Beazley eyes alternative fuels opportunity as maritime sector continues decarbonisation push

By Rebecca Delaney

May 9 - (The Insurer) – Beazley is eyeing a lead position in the future market for underwriting alternative fuels as part of the decarbonisation trajectory of the maritime industry, although this currently remains an emerging underwriting risk.

Kelly Malynn, ESG strategic leader in Beazley’s marine, aviation and political risks division, told Sustainable Insurer that the maritime industry is “at the end of the beginning” of its transition journey.

The International Maritime Organization’s (IMO) greenhouse gas (GHG) strategy aims to reduce the carbon intensity of international shipping by at least 40% by 2030, with a view to achieving net zero close to 2050.

Last month, the IMO agreed draft regulations to set a mandatory marine fuel standard and GHG emissions pricing for shipping. The net-zero framework marks the first in the world to combine mandatory emissions limits and GHG pricing across an entire industry sector. 

The measures are set to be formally adopted in October 2025 before entry into force in 2027. They will be mandatory for large ocean-going ships over 5,000 gross tonnage, which emit 85% of the total CO2 emissions from international shipping.

“There's been a considerable amount of progress in terms of the discussion on targets and where we should get to by when,” said Malynn.

“Those conversations feel like they've very much come to an end; the IMO has set targets, they've been amended and agreed. Certainly, when I look at maritime in terms of shipping and shipowners, there is a collective agreement of where we're going, and now we're starting to see how that's being implemented.”

The most recent maritime forecast to 2050 by DNV estimated that 49.5% of the gross tonnage of the global order book can operate on alternative fuels (including LNG), indicating the future scale of risk.

Alternative fuels include “transition fuels” such as LNG and LPG, as well as “net-zero fuels” such as hydrogen, ammonia, methanol, and biofuels.

“One of the things insurance companies can do is to respond, to just underwrite it, and then there's claims that you don't want to encounter. We want to think through how to underwrite this risk properly,” said Malynn.

“We're working with a few external parties on that now so that we can effectively underwrite the transition in an efficient way. Because if we don't, the transition will be slowed. You'll have first movers, there will be problems with insurance coverage and surprise issues, and then other people won't adopt because it'll seem difficult.”

While the ability of the current global fleet has a low adoption rate of alternative fuels, Malynn underlined the importance of getting to grips with the new risk now, including internal training with engineers to understand how the different fuels burn and how they can be stored.

“It really is an emerging underwriting risk in terms of how many of our insured vessels are using these new fuels. That doesn't mean we don't need to prepare ourselves for it,” she said.

“Insurers' risks are not material now because of the proportion, but we will need to think about whether to ask different questions on crew training, and on safety protocols and safety procedures.”

PORT CAPABILITIES MAY DRIVE CLAIMS COSTS

Beazley is beginning to consider the emerging issue of claims costs for vessels that have an incident out at sea, only to find that the nearest port does not accept their specific fuel type.

“Typically, with salvors and others, we would move that vessel to the first safe port. But, for whatever reason, that port may not accept that fuel type,” said Malynn.

“A vessel might not be going to the nearest port, it might have to go along the coast to another country. It's about thinking through the impact that will have on potential claims and the costs of managing those incidents ahead of time.”

The Maritime and Port Authority of Singapore is heralded as at the forefront of transition in the maritime industry, with a mandate that from 2030, all new harbour craft operating in its waters will need to be fully electric, capable of using B100 biofuel, or be compatible with net-zero fuels such as hydrogen.

“When it comes to ports and regulation, Singapore has done a really good job. They're not trying to bring in additional regulations. They're actually one of the first to have multiple bunkering facilities that will be available,” Malynn added.

Another issue around port capability is spacing, with safety concerns around mixing alternative fuel types in the bunkering process likely leading to physical restrictions on the number of different fuels in a port at any given time.

This is similar to fire concerns seen in the electric vehicle market, with the Danish Maritime Authority and Norwegian shipping company Havila Kystruten both banning EVs on vessels until safety procedures are improved.

Malynn concluded that the insurance market must take collaborative steps to improve collective best practice around safety protocols for alternative fuels in order to help drive the transition in the maritime industry.

“If an insured has an incident, we need to feed that back into our underwriting assessment for the good of the industry to learn from other people's issues,” she said.

“As a specialist insurer, we're investing the time in understanding that so we can help lead the market and lead in the areas where we know. It's the responsible thing to do to facilitate the energy transition. It needs to be a complete feedback loop between industry and insurance.”