Warming up to Arctic shipping: Unique risk management challenges for marine insurers

Abstract

Due to diminishing ice shelves in the Arctic, no doubt caused by climate change, previously unnavigable marine spaces are opening up, which in turn may provide new maritime routes. The shipping and maritime industry may capitalise on these routes more in the future as they provide shorter sailing times, and may assist with increasing oil and gas exploration and extraction in the region. However, increased maritime expansion in the Arctic comes with a number of unique risks and hazards for the insured and insurer. This opinion therefore seeks to discuss the implications of the multitude of risks that are associated with Arctic shipping from a marine insurance perspective and to highlight some of the gaps in existing regulatory frameworks. It is argued that marine insurers require improved data and risk management methodologies in order to better calculate the premiums of Hull & Machinery (H&M) and Protection & Indemnity (P&I) insurance policies for ships travelling through the Arctic. Until such time as these risks can be adequately assessed, evaluated, and managed by insurers; which of course is extremely difficult, due to the extreme environment, the unpredictability of climate change, a lack of key data, and the complexity of the various scenarios that can unfold in the Arctic environment, the practical viability of Arctic shipping remains doubtful. To date, insurers have paid out more in ship damage that has occurred in the Arctic than they have collected in premiums, which in itself is problematic. This situation may change in the future if Arctic shipping grows, and if it does the insurance market will no doubt, need to respond.

Introduction

The Arctic Ocean is a remote complex environment, which is surrounded by Russia, Norway, Finland, Sweden, Canada, the United States of America, Denmark (Greenland) and Iceland. According to scientific data collected by NASA satellites, September Arctic sea ice is shrinking at a current rate of 12.2% per decade ¹ ; while predictions show that the Arctic could experience ice-free summers by 2030 based on medium to high greenhouse gas emissions scenarios. ² This is not too far away. Diminishing ice shelves mean that previously unnavigable marine spaces are opening up to increased economic activity, as evidenced by the first-of-its-kind passage of the Venta Maersk from Russia's Pacific port of Vladivostok to St Petersburg in 2018 via the Northern Sea Route (NSR). ³ Indeed, between 2010 and 2020, it has been reported that Arctic shipping along the NSR has increased ten-fold. ⁴ New Arctic shipping lanes are likely to result in the speeding up of the production of plans for the exploitation of natural resources, ⁵ including fishing, mining, and hydrocarbon exploration. ⁶ Whilst it was once uncertain whether offshore oil and gas extraction in the polar region would be widely pursued given the grave climatological and geopolitical implications for sustainable development, ⁷ the war between Russia and Ukraine has reenergised the appetite for fossil fuels to safeguard the energy security of European states. ⁸ Despite the uncertainty surrounding the success of gas and oil exploration licences, it is undeniable that new Arctic shipping routes are providing viable connections between major world economies and presenting attractive options for shorter and more cost-effective voyages. ⁹ Vessels can save on operational costs and avoid expensive canal fees, while some vessels may no longer need to circle Cape Town to move from Far West Europe to the East. ¹⁰ Although Arctic shipping still accounts for a relatively insignificant percentage of maritime trade flows, academic studies addressing ‘risk governance of Arctic shipping’ are considering and responding to the fairly recent increased maritime expansion into the polar region. ¹¹

In the light of the above, this opinion seeks to first discuss the implications of Arctic shipping ‘risks’ from a marine insurance perspective. As part of this, it considers two categories of risks, namely (1) safety risks to shipowners regarding damage to the vessel itself or its cargo (Hull & Machinery (H&M) risks); and (2) environmental risks posed to the Arctic marine environment and third parties (Protection & Indemnity (P&I) risks). These risks may be set out in an H&M policy and a separate P&I insurance policy, respectively, which are taken out by the insured/shipowner. The opinion then goes on to analyse the mandatory International Code for Ships Operating in Polar Waters (Polar Code), which, (although currently under revision), came into force on 1 January 2017. ¹² The Polar Code applies to cargo ships weighing more than 500 gross tonnes and all passenger ships, and to ‘arctic waters’ as defined. ¹³

