Posted: September 26th, 2023
The Future of Maritime Insurance in the Arabian Sea and Red Sea in the Context of Emerging Risks and Technologies
The Future of Maritime Insurance in the Arabian Sea and Red Sea in the Context of Emerging Risks and Technologies
1. Introduction
The Arabian Sea and the Red Sea, representing the connection between the East and the West, are among the most significant navigational routes in the world. There are numerous countries bordering these two semi-enclosed seas, which engage in extensive international trade. Threats to shipping in the Arabian Sea and the Red Sea are posed by a variety of factors, including terrorism, political conflicts, wear and tear of old vessels, accidents and the natural perils of the sea. The attacks by terrorists employing small boats laden with explosives has attracted worldwide attention for the risk it poses to international trade and the inadequacy of the conventional maritime war risk and terrorism insurance in covering such acts. The emergence of such threats has generated considerable changes on the patterns of risks, insurance and liabilities for maritime activities in these two regions.
The purpose of this research is to undertake a comprehensive analysis of the impacts of emerging risks and technologies for the future of maritime insurance to the shipping activities in the Arabian Sea and Red Sea. The prime focus is the identification of new and emerging types of risk faced by the shipping industry in the region and the responses from risk management, insurance and liability distribution. This encompasses an examination of the appropriateness and effectiveness of the measures of managing and financing the identified risks, and of the constraints and difficulties in implementing new risk management and loss prevention measures. The study will also encompass an identification of the fundamental changes in the shipping activities and the changes to the face of shipping risks in the regions, and projection of the future needs for insurance cover and the liabilities and responsibilities of the involved parties in the event of a risk occurrence and loss.
1.1 Background
The result is that today, the maritime industry is more advanced in operation in comparison to the solutions that the insurance industry has to offer. The increasing cost pressure and the environmental concerns have led to the development and operation of very large vessels, which are different in type and operation from the traditional ships. Similarly, there has also been a remarkable advancement in the field of information technology and automation in the operation and management of ships, which includes integrated control systems, E-navigation, unmanned ships, etc. The marine insurance and the risk management activities have no doubt evolved with time from the time of ancient sea traders, and today it is highly sophisticated in comparison to the olden days. However, the gap between these new types of ships and their risk assessment and management is very high.
The maritime industry, being the oldest industry in the world, is facing a lot of challenges from its own industry and also from external factors. But still, there is no decline in the industry, and the industry has always come up with the proper solution to the problems and then has built the back to be much stronger than before. The marine insurance and the risk management activities are one of the best examples of the same, and the industry has always been open to new ideas and has contributed to better insurance and risk management solutions today. But the new emerging risks that have shown their face in the beginning of this century have raised a question on the current knowledge and the solutions that the industry has to offer today.
1.2 Purpose of the Study
Maritime transportation throughout the ages has always been exposed to various elements of risk and uncertainty. This is due mainly to the complex nature of the trade, the vast and sometimes uncontrollable environment in which it operates and the possibility of conflict with other ships and nations. In the modern age, this has not changed. If anything, the risks have become more complex and their potential consequences more financially draining. Modern technology has increased the potential efficiency of trade, but this has also exposed the shipping industry to risks posed by reliance on technology and the possibility of it being used as a tool for warfare. An example of this was the recent piracy attack in the Strait of Malacca where, ten pirates armed with guns and knives boarded a product tanker and hijacked it. This incident demonstrates that even in modern times, risks posed to ships can range from traditional threats such as adverse weather, to risks caused by acts of humans such as terrorism or negligent damage to the environment.
It is no secret that modern maritime trade is filled with numerous risks due to its complex nature and the need to navigate through the vastness of oceans or seas in order to reach specific destinations. This can be made evident by the 2004 spate of marine insurance claims which were caused by a series of consecutive typhoons that struck Hong Kong, thus causing damage to a vast number of vessels while they were docked at the port. The total sum of insurance claims for this event was in excess of USD250m. These figures are indicative of the potential risks involved in moving vessels through geographical areas which are prone to adverse weather conditions. Such risks have led to an increasing amount of research in the area of maritime risk assessment and its link to insurance. This research is closely related to the broader area of risk management for shipping companies and aims to facilitate further understanding of the risks involved in sea voyage with a specific focus on how these risks can be quantified and assessed.
