The relevant radioactive exclusion clauses clearly state that Assureds are not covered for loss or damage as a result of nuclear radiation produced by nuclear fuel, waste, matter, nuclear combustion or any nuclear weapons.

Clauses such as these serve a very important function. If radiation contamination were not excluded, the insurance industry could face collapse if a widespread nuclear incident or conflict occurred. These clauses therefore exists to prevent that, and rightly so.

However, their introduction originally arose from fears of a catastrophic nuclear conflict and we believe that the time has come to reconsider the market’s approach to relatively finite incidents such as the Fukushima radiation leak.

The industry has an opportunity here to meet the needs of shipowners, charterers and cargo interests by offering insurance cover that can respond to this type of incident. That cover would necessarily be strictly limited in quantum and perhaps also by some measure of the scale of the nuclear incident. Ideally the initiative should encompass physical damage buybacks for ships and cargo which may be leaving, entering or transiting an affected area. Extensions to P&I and Charterer’s covers addressing the concerns of owners and charterers affected by a nuclear incident and at risk of disputes might also be made available.

In a situation such as that following the Japanese earthquake and tsunami, where the chartering of ships to bring relief supplies and reconstruction equipment is problematic because of the risk of irradiation, an appropriate insurance solution should not only be commercially feasible, but represent an attractive product for the industry’s customers. It is also in the public interest.

Cefor has sought to clarify the relationship between the NMIP and the International Group P&I cover, specifically in relation to piracy risks under Chapter 15.

Clauses 15-20 make it clear that the war cover provided by Chapter 15 is seamless in relation to the war exclusion clauses used by the International Group of P&I Clubs.

Furthermore, Clauses 15-22 make it clear that the cover provided by P&I clubs is always subsidiary to the war cover provided by Chapter 15.

As Cefor has stated, this is important in relation to piracy, which is a war peril under the Plan but a marine peril under International Group P&I Cover, and means that all piracy-related losses will be covered by the Chapter 15 Insurer.

P&I Club cover is now per Gard’s Rules, not Skuld’s, in the event that the owner has cover with a non-International Group Club.

Collision cover under the NMIP no longer includes liability for damage to coral reefs, which the NMIP clarifies is more traditionally a P&I risk.

We anticipate that the NMIP 2010 will become standard for each renewal or new business led by the Norwegian market currently on NMIP 2007 terms.

Thank you to Cefor for the explanatory notes – further information can be obtained from your usual contact at FP Marine Risks.

The global downturn’s effect on trade has meant shipowners are facing further pressures to reduce costs, including reducing their premium spend whilst maintaining good quality security.

However, London and other European markets are pressing for rises on all business of between 5% and 10% on Hull and Machinery before any adjustment for adverse records.

Fortunately for shipowners, however, Asia continues to present an abundance of capacity and strong security whilst offering competitive ratings.

The difficulty for many shipowners is in reconciling the high value they place on maintaining long term relationships with their insurers, with the economic imperative of driving down costs.

The result is that we are seeing shipowners willing to move to new markets for relatively minimal price reductions as the necessity to reduce expenses wins the day.

Consequently London and European underwriters have in some instances lost shares.

Moreover, many markets outside of London are now seeking tonnage that falls outside of their traditional appetite in order to maintain premium income levels. This change of approach has created additional options for shipowners that were not necessarily available this time last year.

The continued effects of the downturn continue to keep the need to reduce costs in sharp focus for shipowners. However, the drive for premium increases by the more established hull markets such as London, has given rise to opportunities for other capacity, particularly from Asia, to step in.

However, the consequent reduction in premium varies widely among insurers and it is important that shipowners are aware of the basis of that variation in premium if they are to get the best deal when they come to negotiate any renewals or changes in value.

In each case, underwriters generate a specific value adjustment rate, which is applied to the difference in value to calculate the return premium due.

This value adjustment rate will be significantly lower than the Hull & Machinery rate, reflecting the fact that the risk of loss is no different, even though the value of the ship is.  The return premium will therefore not be in direct proportion to the reduction in value.

Typical of a competitive market, insurers’ value adjustment rates vary widely – by up to 500% – which significantly affects how much of a reduction in premuim the Assured will receive.

It is important that owners understand the importance of obtaining competitive value adjustment rates when they reduce their insured values.

And equally the same approach is recommended when the S&P market rebounds and premiums need to be re-calculated in response to the higher ship values.

For any shipowner who would like to discuss their current situation please contact any of our Shipping brokers who can help you further.