The Polar Code deals with a range of shipping matters and the environment, and lists 10 sources of hazards, that may lead to increased risks as they are more likely to occur, or there will be severe consequences if they do occur, or both, and that these need to be managed by ship owners. ¹⁴ The aim of the Code is to take a risk-based and holistic approach to mitigating the risks of polar shipping to acceptable levels. However, the Polar Code, which also applies to the Antarctic, does not, (even though it has been produced to deal with risks not covered by other instruments), cover every eventuality, and as such, presents problems for marine underwriters. It is suggested here, therefore, that both the viability and sustainability of Arctic shipping depend upon whether marine insurers are willing to actually mitigate potential hazards, but that this depends on whether they can obtain the relevant data in order to assess the risks identified first. It will clearly take time to gather the relevant data, meaning that it is just too early to know how effective the Polar Code is. ¹⁵

Currently, insurers are improvising and carrying out their own assessments. They do not have years’ worth of data on accidents, casualties, ship collisions and oil spills in the Arctic. They typically add 40% to the basic premium paid by the insured (which can range from anything between £38,500.00 and £96,200.00 for each ship’s journey (as at 2020 prices)). As part of this process, the insurer will also consider the ship's condition, route and proximity to an ice-breaker before deciding the final price. ¹⁶ With better data, they would be able to better calculate the premium more accurately. Any cover that is provided by an insurer must therefore be compatible with both national and international law and policies relating to the Arctic, so a lot of factors are taken into consideration before an insurer arrives at a premium price for the ship concerned.

Inherent risks associated with Arctic shipping

As stated in the early case of The Sadlers Company v Badcock, insurance is related to aversio periculi which underlies the intention of all insurance to avoid any damages or loss that the insured might sustain. ¹⁷ Today, marine insurance remains concerned with liability arising from marine losses – that is, ‘the losses incident to the marine adventure’. ¹⁸ Identification and analysis of ‘maritime perils’ (that is the category of risks ships and cargo face during a marine adventure) are required to calculate the ‘premium’ of the marine insurance policy, as underwriters will have to estimate the degree of risk a vessel faces taking into account the amount of indemnity that will need to be paid out if that risk materialises. ¹⁹ Arctic shipping poses problems for underwriters because there is currently limited empirical data in determining risk assessment parameters. ²⁰ The two categories of risks which correspond to H&M and P&I insurance policies, are now discussed in turn. ²¹

Hull & Machinery (H&M) policy insurance cover: Collisions, navigation and machine malfunction

An H&M insurance policy produced by an insurer is likely to be bespoke according to each type of ship and the purpose of the ship's journey in Arctic waters. Some risks will be covered and some will not be covered. Ships face numerous challenges in the Arctic due to the extreme environment. Navigational concerns include uncertain ice conditions, rapidly changing weather, extremely low temperatures, extended periods of darkness, communication failures due to high latitude, remoteness, emergency preparedness, and limited access to salvage services. ²² For ships, these challenges can result in structural damage due to ice collisions or ship-to-ship collisions, propulsion loss, diminished manoeuvrability, groundings, capsizing, and loss of a ship. ²³ Statistics on such risks remain insufficient as ice-free shipping lanes in the Arctic are a recent reality. ²⁴ In 2019 however, the Arctic Council's Protection of the Marine Environment (PAME) working group launched a new database called ‘Arctic Ship Traffic Data’ to record data (including historical data) about Arctic shipping voyages, which may be of some use to insurers to some extent. ²⁵

