Insurers can see the point of opening Arctic shipping lanes, but that doesn’t mean they want to underwrite the ships that sail them

Before Arctic shipping can become commercially viable, firms must gain the confidence of insurers – and in order to do that, they must display that they have a full understanding of the risks involved, concludes Marsh, an insurer, in report issued today.

“While marine insurers are largely supportive of the development to Arctic shipping routes, they are extremely wary about incurring large, high-profile losses while the market is sill in its infancy,” Marcus Baker, the chairman of Marsh Global Marine Practice, said in a statement accompanying the report.

The firm's report underscores that the Northwest Passage, north of Canada, and the Northern Sea Route, north of Russia, do offer “attractive alternatives” to existing shipping routes, particularly as resource extraction in the Arctic gains speed.

“Ports such as Dickson, which is currently fairly unknown, will become commonly known ports because the oil and gas industry will develop them. It won’t be the containers ship industry that leads the way, it will be oil and gas,” Baker said.

Among the benefits, it highlights the simple cost of fuel savings; the Nordic Orion, which in 2013 became the first commercial vessel to sail the Northwest Passage, used an estimated $80,000 less fuel than it would have had it travelled through the Panama Canal. The voyage was also a time saver, shaving a week off the standard travel time.

Even with the rapid growth in the number of ships taking northern shortcuts, and with efforts to implement the Polar Code, an internationally sanctioned list of regulations for navigating polar waters, Marsh’s report concluded that too little was known about the risks involved with Arctic sailing for risk levels to be considered generally acceptable.

It points out that not only do crews lack polar sailing experience, there is also a dearth of infrastructure to support Arctic cargo sailing.

As an example of the difficulty of building up Arctic routes, the report also details the challenges of establishing a third Arctic route, called the Arctic Bridge, which would link Canada with Russia via southern Greenland.

The route is currently open four months out of the year, but because it is closed for the rest of the year, there is no incentive to build the infrastructure that would make it useable to shippers.

Weather – and not least ice – the report also points out, remain a significant consideration when sailing in the Arctic. It is for that reason that some major shippers, including Maersk, a Copenhagen-based firm, are currently not planning to sail northern routes in the near term.

Marsh indicated that even if a shipping firm was interested in Arctic routes, insurers would be wary of underwriting them.

“In the absence of hard facts, it is extremely difficult for marine insurers to price an insurable risk, or even agree to cover a voyage in the first place,” Baker said.

The report noted that traffic is already increasing, and that new finds of oil and gas deposits in the Arctic were only going to require more ships to travel in the area. Marsh expects mounting pressure on insurers to underwrite Arctic sailing, but the firm underscored that there was no guarantee shippers could get insurance until basic infrastructure and safety issues were addressed.

If and when insurers do agree to underwrite ships, it made it clear that it wold not let shippers dictate the terms.

“Negotiations will need to be handled carefully by those who have been studying and engaged in the issues of this region for some time already,” the report wrote.

Let the insurer be leery.