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2020 sulphur cap to accelerate engine damage insurance claims

Untested but 2020-compliant lower-sulphur marine fuel oil with the capacity to damage ship engines will be introduced, boosting hull and machinery claims, the IUMI conference in Toronto has been warned

Marine insurers and underwriters cite the lack of specifications for blends of very low sulphur fuel oil

HULL and machinery claims are anticipated to rise with the introduction of untested but compliant lower-sulphur marine fuel oil with the capacity to damage ship engines, the International Union of Marine Insurance conference in Toronto was told.

Claims related to engine damage are expected to accelerate in 2020, marine insurers and underwriters said, citing the lack of specifications for blends of very low sulphur fuel oil that will replace the 3.5% sulphur bunkers from January.

Concerns centred on the stability and compatibility of new fuels and different compositions, vulnerabilities in the bunker supply chain and inadequate international specification standards.

Engine manufacturers and flag states are among those that have posted detailed information to shipowners to provide some degree of mitigation of risk, said IUMI Ocean Hull Committee chairman Rama Chandran.

However, he said that much uncertainty remained, even as marine insurers dealt with fallout from the biggest bunker contamination case in modern shipping from last year. Some 1,000 vessels have now reportedly experienced engine damage after taking on contaminated residual fuel oil first bunkered from Houston in early 2018, Mr Chandran told a conference workshop.

The fuel oil, for which the refinery source in the US Gulf has not been identified, was distributed as far away as Singapore and Panama, with ships’ engines immobilised and damaged by the fuel, even though it was compliant with ISO standards for bunkers.

“This problem has not gone away, we have not identified the problem,” Mr Chandra said, adding of the overall the hull and machinery market: “I think pricing adequacy and risk exposure is not fully factored in in terms of premium adequacy.”

But while marine insurers prepared for increased machinery claims, one shipowner criticised underwriters for being too silent on the global sulphur cap issue.

“Until relatively recently, apart from a few individuals, and the good work IUMI has been doing at the International Maritime Organization I have not seen [the industry]… show much external interest in how shipowners will manage to comply with the new legislation or whether there will be sufficient quantities of good quality and compliant fuel,” said Tsakos Shipping director Andreas Bisbas.

“I haven't seen or heard many underwriters stepping up to be part of the solution. Many oil majors and refiners are also your clients and are integral resolving this issue.

“They should have been under greater pressure a long time ago to demonstrate that enough good-quality compliant fuel would be available. I think I don't think it's unreasonable to suggest that insurers could have helped by lending their support in this regard.”

Oil majors have frequently declined to divulge details about volumes of compliant fuels they will make available at ports. Providing transparency is not possible as information is commercially sensitive, with ExxonMobil and Total both citing pricing competition rules in previous discussion with Lloyd’s List.

Hull premiums comprised $7bn of the $29.8bn of the 2018 marine insurance, the same as the prior year, IUMI figures showed.

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