However, overall research on polar shipping and H&M insurance risks is just coming into existence. For example, in 2020 a study was started by Baroud and Bennartz at Vanderbilt University which aims to analyse the NSR shipping route and evaluate the economic and environmental trade-offs of it as compared to southern shipping routes, so as to produce a ‘risk analysis framework’. Baroud and Bennartz's preliminary simulation shows that the Suez Canal Route (SCR) ²⁶ will remain a better option for shipowners until 2050 rather than the potentially new NSR, because of the risk of navigation. ²⁷ Other research by Yang et al. (2024) highlights that in the context of risk assessment methodologies concerning Arctic navigation safety, whilst they are useful for decision-making processes, such methodologies are rarely applied to practical situations, and that risk factors such as ‘equipment failure, human error’ and other region specific navigational challenges are overlooked, and that these need to be taken into consideration by methodologies in order to make them more robust. There are, as noted by Yang et al., many different types of risk assessment methodologies and approaches that exist which can be used and applied in practice to assess H&M risks in the Arctic. ²⁸

Risk assessment for alleviating accidents in Arctic waters was largely championed by the United Nations International Maritime Organisation (IMO), the Arctic Council, and the Lloyds Register. Lloyds initially reported that there were emerging economic opportunities in the Arctic due to melting ice, yet also identified that there would be significant ‘operational risks’ that would require mitigation through regulation and corporate risk management but noted that they cannot be eliminated entirely. ²⁹ In 2017, the IMO attempted to provide a guiding methodology to assess navigational decisions, route adjustment and ice-breaker assistance with its Polar Operational Limitations Assessment Risk Index System (POLARIS) which is referenced in the Polar Code. ³⁰ In 2020, the Arctic Council's Emergency Prevention, Preparedness and Response (EPPR) Working Group published the Guideline for Arctic Marine Risk Assessment, based on the ISO 31000:2018 risk management process to assess the probability of potential accidents. ³¹ Despite these developments, there has been a limited amount of research undertaken to date on risk in Arctic waters from a marine insurance perspective. The lack of research clearly affects the extent to which Arctic shipping routes are likely to be viable from a navigational and operational perspective.

In addition to the need for further research on operational risks, it is suggested here that data limitations also hinder the development of a better understanding of what operational factors need to be considered in Arctic shipping. In this context, the overlooked risk factors that need to be considered include the following: hull structure and material may not be suitable for freezing temperatures, contents of tanks may freeze, valves may block, bows are vulnerable to ice spray, vessel stability could be impaired, engines may not fire, navigational equipment can fail at high latitude, the presence of ice can inhibit the deployment of lifeboats, and firefighting systems may be hindered. ³² In a recent systematic study of the general distribution of Arctic shipping studies, the lowest-ranking research areas include ice (i.e. loading, modelling and conditions), weathering and transport of oil, response and recovery, and evacuation and rescue. ³³ As discussed further below, the current POLARIS does not yet adequately address the research shortages in these key areas.

Protection and Indemnity (P&I) insurance policy cover: Third-party liability with respect to safety and environmental risks

If a shipowner obtains a full H&M insurance policy, they will then be permitted to take out a P&I insurance policy. From the perspective of P&I insurance, Arctic shipping poses several problems with respect to crew, pollution incidents, and wreck removal. Given the Arctic's fragile nature, the greatest threat posed to the Arctic environment is oil spillage, ³⁴ either because of bunker oil (i.e. which can be any type of fuel oil used by a ship) or oil carried as cargo. Other environmental impacts of Arctic shipping extend to ‘black carbon’ emissions (caused by Heavy Fuel Oil (HFO) or surprisingly by ‘very low’ sulphur fuel oil used by ships), toxic emissions, habitat destruction, biofouling, noise pollution, and ecosystem disruption. ³⁵ If a major environmental incident were to occur, there would also be a very limited capacity to respond timeously and effectively as the entire response capacity would likely need to be transported over vast distances from remote infrastructure. The Arctic Council's EPPR notes that an oil spill in a remote area is ‘troublesome’ as it would have a significant impact on the marine ecosystem and remote coastal communities. ³⁶ These risks persist even though all eight of the Arctic States signed on 15 May 2013 (in force in 2016) an Agreement on Cooperation on Marine Oil Pollution Preparedness and Response in the Arctic (MOSPA). ³⁷ Other associated risks include salvage, wreck removal operations, and liabilities of charterers arising from unsafe ports especially if ice conditions in the Arctic render an Arctic port unsafe. P&I cover thus plays a significant role in the mitigation of these risks.

