Climate Change & Marine Insurance: What Risks You Need To Be Aware
- Rohit Lokhande
- Sep 22
- 3 min read
Updated: Sep 27
Table of Contents
What Are the Impacts of Climate Change?
Key Factors Reshaping Risk
Impact on Policy Terms and Premiums
Risk Management and Adaptation
Practical Considerations for Insured Parties
FAQs
The global shipping industry faces new challenges as climate change alters maritime risks. As sea levels rise and extreme weather intensifies, insurers must adapt. This is already impacting how they evaluate risk and arrange policies. In this article, we’ll explore the direct and indirect ways climate change affects marine insurance, so you understand the evolving landscape for your policy.
What Are the Impacts of Climate Change?
Climate change lends alteration to the very basic parameters of maritime risks.
Sea Level Rise: Rising sea levels threaten ports and terminals with flooding, thereby increasing the risk of settlement for damages of vessels and cargo.
The Extreme Weather: Storms are increasingly frequent and intense-barring from posing threats to the vessels and cargo, they also add up to expensive claims.
Shifting Polar Routes: Melting of Arctic ice opens short potential new routes but creates fresh risks such as navigation through unstable ice and higher risks of environmental liability.
Key Factors Reshaping Risk
Climate change is essentially reshaping the marine insurance environment, further adding new variables into the already complex risk equation.
Risk Assessment: Following the usage of new-generation climate models to forecast the likelihood of occurrence of a climate-related event, insurers are now in the process of rejecting and accepting sea lanes and coastal areas on the basis of greater or lesser risk.
Premium: Because higher risks bring with them the possibility of more frequent claims, premiums have been raised for the same underwritten risks.
Impact on Policy Terms and Premiums
Beyond physical risks, there are new legal and financial liabilities. Policies now address the costs of environmental cleanup from incidents in sensitive areas like the Arctic. Insurers may also introduce specific climate-related exclusions or impose more stringent risk mitigation measures on policyholders to offset growing risk.
Risk Management and Adaptation
With an unstable environment in place, adaptation of any risk management framework is necessary. Measures are being taken on both sides, insurers and policyholders, to overcome this environment. The insurers are taking to data analytics for real-time risk warnings; in turn, the shipowners are rerouting their vessels so as to avoid inclement weather and are investing in more resilient vessels.
Practical Considerations for Insured Parties
Changes in new risk factors arising from climate change mean the policyholder can ensure proactiveness. These include:
Review the terms of the policy with respect to new exclusions, if any, and changes in premiums.
Be transparent with the insurer about all new risk mitigation measures.
Work with brokers to ensure optimal coverage amongst the various policies.
FAQ's
Will my marine insurance premiums certainly increase?
Not certainly, but they are likely to rise for high-risk routes and older vessels.
What is the biggest new risk for shipping?
Severe weather and environmental liability are the most significant new risks.
What can I do to mitigate my risk?
You can reroute vessels, invest in sustainable technology, and prioritize safety training.
Are automatic war risk extensions standard in all policies?
No, they are a contractual provision that varies across policies.
Do automatic extensions affect premiums?
Yes, they may come with premium adjustments or market conditions.
The influence of climate change is promoting innovation in the marine insurance sector, creating products that are more dynamic and adaptive. For policyholders, this means a need for greater awareness, proactive risk management, and a better understanding of evolving policy terms and premiums.