The maritime news continues to be filled with articles about pirate attacks in the Gulf of Aden, while piracy also continues less reported in several other key areas such as Nigeria, the Philippines and Brazil. There has been some discussion, and perhaps confusion, about what support is available to shipowners in the event of a pirate attack.

To mitigate the risk, some shipowners are avoiding the area but at substantial additional expense, and others are using organised convoys or employing security staff for the vessel.

Marine Kidnap and Ransom insurance can play a key part in any shipowner’s risk management strategy because it covers the specific costs associated with piracy attacks, however there has been some misunderstanding regarding the detail of the cover.

Andrew Brooker, director at marine insurance brokers FP Marine Risks, says: “We are often asked what insurance protection is available to shipowners in light of the increased risk of piracy. Marine Kidnap and Ransom needs to be seen as a service that shipowners can draw upon that isn’t catered for by traditional hull insurance.”

Traditional hull insurance only protects the shipowner from loss or damage to the vessel as a result of piracy and is only designed to work in a reactive manner once the claim is made after the event.

In the absence of physical loss or damage, the ransom and associated costs would be considered a General Average expense and settled by all parties against their respective values. However, the legitimacy of these costs being claimed in GA has never been tested and could be disputed by the cargo parties’ insurers.

Given the amount of shipping traffic that transits areas such as the Gulf of Aden, statistically the risk of a pirate attack is quite low. However, when it does happen, shipowners are faced with a challenging range of issues they are unlikely to have encountered before.

Brooker explains: “Shipowners suddenly find themselves with a host of questions about how to move forward – how do they find the necessary help from specialist negotiators; how do they enter into effective communications with hijackers; how do they deal with threats to their crew, vessel and cargo; how do they raise and deliver the ransom?”

Marine Kidnap and Ransom insurance is designed to specifically meet the needs of shipowners in dealing with these issues. It also provides the security of having an insurance in place that ensures the shipowner receives priority treatment from kidnap negotiators and other personnel involved. It covers all the necessary related costs that are needed to secure the safe and quick release of the vessel, crew and cargo, including the ransom and its delivery.

Furthermore, if a shipowner were to declare General Average in an attempt to raise the ransom, it could jeopardise their commercial relationships.

Brooker says: “There is generally no deductible with Kidnap and Ransom insurance, so owners are not exposed to additional costs after the premium and our cover ensures the Kidnap and Ransom insurers do not seek to recover any aspect of the costs from cargo or charterer interests, thereby preserving those commercial relationships. It also has the effect of protecting the owner’s existing Hull & Machinery or War cover from a loss which exposes them to an increase in rating for the following year – in effect, Kidnap and Ransom insurance has no memory and will not seek to recover claims through increases in premium.”

The International Herald Tribune published an article in May referring to the congestion in Singapore, citing data from AIS that showed 735 vessels had congretated in and around the port due to the nosedive in international trade in and out of Asia (particularly China).

The UK P&I Club also recently commented on the increased risk of collisions due to lay ups, particularly as the average vessel size has increased.

However, in response to the American P&I Club’s alert, the Singapore MPA denied that there has been an accumulation of vessels and that utilisation rates of their anchorages have remained stable. MPA Port Master Lee Cheng Wee is quoted as saying the anchorages have not become crowded due to the economic downturn and that concerns over increasing congestion are unfounded.

On the other hand, they are witnessing a large number of owners anchoring vessels outside of the port’s boundaries where they do not have pay port fees. Last week, the Singapore MPA issued another statement saying that whilst the port’s anchorages were busy, they were not overcrowded, and instead turned their attention to owners anchoring outside of the port’s limits.

There are certainly inherent risks for vessels at anchorage however, we are not seeing anything in the markets to suggest that the American Club’s sentiment is being shared, certainly not in terms of increased premiums for those navigating Singapore’s waters, and nor do we expect there to be.

Now, of course, those investment returns have all but disappeared as the financial markets continue their descent.

The Clubs have either had to sell their investments at a significant loss or write down the value of those securities, leaving them with a paper loss on the year with the same net result (although with the ongoing risk of further reductions in their equities values).

As a result, we are witnessing a return to a more technical underwriting approach as Clubs no longer have the safety net of other income streams. This has inevitably led to an increase in premiums for shipowners.

Some shipowners feel that the Clubs should have pulled out of the equity markets once the meltdown began, but at the time those Clubs with substantial equity exposures were offering the best ‘return’ to their members even whilst managing a technical underwriting deficit (but an overall positive balance sheet). This strategy provided members with competitive premiums year after year.