Increased shipping in the Arctic also has socio-economic impacts on human communities. Disturbances in Arctic marine systems can jeopardise traditional hunting and fishing practices, while some coastal communities are growing increasingly concerned about the preservation of natural environments, archaeological sites, and the additional pressure placed on local infrastructure due to the increased presence of other people. ³⁸ Increases in emissions and pollution have very real consequences for the human health and food security of these people. Climate litigation has taken a significant rights-based approach over the last decade which has seen classes of persons hold both public and private actors accountable for human rights violations related to climate change. ³⁹

For seafarers, the risk of hypothermia and frostbite are severe whilst having to wear thick gloves and clothing can diminish tactile sensitivity and manual dexterity. ⁴⁰ There is also an increased risk of accidents and a much higher whole-body vibration factor, made even riskier by extreme darkness or high UV light exposure. ⁴¹ Maritime occupations are already associated with high levels of fatality and Arctic shipping increases the risk of death substantially. ⁴² Whilst the risk of accidents is widely acknowledged, lesser known are the indirect occupational health hazards associated with the long and complex commutes of seafarers to board vessels at faraway ports coupled with the long voyage times containing intensive work and short rest intervals. ⁴³ It is often the case that employees are required to keep watch for an hour at a time so as to avoid hitting an iceberg. Generally, depending on the State concerned, occupational health and safety regulations are partial, and as such these sorts of risks need to be mitigated by shipowners and insurers.

Another largely ignored operational risk is that of increased emissions stemming from energy-intensive Arctic shipping. At the Marine Environment Protection Committee (MEPC) 76th meeting in June 2021 (as a result of Estonia et al.'s document ‘MEPC 76/3/5’), the IMO recognised that ice-classed vessels consume more fuel when in ice conditions than when sailing in open waters in the same area; this is due to ice resistance which forces the vessel to reduce operational speeds. As such, the IMO's Carbon Intensity Indicator (CII) ⁴⁴ allows for specific treatment for the periods where a ship is sailing in ice conditions. Ships travelling in ice can apply two correction factors for transport work for ice-classed vessels: capacity correction factors and special ones for ice class 1A and 1A Super. ⁴⁵ Critics have stated that these correction factors are bad for the environment because the actual carbon emission rate is higher than the reported rate, yet the corrections also allow for shorter routes with overall less fuel consumption. ⁴⁶ From a marine insurance perspective, underwriters may want to consider the overall climate risks associated with vessels operating in Arctic waters. In particular, fuel efficiency should be factored in the vessel's design, although climate risks in shipping (whether regulatory, reputational, or legal) are still being fully explored within a widening context of regulatory responses, green finance frameworks, and a keen interest in pursuing private actors through climate litigation strategies (e.g. greenwashing claims). ⁴⁷

The Polar Code’s contributions to Arctic risk appraisal

The IMO's Polar Code was adopted to help mitigate the risks to shipowners and the environment. ⁴⁸ The Code was necessitated by inter alia, different national and regional regulations governing polar shipping, ⁴⁹ and to supplement the already mandatory Conventions. ⁵⁰ Prior to its enactment, safety and environmental discharges were dealt with under the International Convention for Safety of Life at Sea (SOLAS); ⁵¹ the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW) ⁵² ; and the International Convention for the Prevention of Pollution from Ships 73/78 (MARPOL), respectively. ⁵³ The Polar Code amended the SOLAS by the addition of new chapter XIV, amended Annexes I, II, IV and V of MARPOL, and Chapter V regulation 4 of the STCW Convention and STCW Code. ⁵⁴