1.3 Scope and Limitations
Arabian Sea and Red Sea are considered as the most important waterways for east and west transport, talking about oil and gas and other important commodities from the Middle East to European and American countries. Those seas are strategic areas that need high security. The use of water transportation is the cheapest cost transportation compared to others, but the highest risk transportation compared to other modes of transportation. Then it is clear that dangerous goods and dangerous shipping are giving a high impact to insurable risks in the area. The example of the risk such as oil pollution from oil and gas transportation, and piracy are the highest concerns for the marine insurance industry, and other risks of damages and losses to the ships themselves.
The high growth of trading activities is taking the new emerging risks by the increasing of highly dense traffic and hence causes the higher possibility of collision between ships and with other objects. The more complex door to door transportation system and the use of just in time solutions also make unpredictable business interruption losses. All these risks generate a higher possibility of losses and damages to the ship and the cargo. This condition has been understood by maritime insurance industries, proved by the higher premium rates in the area compared to other places. Then it’s important to map the risk conditions and the future conditions to the maritime insurance in the areas.
2. Emerging Risks in the Arabian Sea and Red Sea
Climate change and extreme weather events are predicted to increase the likelihood and severity of ship and cargo damage. Though not geographically located within the common area of tropical cyclone formation, a predicted increase in intensity of such cyclones is likely to have an adverse effect on the Red Sea. Changes in wind patterns are predicted to create an increased risk of groundings or collisions in the Suez Canal due to its narrow structure. Such an event would have a significant impact considering the recent expansion of the Canal aimed at increasing two-way traffic. It has been estimated that over 200 million tons (equating to 10% of global seaborne trade) worth of cargo passes through the Suez Canal every month. Any stoppage occurring from damage to the Canal or ships within it would likely lead to lengthy legal disputes between cargo interests, ship owners, and insurers.
For those ships transiting the Arabian Sea, the largest concern is tropical cyclones. These cyclones can form during two specific periods in the year. During April/May and September/November, the monsoon seasons, conditions are ripe for tropical cyclone formation. The strong winds and high seas associated with these cyclones increase the risk of damage to ships and the likelihood of crew injury. It is expected that the areas affected by cyclones will widen, with the Arabian Sea seeing an increased frequency of cyclones tracking towards the Gujarat coastline. An area already known for intense cyclone activity. While the severity of cyclones which affect the Arabian Sea is lower in comparison to those in the Atlantic or Pacific, their effect is greater due to the lack of cyclone experience and awareness of those sailing in the Arabian Sea.
2.1 Climate Change and Extreme Weather Events
The Arabian Sea and Red Sea are recognised as the important waterways with a great potential to be safe and efficient navigational passage for the economic activities of many countries, including among others the cross-regional exchange of European and Asia-African products, including petroleum. With the natural traits and the weather condition in these regions being different, making each of the regions has its own prominent point which leads to emerged specific risk in accordance with their respective differences. Changes in climate trends in the regions are likely to bring the potential of extreme weather and climate change. In the Arabian Sea, climate change could impair the monsoon system, thus increased the frequency of extreme weather events. This might result in the delay of arrival/departure and longer shipping route which in turn increased the cost of the voyage. In contrast to the Red Sea which is a narrow and the short passage near the Suez Canal that is dominated by Egypt and Saudi Arabia, predicted extreme weather event would make more ships that want to pass in the Suez Canal to choose the longer way around Africa to avoid the high cost of delay and increased safety concern. This will bring adverse impacts on Egypt which by the canal become the major gateway and the employment sources for their society. In the long term, other impact might include the shift of the activity centre to other regions considering the conditions in the sea itself is no longer profitable for ship operators. Changes in climate trends in both regions will connote the alteration of condition and extra premiums for war risks and kidnap & ransom insurance, as both are closely related to the situation of the country at war and the safety concern of the ship and seafarers.
Also the climate change and extreme weather events may increase the potential of shipwrecks, sinkage, and damage to the goods transported. The impact of this case would be very detrimental for ship operators, particularly on the high costs of hull & machinery and increased freight and cargo insurance to avoid the potential loss and damage to goods. This condition will give the comparative burden on the shipping industry to the insurance industry itself. On a positive note, the situation may become an opening for the insurance and reinsurance companies worldwide from various sectors of the shipping industry that is getting bigger and wider, or an increase in offering protection & indemnity insurance from private customers. But on the other side, it is not impossible the condition is also a background to the burgeoning demand for state aid of the countries concerned, so that the insurance industry itself is no longer burdened with the risk.