All Clubs will undoubtedly exercise caution in their current and future investment strategies which, whilst building a more stable platform over a long period, will continue to result in higher calls to owners if claims activity cannot be controlled or suppressed.

Shipowners should be cautious in how they expect premiums to change in the near-future; even with a dramatic return to buoyant investment markets, the Clubs are likely to exercise a more conservative approach.

Shipowners may therefore need to start looking at not only the merits of the service being provided by each Club and the spread of their membership, but their investment portfolio as well.

The amount of return will depend on whether the vessel is under repair or not and the number of crew on board. Theoretically, the percentage is fixed at the outset of the policy, however the underlying annual rate is usually higher where such lay-up returns are allowed. This is in contrast to a “Cancelling Returns Only” (CRO) designated policy where the annual rate will be lower but the Assured continues to pay full premium during the lay-up. This decision, which must be taken at the outset of the policy, has in recent times not been an issue for the majority of owners because freight rates were high and vessels were rarely being laid-up, hence CRO was almost invariably being taken to reduce annual premium costs.

However, in the current climate, we are advising owners to consider whether or not, during the policy period, any of their vessels might be laid up and if so, to consider their options. It is worth noting that if lay-up returns are excluded, owners may not have a right to cancel an ITC – Hulls policy if the vessel does enter lay-up. This may be a matter for negotiation with underwriters who are now seeing a general decline in premium volumes, given the reduction in vessel values.

To assist owners, we have also created an insurance facility to allow our clients to reduce their insurance premium for vessels entering short or long-term lay-up, whether under repair or not. The facility is directly focused on owners who have any part of their fleet out of service and can be utilised easily and cost-effectively where a complimentary underlying hull policy is in place.

Deidre Littlefield, IUMI president, said “There is no doubt that the all-time historic profits made by owners during the halcyon period marked by the last five years were helped in no small measure by driving ships and crews as hard as possible.

“Inevitably, such a strategy impacts heavily on claims, and we expect that many ship repairs and onboard unit replacements, which have been deferred or ignored during the sky-high profit years, will start to surface, along with the results of skimped maintenance, leading to a further escalation of claims. And adding to the financial pressure on insurers, we will see spiralling requests for return of premiums applying to ships going into ‘cold’ or long-term lay-up.”

The pressures on insurers may be offset by certain benefits that lower trade brings, namely fewer older vessels on the water and fewer problems finding suitable seafarers, although as Ms Littlefield adds, “recruitment going forward remains a huge problem when seen against the threats of piracy and the criminalisation of mariners.”

At FP Marine Risks we have not yet seen a sustained or widespread hardening of the marine market, despite many insurers’ predictions at the end of last year.

One of the aspects an underwriter will consider when rating or accepting a risk is the identity of the technical manager and their specific experience with the vessel(s) in question.

Established names do not generally give rise to detailed probing. However, where technical managers are new or lack the necessary experience there is a clear desire for more background information.

This is by no means an insurmountable challenge, notwithstanding underwriters’ more risk-averse approach. However, additional and in-depth information on the proposed technical manager is necessary to achieve a smooth transition as far as the insurance is concerned.

The areas that insurers will want to focus on include the CVs of people involved in the vessel(s), their experience in technical management as a whole, the Company’s time in existence and the background to the change by owners. If there is a change of crew arranged by the technical managers as well, then additional information will be expected.

As we wrote in our opinion piece Piracy – How Covered are You?, the methods and style of piracy have moved on from its “traditional” routes where pirates would board ships and steal cash and equipment. This didn’t present any particular problems for insurers. The new method sees Somali pirates only interested in the ransom, demands for which have run into the millions of dollars, and it is the settlement of these ransoms that are likely to push premiums higher.

There are further fears that the Somali methods of hijacking will spread to other regions, including South East Asia and Latin America. Whilst this is possible, current circumstances suggest the need for a specific set of geo-political characteristics to make this work, i.e. a sea lane near land in calm waters without any issues as to sovereignty, a passive government or legislature, a lack of concern of that government of outside pressure to take action, and an inability of external governments to take action.

However, if other hot spots were to occur, then we would likely see a quicker shift of Piracy from the Hull to the War policies. Whilst there is the increase in premium to contend with, there is also the question as to who is going to pay for it.

It means owners and charterers should be paying increased attention to their War clauses and obligations under the charterparty, and account for the increases accordingly, irrespective of the anticipated trading pattern.