The Polar Code is divided into two parts. The first deals with safety issues while the second deals with pollution issues. Both parts are further subdivided into another two parts: Part I-A, I-B, and Part II-A and II-B. Parts I-A and II-A are mandatory provisions of the Code while Parts I-B and II-B are not mandatory, rather they are in the form of additional guidance to supplement the mandatory provisions. The overarching aim of the Code is to make provision for safe ship operation and the protection of the polar environment. ⁵⁵ The way to achieve this is by addressing the risks inherent in Arctic waters which are listed in it that are not adequately mitigated by other Conventions of the IMO. ⁵⁶

Polar Code: Safety provisions

Part I-A of the Polar Code deals with two safety issues, both of which concern elements of seaworthiness. ⁵⁷ The first relates to the structural aspect of seaworthiness. This includes ship structure, stability, watertight and weathertight integrity, safety equipment and machinery. Noteworthy is the provision of chapter 4 which notes that ships in category A and B which are built on or after 1 January 2017 must have the capacity to withstand flooding from ice-related damage. ⁵⁸ With respect to watertight and weathertight integrity, the Code requires that all closing appliances and doors relevant to it must be operable in the polar environment. ⁵⁹

The second safety issue addressed in Part I-A of the Polar Code, relates to preparations before the commencement of the voyage. It concerns matters of documentation, voyage planning, communication, safety of navigation, and as concerns the crew, manning, and training. The Code introduced what is known as the Polar Ship Certificate which must be carried on board. ⁶⁰ The certificate is to be issued by either the administration or by any person or organization recognised by it in accordance with SOLAS regulation XI-1/1. ⁶¹ In practice, this would usually be issued by the relevant classification society acting on behalf of the flag state concerned. There is also a Polar Water Operational Manual ⁶² which is to be carried on board. A voyage plan is additionally required for all intended voyages which must take into consideration all the likely hazards to be encountered. ⁶³

Polar Code: Pollution prevention measures in the Arctic

The pollution aspects of the Polar Code have been integrated into MARPOL through a series of amendments. The pollution prevention section of the Code has five chapters. These chapters cover issues of pollution by oil, pollution by noxious liquid substances in bulk, pollution by sewage, pollution by harmful substances carried by sea in packaged form and pollution by garbage from ships.

An analysis of the chapters shows that while chapters 1 and 2 apply a ‘zero-tolerance approach’ ⁶⁴ with respect to pollution by oil and noxious liquid substances in bulk, chapters 4 and 5 do not. Consequently, the discharge of sewage within polar waters is permitted when certain requirements are met. Also, the discharge of garbage in Arctic waters is permitted when performed in accordance with Regulation 4 of MARPOL Annex V and subject to further requirements in the Code. The Code has left out any additional requirements regarding pollution by harmful substances carried by sea in packaged form in chapter 3. According to Bai, the reason for this is so that no greater pollution in Arctic waters will be done by ‘packaged harmful substances’ than in normal waters. ⁶⁵

Insurance under the Polar Code and persistent concerns for underwriters

Although the Polar Code contains no mandatory provision on marine insurance, it is suggested here that Arctic shipping is axiomatic in the field of marine insurance. Given the risks posed by Arctic shipping, Arctic states like Russia and Canada acting under Article 234 of the 1982 United Nations Law of the Sea Convention (LOSC) have mandated that vessels passing through their Arctic exclusive economic zone (EEZ) must be insured. ⁶⁶ Marine insurers are in effect the gatekeepers of Arctic shipping. Despite the Code having provided a fair idea of Arctic shipping risks, due to the lack of empirical data on these risks, marine insurers continue to underwrite Arctic risks on a case-by-case basis, without a detailed understanding of the frequency of the risks emerging. ⁶⁷ That said, even if marine insurers did have an extensive knowledge base of the risks, insurers would still have to, in any case, tailor an insurance policy according to the ship and the purpose of the ship's journey as appropriate, but they would be in a far better position to do so in order to calculate the premium.