Last but not least is the change on legal and regulatory system within the international maritime industry. The extreme weather events at the both regions, either in the short term or long run can encourage various countries to pass the regulations and superior rules to prevent the growing risk faced by their respective national interests. This situation will increase the demand of legal costs and the price of insurance with a variety of different types and related risk so it will bring complex possibilities for the insurance and shipping industry in understanding and addressing the needs of consumers.
2.2 Piracy and Maritime Security
High-profile attacks such as the 2000 bombing of the USS Cole and the Iranian threat to block the straits of Hormuz create the potential terrifying escalation of maritime terrorism, bringing a high risk of damage to ships and oil platforms and negative implications of Iranian political risk.
Traditional maritime piracy, such as in the Caribbean and Malacca straits, is an armed attack on a ship with the intent to rob and/or plunder. This has now shifted from hotspots to areas such as the Gulf of Aden, where Somali pirates attacked 111 ships in 2008 and hijacked 42, with large negotiation and ransom sums involving insurance companies. Recent incidents in the Arabian Sea show pirates using terror-style tactics with the capture of 17 Indian fishermen, who feared being used as human shields in a war-torn area, and an attack on the USS Ashland, an act that has created a necessity for specific insurance for acts of war and damage liability in regards to who is classed as a terrorist organization.
According to the International Maritime Organisation’s (IMO) World Maritime University (WMU) and MERCATOR program’s “The Use of Satellite-based Surveillance for Maritime Security and Safety” (2008) report, piracy and maritime terrorism increase insurance costs and the transport of goods and people. The report states that there is a “domino effect” when an incident occurs, beginning with the immediate financial costs and escalating due to increased insurance, rerouting wealth to pirates, political instability, and global economic implications. This changing dynamic of piracy fuels the increased risk and different types of danger, and therefore increased insurance costs and risk likelihood.
2.3 Cyber Threats and Data Privacy
Cyber threats and data privacy are fast becoming a significant risk to shipping and maritime insurance. The threat is twofold: a cyber-attack may cause a significant loss event for the hull and machinery market and at the same time erode P&I cover as these policies typically cover third party liabilities which may emerge from a cyber event. Costs arising from a cyber event could also be excluded from standard cover necessitating a buy back or separate policy. Up to this point, the cyber market has been directed towards protection for people and data as opposed to tangible assets. In view of the potentially catastrophic consequences of a systems failure on a ship or port facility, the industry needs to ensure that adequate cover is available. The International Union of Marine Insurance has established a cross-sector industry group to develop a better understanding of the risks and the insurance solutions.
There is an increasing expectation from shipping clients for contractual cover to include cyber liability but as yet there is little understanding by underwriters of the potential risk exposure and pricing of this class of business. Anecdotal evidence suggests that many incidents are not reported for fear of reputational damage, indicating that the problem could be bigger than it appears. The very nature of separate cyber policies means that the scope of coverage is vast and may be difficult to determine. This is an emerging risk in an already soft market, and the industry needs to be mindful of potential aggregation of risk from a single event across the many different policies both in the P&I and traditional markets.
3. Technological Advancements in Maritime Insurance
It is likely that such developments will ultimately reduce the level of underwriting required. For example, in 10 years’ time, a shipper insuring a container of goods may just simply enter the value of the goods on an app which will automatically calculate the premium and cover the goods on an all risks basis from warehouse to warehouse. Shipowners could be automatically covered whereby the premium is adjusted in real time according to the prevailing risk specific to the ship. The functionality of such a smartphone app was demonstrated by Mitsui Sumitomo Insurance to a Lloyd’s underwriting team for a hypothetical scheme to insure the underwriters themselves.
The potential of artificial intelligence (AI) to disrupt not only this but the very business model of marine insurance is huge. AI and machine learning (ML) can help automate the process of decision making. It will seek to more accurately predict the likelihood of an incident occurring. Dynamic pricing models can be developed giving the ‘right’ price in terms of premium and deductible for any particular risk. Pricing can then be immediately adjusted if the risk changes in its nature. This could all lead to a more simplified form of P and I cover where the member pays a specified sum based on the risk being covered. AI can also add value to loss prevention by using analytics to create virtual simulations to model the causes of collisions, groundings, fires, etc. This can lead to more effective risk management for both insurers and their clients.
