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How Cyber Piracy and Emerging Risks Are Impacting Marine Cargo Insurance

​Despite the marine cargo industry continuing its low total loss trend—down 57% over the past decade, according to Allianz Global Corporate & Specialty SE's (AGCS) “Safety & Shipping Review 2022"—emerging exposures threaten to rock the boat.
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how cyber piracy and emerging risks are impacting marine cargo insurance

Despite the marine cargo industry continuing its low total loss trenddown 57% over the past decade, according to Allianz Global Corporate & Specialty SE's (AGCS) “Safety & Shipping Review 2022"emerging exposures threaten to rock the boat.

One risk that may result in shippers walking the plank if it is not covered is cyber piracy. “Hackers can actually help pirates home in on valuable cargo," says Capt. Rahul Khanna, global head of marine risk consulting at AGCS. “A large containership may have 10,000 to 20,000 containers and sifting through that looking for something valuable to steal would be like looking for a needle in a haystack."

“But if they can hack into the systems and look at the bay plan to see containers' contents, they can focus on how to steal one particularly valuable container in the pile," Khanna says.

However, while cyber piracy is a “critical concept, we haven't really seen a major incident of cyber piracy," Khanna says. The average cyber pirate is more of a landlubber, focusing on shore-based systems with “quite a few attacks on ports from hackers in the shape of ransomware and malware attacks in recent years."

For agents helping their clients mitigate cyber piracy risks, “the International Maritime Organization has requirements for procedures and systems to ensure proper detection and protection against cyberattacks—and not only that but also to ensure ships have alternative ways of ensuring operations don't get severely impacted if there is a cyberattack on their systems," he says.

Beside pirates, ships should be battening down the hatches against other, perhaps more likely, risks.

“Lost containers at sea is one particular issue that we've seen an increase in," Khanna says, noting that ship sizes have grown as much as 1,500% since the advent of the containership—which first began in 1956, according to Transport Geography—and the biggest can carry as much as 24,000 containers.

“You may remember the Ever Given that blocked the Suez Canal last year, and that was just a function of the size of the vessel," Khanna says. “We are looking at uncharted water when it comes to the risks caused by these large vessels, with some of these incidents now having the potential to cost the insurance industry upward of a billion dollars."

Fires on cargo ships are another concern exacerbated by the sheer magnitude of ships. “Just one example is the Felicity Ace last year," he says. “It was carrying 4,000 luxury cars from Europe to America when it caught fire and was lost completely, including the cars. The value was estimated somewhere between $300-$400 million."

Khanna warns that agents must make sure their clients are being honest about cargo. When dangerous goods such as lithium-ion batteries aren't declared to save a few bucks, they can cause a rapidly spreading fire. AGCS's report estimates that about 5% of containers shipped may consist of undeclared dangerous goods. 

“It's been a major issue in the industry for many years, but it's becoming more of a problem because these ships are so big," he says.

And with the increased amount of cargo, the exposures and complications for cargo insurers have grown exponentially. “When a 'general average,' the contribution when a ship gets involved in a casualty, is declared, you have thousands of cargo owners involved in disputes about who pays how much," Khanna says. “It takes years to resolve a case."

AnneMarie McPherson Spears is IA news editor.

Saturday, October 1, 2022
Cyber Liability