From an H&M perspective, the Polar Code provides a uniform approach to risk management by focusing on technical parameters and crew training. ⁶⁸ A vessel engaging in Arctic shipping must comply with the Code's structural and other documentation requirements. The Polar Ship Certificate serves as prima facie evidence of such compliance and sets limitations for the operation of the ship in accordance with the class of the ship. Mandatory training and certification for crew is set out through the amendments to the STCW Convention and Code. ⁶⁹ These requirements should arguably address many of the risks and uncertainties that initially plagued underwriters and should be enough to convince an insurer to provide cover. However, there are still some pertinent factors that have not been comprehensively addressed by the Polar Code. Hebbar et al. (2020) noted that the effect of extremely low temperatures on dangerous goods is yet to be adequately addressed through Chapter VII of SOLAS and its mandatory applicable codes. ⁷⁰ Infrastructure shortage and communication issues due to remoteness, high latitude, and lack of satellite coverage are not addressed by the Code. The technical requirements of the Polar Code also require more detail from classification societies and flag state administrations.

Classification societies have heeded the call to specify design and construction standards in accordance with IMO legislation and guidance, yet they somewhat confusingly developed separate systems resulting in a diversification of standards. The International Association of Classification Societies (IACS) provided a uniform approach in setting out seven construction classes based on the seasonal operation of the vessel known as ‘Polar Classes’. ⁷¹ These categories can work to supplement the IMO's goal-based standards and are useful in quantifying the level of risk associated with them operating on ice. It is well known that ships operating in ice require hull strengthening, yet this also significantly increases the costs and emissions of both ship construction and operation. ⁷² Therefore, shipowners would want to carefully calculate the necessity of ice-strengthening based on the risks associated with the vessel operating in ice. The IMO recommends using the POLARIS to do this which calculates Risk Index Outcome (RIO) that informs all operations and is the basis of any decision to limit or continue operation. ⁷³ The RIO considers the ship's polar class standard as determined by IACS, the actual ice conditions in which the ship operates, and related Risk Index Values. The ice conditions are categorised according to an ice-type determined by the World Meteorological Association. ⁷⁴ A shortcoming of the POLARIS, however, is that it does not account for the extent to which a ship operates in varying ice conditions. ⁷⁵ The POLARIS method therefore does not consider ‘…whether a ship's exposure to some specific ice conditions is sporadic and limited, or frequent and extensive’. ⁷⁶ As such, supplementary methods are needed to account for varying ice loading, and long-term ice loads which take into account the ship's route, operating capacity and related weather/ice exposure. It has also been noted that the Polar Code only includes two threshold ‘metocean’ conditions in their recommendation on avoiding hazardous conditions, yet there are further challenges such as, ‘…the impact of wind, waves, and visibility and the combinations of different atmospheric and oceanic parameters (icing, wind chill, sea-ice pressure, drift and ridging)’. ⁷⁷

In addition to the above, from a P&I insurance perspective, the Polar Code presents even further challenges. While the risks it covers are distinct, obtaining full H&M cover is a condition precedent to obtaining P&I cover for Arctic shipping. ⁷⁸ The P&I Clubs will not normally issue a shipowner with a ‘Blue Card’ for such high-risk trade in its absence. A P&I insurer will also be interested in other details like the vessel's ice class. This notwithstanding the fact that, the liability of the P&I insurer in respect of Arctic shipping arises not necessarily from a breach of the Polar Code, but from legislation imposing such liability ⁷⁹ and any other risk they may voluntarily take on.