From being an underwriting market that relied upon the expert judgement of individuals to one that today can access sophisticated risk selection and pricing tools, the marine insurance industry has transformed over the past 50 years. Many new technologies have now made the transition from experimental to operational, with the potential to disrupt not only the way in which marine insurers operate but also the very nature of the risks they insure.
3.1 Use of Artificial Intelligence and Machine Learning
AI and ML technologies are beginning to be used within the marine insurance industry for a number of purposes. Both are often used interchangeably, but actually have different functions. Artificial Intelligence refers to the technological ability of a digital computer or computer-controlled robot to perform tasks commonly associated with intelligent beings. Machine learning is a type of AI that provides computers with the ability to learn without being explicitly programmed. What this means in practical terms is that AI systems can perform intelligent tasks, including pattern recognition, autonomous decision making, understanding natural language, and perception. Machine learning is a method of data analysis that automates analytical model building. Using algorithms that iteratively learn from data, machine learning allows systems to find hidden insights without being explicitly programmed where to look. Both technologies have vast potential to generate insights from data and automate processes far beyond the current capabilities of the technology in the industry today.
3.2 Blockchain Technology and Smart Contracts
Furthermore, in cases of high risk and high value cargo entering into war risk territory, smart contracts could be programmed to auto-execute a policy clause and release additional funds to cover specific assets if they become damaged or are seized due to political disturbances. All policy changes and transactions are recorded and are fully auditable, a function that is very attractive to insurance compliance, legal, and regulatory teams. A refined transactional audit trail will remove the perennial disagreements between insurer and insured regarding what may or may not be covered under a policy, this is a primary source of disputes that arise between both parties.
Blockchain’s capabilities to provide insurance organizations with real-time data are particularly vital for risk managers assessing and mitigating the multitude of risks affecting shipping companies and their assets. In an industry where geopolitical and economic shifts can create unpredictable risks, insurance organizations can utilize real-time data combined with smart contracts to instantaneously adjust terms and conditions to reflect changes in the risk environment. For example, if a shipping company’s asset were to change route into a higher risk area such as the Gulf of Guinea, blockchain and smart contracts would allow the insurer to immediately adjust the premium on the policy.
Blockchain is a distributed ledger technology that securely stores data and executes predetermined programming logic across a network. It is comprised of a constantly growing list of secured records called blocks, and these blocks are linked and secured using cryptography. It is potentially a disruptive technology in the marine insurance industry; its proponents claim it will save costs, reduce administrative burdens, and increase underwriting margins. Smart contracts are blockchain-enabled computer protocols that can automatically execute terms of a contract. Different from traditional contracts, they directly control the transfer of digital currencies or assets between parties under specific conditions. If all contract conditions are met, the parties involved are relieved from any further action while the contract self-executes.
3.3 Internet of Things (IoT) and Telematics
Another potential opportunity could be in more accurate alternatives to traditional ‘war risk’ clauses. After the recent string of incidents in the Persian Gulf, and the subsequent rise in insurance costs, ship owners have felt compelled to take more risk by navigating these areas uninsured. This has meant huge savings for no doubt increased risk, as Shahin Javandel states ‘Iranian supertanker Happy Venture was offered $60,000 for an 8 hour round journey to and from Kharg Island in 1987, whereas the premium to cover a war risk political perils voyage cancellation condition now may in some cases amount to more than that for a 180 day duration’. The ability to more accurately track the geographical location of a given vessel, and assess the risk based on this location would mean that there are viable cheaper war risk policies which accurately reflect that risk that is being taken. High risk areas may simply be too expensive to ensure, and in some cases it may make economic sense to take the risk uninsured.
One of the main reasons that IoT and telematics are such attractive propositions for marine insurers is the potential for improving risk management. By having a better understanding of what is happening on a given vessel, it is possible to more accurately access the likelihood of a given risk occurring, and consequently price the risk in a more risk reflective manner. In turn, this can lead to improved loss ratios for insurers. With the dearth of claims in the marine market in recent years, anything that could improve loss ratios will be seen as a very positive development. Anuhya Vuppala states that ‘if IoT data makes it possible for insurers to identify high-quality risks, and offer discounts to policy holders, then the ship owners and operators who are judged as high risk and have to pay higher premiums’. This is of course only the case if the discounts being offered are reflective of the risk that is being taken on.