Whilst attacks in the Malacca Strait and Indonesia have dropped by over 50% in the same time, the Somali coast and Gulf of Aden have seen a drastic rise from only 2 incidents in 2004 to 44 in 2007.

The data available for 2008 shows that between January and September there were 50 attacks off the coast of Somalia, 32 hijack incidents and over 260 crew members held hostage.

The pirates have hijacked vessels from over 20 countries, including Germany, Japan, Malaysia and France, and members of the crew are predominantly from the Philippines and Malaysia.

The pirates targeting vessels near the Gulf of Aden and Somali waters are predominantly local fishermen and disaffected youth from Puntland, a semi-autonomous region in the north east of Somalia.

They threaten to kill the crew and run the ship aground from the outset, and make ransom demands of between USD2m to USD10m for which they leave little room for negotiation.

Ten countries have sent in military forces to the waters surrounding Somalia and the Gulf of Aden to try and prevent further attacks, but with little success.

It is argued that as long as the issues internal to Somalia remain unresolved, piracy in the area will continue.

Avoiding the area entirely will limit a shipowners exposure to the risk of piracy, but it is also a costly and time consuming alternative.

Marine Kidnap and Ransom Insurance, on the other hand, ensures that if a vessel is captured and a ransom demanded, the shipowner is able to respond quickly and with the support of experienced crisis-handling professionals to ensure the safety of the crew and expedient release of the vessel.

The Cover

In summary, the Marine Kidnap and Ransom Insurance covers the following:

1. The ransom that has been paid

2. The loss in transit of the ransom

3. The fees and expenses of security experts who specialize in advising clients on how to handle crises such as kidnap-for-ransom

4. Additional expenses including those for an independent negotiator; a public relations consultant or interpreter; reasonable costs of travel and accommodation of the assured; plus all other reasonable expenses incurred subject to the insurer’s approval.

5. Legal Liability to cover settlements or awards, fees and judgments imposed upon and paid by the assured as a result of an action for damages brought by or on behalf of any insured person, or his / their legal representative or shareholders, as a result of the kidnap. Defence costs incurred by the underwriters are payable in addition to the limit for legal liability.

What would you do without insurance cover?

Without the necessary Kidnap and Ransom insurance, shipowners understandably find themselves unsure about how to proceed in the event of a hi-jacking.

They need to consider how to enter into effective communications, how to handle the demands and threats made by heavily-armed pirates, how to advise family members of the situation and how to raise and deliver the necessary ransom to guarantee a swift and successful release.

Most, if not all, owners would consider it an unprecedented strain on finances, resources and expertise to manage the crisis effectively.

However, with adequate Marine Kidnap and Ransom Insurance you have the necessary support from experienced professionals as soon as you need it.

They have the ability and know-how to advise you through every stage of the negotiations and release, their costs being covered by the insurance.

In addition, the insurance also covers the ransom itself along with a wide range of ancillary, but necessary, expenses that may be incurred either during and/or after the successful release of the crew and vessel.

The above information is intended solely as a summary of the cover – for full details regarding the conditions of cover, exclusions and definitions, please email or telephone your usual FP Marine Risks contact or call the Hong Kong office on +852 2544 3410, the London office on +44 (0) 207 397 4920 or email info@fp-marine.com

Andrew Brooker, Associate Director of FP Marine Risks, a leading marine insurance broker based in Hong Kong, explains: “The S&P market can have a huge impact on the ability of shipowners to receive full reimbursement from their insurers in the event of certain types of loss, specifically a salvage, general average incident or total loss.  Unfortunately, many assureds don’t realise this until they come to make a claim”.

The science is simple – for example, a vessel valued at USD2.1million and insured accordingly could see its market value rising to USD3million as a result of a buoyant S&P market. If the valuation on the insurance cover is not adjusted accordingly, the assured could find themselves having to meet the additional costs.

Andrew says: “For example, if a vessel has to be towed to port as a result of an accident or breakdown, salvage charges are payable from both the ship and cargo.  However, if a vessel is underinsured, the amount of reimbursement the shipowner will receive from the insurer for these charges will be reduced by the same proportion that the ship is underinsuerd.”

It is up to the assured to advise insurers of any changes in the value of their vessel.   “We recommend that shipowners keep an eye on the S&P market and speak to their insurance broker if they believe there have been significant changes in the value of their vessel,” Andrew continues.

And for those who are thinking the easy solution is to overinsure, unfortunately the insurer may refuse to accept the increase in value and demand proof by way of an independent valuation.