Mandatory regimes

There are various mandatory regimes of insurance provisions applicable to Arctic shipping such as those found in the CLC, ⁸⁰ the Bunkers Convention, ⁸¹ and the NWRC/Wreck Removal Convention. ⁸² Regarding pollution, particularly oil, whether accidentally or intentionally spilled, it has been noted above, that the Polar Code applies a zero-discharge regime. However, since the Code has no mandatory insurance provision for Arctic shipping, the provisions of the CLC will apply. Article VII requires a shipowner to have compulsory insurance. If pollution damage occurs, the shipowner is strictly liable except where certain defences apply. ⁸³ Interestingly, the CLC provides for direct action against the vessel's insurer. ⁸⁴ Thus, the claimant may choose to go against the shipowner, who in turn will be indemnified by the Club or the Club may be sued directly. The Bunkers Convention also provides in Article 7 for compulsory insurance. Just as in the CLC, the claimant(s) may bring direct action either against the shipowner or his P&I insurer. ⁸⁵ This is pertinent as heavy fuel oil is still being used to power commercial vessels in the Arctic. Although the IMO has concluded a ‘draft regulation’ recently to ban the use and carriage of heavy fuel oil in Arctic waters which is expected to take effect in July 2024, despite this, an exemption was made to allow Arctic states to waive this for their own flagged vessels sailing in their domestic waters until 2029. ⁸⁶ While the CLC and Bunkers Convention provide for limitation of liability regimes, the potential impact on the Arctic marine environment still presents difficulty to P&I insurers. There is yet to be a maritime casualty in the Arctic necessitating the application of these Conventions. Any maritime casualty resulting in a major oil spill may far exceed the shipowner's limitation amount. Even if the 1992 Fund Convention ⁸⁷ makes up for this, the amount of damage to the Arctic marine environment is still unquantifiable. While the insurance industry is bracing itself for the first serious casualty, it is arguable that the extent of the impact of any oil pollution damage may very well shape the attitude of P&I insurers in their risk assessment of the Arctic.

The occurrence of a maritime casualty in the Arctic may also render a vessel to become a wreck. The need to mitigate this additional navigation hazard necessitated the NWRC Convention which came into force in April of 2015. ⁸⁸ As concerns Arctic shipping, the Convention also has a regime of compulsory insurance. ⁸⁹ As with the CLC and the Bunkers Convention, the NWRC also has a regime of direct action against the insurer. ⁹⁰ Thus, a P&I insurer may have to seriously consider the expenses to be incurred if a vessel becomes a wreck in the Arctic before providing cover for an Arctic voyage. ⁹¹

Conclusion

Despite the prospects of new business opportunities in the Arctic, and regulatory improvements, the Polar Code is still a hindrance to the acceleration of new economic activities in the Arctic. ⁹² The adoption of the Polar Code presented a useful risk assessment framework, but it remains largely inadequate in measuring tangible cost factors for quantifying a premium. ⁹³ Although these challenges persist, Arctic shipping activities have increased by 7% per annum from 2010 to 2020. ⁹⁴ In particular, more recently Norway has seen rapid growth in its northern waters and Barents Sea, and it presently leads all Arctic states in respect of traffic increases. ⁹⁵ This is largely due to Norway's investment in infrastructure and the loading of Liquefied Natural Gas (LNG) – economic activities which are set to increase with Russia's Novatek's most recent megaproject, Arctic LNG 2 which according to Bloomberg has (despite US sanctions being imposed in November 2023) begun operating in late December 2023. ⁹⁶ Norway, in contrast to Russia, benefits from having an ice-free area within its Arctic EEZ for most of the year. For the opening of new shipping routes that are more likely to be ‘ice-covered’ to varying degrees throughout the year, marine insurers will be more cautious and will need to undergo a transition period in evaluating risks and adopting appropriate risk management frameworks and supporting methodologies before they decide to provide H&M and P&I cover. Although it is acknowledged here that Arctic shipping is, perhaps to an extent inevitable, it is not possible to state whether increased economic activity in the Arctic is in accordance with the Paris Agreement. ⁹⁷ There is a paucity of information on this point. While marine insurers certainly remain the gatekeepers of Arctic shipping, they may want to balance the prospect of new business with the greater risks associated with the climate agenda, particularly if Arctic shipping becomes an enabler of fossil fuel exploration and extraction which is inconsistent with the 1.5 °C mandate. Arctic shipping, therefore, truly does present unique risk management challenges for insurers, which no doubt they will continue to grapple with for some time yet well into the future.