The IoT and telematics are recent innovations in the ways and means of collecting and using data. They essentially consist of networks of devices equipped with sensors, or ‘telematics boxes’. The IoT correlates data from devices to the user through networks and cloud computing, enabling more efficient data management. Telematics simply collects data on a device and sends it to a central point. These innovations are attractive propositions for marine insurers. The range of devices deployed on ships means that there is a huge amount of data that can be collected and used to more accurately calculate risk.
3.4 Big Data Analytics and Predictive Modeling
Big Data, like IoT, also has a direct impact on the predictive assessment of risk. With the ability to collect and process previously unimaginable amounts of data, it will be possible to develop much more sophisticated models to assess the likelihood and impact of maritime risk events. There are a number of developing trends and technologies in the area of risk modeling. One area is an increasing focus on relative measures of risk. Traditional actuarial models seek to determine the probability and cost of an event occurring, and use this to calculate the expected cost of that event (probability x cost). This approach has a number of weaknesses when applied to highly infrequent but severe events, as their low probability of occurrence can lead to their being almost completely ignored. Statistics based models aim to rank order risks by comparing their impact on an aggregate of decision variables. The decision variables we are interested in are usually some aspect of the company’s operations or objective function. An example might be the effect of increases on cost of insurance on competition in the cargo market. High level offshore oil exploration might be another example. In each case, the risk under consideration is related to specific corporate decisions or government policies. This type of analysis provides a systematic framework for evaluating the risk-reward tradeoffs of specific decisions and for assessing the effect of risk on decisions and outcomes. Event of decision change can be as a result of a model simulation. This approach allows much more flexibility in handling different types of risk and making various simplifying assumptions. Online simulation is becoming increasingly feasible as computer power increases.
Big Data is also leading to a revolution in the field of scenario-based risk assessment. In this method, plausible future events are considered. Each event is a path through time and space and has likelihood and impact. Alternative decisions move the system from one state to another along a different event. The aim is to compare the expected value of various decisions. Event trees are often used for complex calculations. While the concept of scenario analysis is not new, the vastly increased amount and variety of easily accessible data make this kind of analysis much more powerful and flexible than previous incarnations.
4. Implications and Challenges for Maritime Insurance Industry
Rising insurance costs for shipowners could force some companies out of business and inhibit new investment. This situation is particularly relevant to developing countries and small-medium-sized enterprises who are especially vulnerable to increases in insurance premiums. Insurance is an elastic demand for the shipping industry, so any increase in price will result in shipowners seeking to purchase less insurance. At present, the cost of insurance has become provably dearer and harder to obtain for shipping companies. This trend is likely to continue, especially in high-risk areas such as the Arabian Sea and Red Sea.
By the very nature of risk and risk transfer, the increasing levels of threat, vulnerability, and exposure at sea will impact the demand for insurance. At one level, it is clear that increasing risk and uncertainty within the maritime industry will require higher levels of financial protection. However, the ability of the insurance industry to meet these new demands for cover is complex and potentially problematic.
4.1 Impact of Emerging Risks on Insurance Premiums
Globalization and technological advancements have markedly increased the level of risk and uncertainty involved in maritime trade. The events of September 11, 2001, gave particular significance to this trend. Clearly identifiable as shipping’s risk profile, this is a combination of the likelihood and potential severity of events hazardous to shipowners, the cargo interests, and the myriad service providers. For the insurance industry, these developments have created both opportunities and challenges in underwriting, providing them with an opportunity to demonstrate the continuing relevancy and value of its products, and the pivotal role in the risk transfer process. However, the increased level of risk is not to everyone’s advantage. While increased risk means more business for insurance, it also means a higher likelihood of paying out on policies. As such, insurers are likely to increase the cost of the service and may seek to escape an obligation to cover additional risks presented by certain exposures. The final and most pressing challenge to the insurance industry is the preservation of a stable operating environment allowing the availability of adequate coverage at an acceptable cost. This is essentially the maintenance of the status quo in the current risk profile when measured against events actually covered by insurance at today’s prices. Given the relevance of the event to the industry and its wide-ranging effects, it is perhaps useful to examine how insurance might react to an event of global significance such as September 11.
