar ice to melt, leading to increased sea levels. This poses a significant threat to coastal regions of all continents.
Most maritime activities initiate from coastal regions and nearby ports. Higher sea levels can disrupt infrastructure, resulting in poor and unfavourable conditions for trade and transportation.
● Changing Weather Patterns
Unusually hot summers, untimely rains, not-so-cold winters, altered ocean currents, and unexpected temperature changes make waterbody navigation even more challenging in these situations.
● Ocean Acidification
The absorption of increased levels of carbon dioxide from the atmosphere and factories has led to high acidification in marine ecosystems. Not only does marine biodiversity suffer due to this, but maritime routes are also negatively affected.
Let us understand how these climate changes affect international or inland marine insurance policy.
Climate Change Impact on Marine Insurance Policy
● Increased Risks
The best marine insurance companies often adapt their policies according to the changes the climate experiences. With increased risks associated with severe storms, rising sea levels, increased possibilities of cyclones, changed climate patterns and unpredictable weather, marine insurance policies are being re-evaluated.
This might lead to changed marine insurance coverage, increased inclusions, better features, etc.
● High Policy Premiums
As mentioned above, the changing climate increases transit risks. When the associated risk increases, it attracts higher premiums on the marine insurance policy. Policy premiums increase so that insurers can adjust their pricing to reflect the greater likelihood of claims. This may affect the affordability of marine insurance for individuals and businesses.
● Climate Resilient Infrastructure
As mentioned before, rising sea levels, severe and high-frequency storms, and an unpredictable climate pose significant risks and dangers to coastal port infrastructure, affecting marine insurance premiums. Ports located in coastal regions experience volatile climates and disruption of infrastructure.
Hence, it is observed that stronger economies can handle climate change, especially when it comes to infrastructure rebuilding. In contrast, developing countries often face greater challenges, which, in turn, significantly affects marine insurance, leading to higher premiums and more complex risk assessments.
● Role of Technology
Marine loss control engineering (MLCE) helps the insured parties with scientific and technical analysis of the supply chain and potential dangers while the shipment is in process. The near future also predicts the efficient use of satellite imagery, predictive analytics and climate modelling for efficient and fortified transportation.
Provisions of such features and services by marine insurance companies will ensure better and well-adept policies.
Conclusion
The effects of climate change on maritime activities and industry are substantial and cannot be ignored. Leading marine insurance companies are actively adapting to changes, updating their services and expanding coverage options.
The future of the marine insurance industry depends on embracing change, evolving, adapting and staying responsive to these shifting conditions.
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