4.2 Adaptation of Insurance Policies and Coverage
Changes to the safety and risk characteristics of a vessel may result in changes to the insurance policy conditions. An insurer may require that safety equipment is upgraded or that certain safety practices are adopted in order for coverage to be valid. In many cases, changes in safety measures can lead to risk control or risk management agreements between the insurer and the insured. A good example of this is the increasing use of ‘MOUs’ between P&I clubs and their members. A change in the risk characteristics of a vessel or fleet may, however, render it ineligible for insurance cover under the current policy conditions. This was the case when the introduction of tank double hulling essentially made single-hulled tankers ‘uninsurable’.
In the context of emerging risks and new technology, it is likely that insurance companies will seek to avoid more high-risk or technologically outmoded vessels and fleets. An insurer is only willing to accept a risk when the premium that can be charged is commensurate with the expected claims costs, and it will only be profitable for the insurer to insure the risk if claims costs can be contained at a reasonable level. If a risk is ‘unprofitable’, an insurer can either raise the premium in order to cover the higher expected claims costs (if regulation allows), or stop insuring that risk.
Insurers respond to risk through a process of underwriting and rating. Underwriting determines which vessels and fleets an insurance company is willing to insure, and on what terms (premium rate, policy conditions). Rating is the process of pricing that risk. Both these activities are contingent upon the safety or risk characteristics of the vessel or fleet. Changes to vessel safety, or advances in technology that make a vessel or fleet safer (e.g. GPS, ECDIS), will affect the insurability of that vessel or fleet.
4.3 Regulatory Framework and Legal Considerations
Carrying forward the discussion on the adaptation of insurance policies and coverage, another factor contributing to the challenges for the maritime insurance industry in underwriting emerging risks is the legal and regulatory impediments for enforcement of terms and conditions of the contracts of insurance. It has been suggested that in some cases, due to the public, inevitable and unpredictable nature of the emergent risk, it is not possible for insurers to lawfully exclude that risk from the policy. In the case of a terrorist attack on shipping, exclusion clauses to avoid liability for damage caused by acts of war or terrorism may be unenforceable and it will be implied that such risks are to be included within the cover. The same repercussion may occur for certain types of pollution risks where the home authorities of many states are under an obligation to ratify international conventions on prevention and clean-up operations but may be constrained from giving effect to those conventions by making the necessary changes to domestic laws due to domestic political concerns. This will result in an effective embargo on any exclusion clauses from cover or limitation of liability for those types of risks.
The only alternative option for insurers in this situation may be to withdraw from underwriting cover for the shipping operations concerned, and in markets which have high incidences of emergent risks and an increasing cost of compliance with mandatory regulations, it may become uneconomical to continue underwriting. In the particular case of hazardous shipping looking forward to the implementation of the BWM convention, there are already indications that smaller specialist P&I clubs with supplemental cover will cease trading due to the heavy losses expected from the changes in risk profile.
It is clear from the aforementioned issues that with the costs of underwriting on the increase and emergent risks pushing up premiums, there exists a very real danger of decreased insurance capacity and in some cases a complete lack of available cover for certain types of shipping operations. This carries potentially serious consequences for owners who may find their only option to continue trading is to become uninsured or underinsured.
4.4 Role of Insurance Companies in Risk Mitigation and Loss Prevention
Another example is that UK club, in partnership with Signum Service, has recently launched a product to provide members with comprehensive sanctions compliance protection. This is an example of adaptation of coverage detailed earlier; however, it is also a loss prevention measure in that Signum is able to directly inform users through their services whether the specific voyage they’re about to take or trade they’re about to conduct is in violation of any regulations sanctioned by the UN, EU, or UK. A policy providing this information beforehand can help members avoid potential violations and subsequent hefty fines.
For example, the loss prevention department at Japan’s Tokio Marine and Fire Insurance conducts research on the causes of accidents and damage in conjunction with the company’s underwriting and claims departments and then utilizes the findings to reduce them in future. The studies encompass a wide range of subjects from human error and fire prevention to the safety aspects of ship and port designs. This research has helped organizations reduce the frequency and severity of damage and accidents and ultimately led to a decrease in insurance premiums.
The role of insurance companies in mitigating risks and preventing losses is pivotal in maintaining a good business environment for the shipping industry. This is an essential function since losses can be prevented or mitigated by safety and preventive measures without increasing the costs of operations and the risk premium. There are various ways in which insurance companies involve themselves in loss prevention and mitigation. These range from simple advisory services to providing financial assistance for the implementation of loss prevention measures.