Marine Insurance in Arctic Waters

(by Karl Magnus Eger)


Marine insurance is an essential service to international shipping. It is generally agreed that without marine insurance, international commercial navigation in the Arctic would not be economically viable1 . Unlike most aspects of marine transportation, there is no international convention on marine insurance. Moreover2 , insurance practices are driven by insurance markets.

Marine insurance allows ship owners and carriers generally to take on the risk of trading on Arctic routes and liabilities imposed by statute. Shippers and consignees3  would also want to protect their cargoes. Today, even if lots of the risks associated with shipping are well known and understood by insurers, there are still risks related to Arctic navigation that needs to be identified. Underwriters normally base their underwriting premiums on a historical loss record, such as statistics and the frequency of accidents is a key element in the evaluation of risk when navigating in Arctic waters. Knowledge of accident rates can help determine insurance rates. However, lack of Arctic empirical data and significant statistics makes it difficult for insurers to compose an overall risk assessment related to the risks of the various Arctic shipping routes.

With the exception of the Russian NSR experience and the research that was provided through the INSROP and the ARCOP, there is only limited knowledge on the marine insurance aspects of Arctic shipping. As a result, the provision of insurance for Arctic shipping tends to be on a case-by-case basis4 , expensive and also requiring self-insurance5 .

Of particular importance for Arctic shipping is Protection and Indemnity (P&I), offered through so called P&I Clubs, and represented by the International Group of P&I Clubs6 . Each club is an independent, non-profit making mutual insurance association, providing cover for its ship-owner and charterer members against third party liabilities linked to the use and operation of ships. Clubs cover a wide range of liabilities including personal injury to crew, passengers and others on board, cargo loss and damage, oil pollution, wreck removal and dock damage7 . In addition, underwriters normally charge a surcharge with respect to Hull and Machinery (H&M) and Cargo Insurance. However, at this time there do not appear to be evidential insurance market patterns for Arctic shipping, partly because of the rarity or specialized activities to date1 .

Arctic shipping includes both, sailing in the most severe ice conditions and open water. This will differ with respect to season, but also in relation to various Arctic geographical areas. Given that there, yet, are no international mandatory requirements regarding ice class, it is left to the ship owner to decide the operational elements. However, the insurer will most likely base the insurance rate on a combination of the operational area, ice conditions and vessels technical standard.  If the ship is sailing in waters where ice conditions are unpredictable, the underwriters will most likely require that the vessel has an adequate Ice Class. Although it is not a direct requirement in the regulations, this will still be indirect requirements from the underwriters. Data on the possible accidents and statistical accident rates for the NSR, NWP and TPPs would be valuable when preparing preventive actions and estimating the additional costs caused by these accidents.

According to Assuranceforeningen Gard, a well prepared and trained crew and an experienced and trained ice navigator is one of the most important aspects when the insurance shall be negotiated. An important factor would be how many times the ice navigator has made this route before. And whether crews are prepared for winter navigation? However, previous discussions in this chapter have shown that the international and national requirements for crews and ice navigators in the NSR and NWP are very limited. Neither are the ship owners’ requirements. This could mean that large parts of crews operating in the Arctic have limited training. On the other hand, it would be difficult for underwriters to examine the crew's operational basis, since there, yet, is no international recognized educational certificate.

Available SAR facilities diverge between different Arctic areas. It is reasonable to conclude that the SAR facilities generally are more accessible on the NSR than on the NWP. One of the issues ship owners are facing is whether the vessel will sail on the NSR independently or with the icebreaker assistance. One might think that any use of icebreaker assistance would reduce the risk of accidents significantly. However, the available statistics of hull damage average frequency on the NSR shows that approximately 10% of ice damage to ships occurs when navigating independently; 60% of damage occurs when following an icebreaker; and the remaining 30% results from towing (see figure 5.5). Furthermore, it is still unclear whether these statistics are valid and significant. It does not state, for example, how much of the operations that have taken place in winter and/or summer season, or the specific areas operated along the NSR. Other SAR factors of importance for underwriters would be the availability of electronic maps, real time ice information, weather forecasts and how many days ahead the weather forecast would be reliable. Moreover, are there any SAR units available within a reasonable distance? And how much time does it take for any rescue unit to arrive in terms of the sea route’s total extent?

Availability of Arctic ports and port facilities differs from the NSR and the NWP. Nonetheless, there are very few ports along the NSR that meets modern southern port standards. The underwriters would base their risk assessments on many of the criteria discussed in this chapter. Typical issues would relate to available facilities such as; are there ice free ports available?  Is there available icebreaker assistance and/ tugs when vessels entering the port? Are there adequate loading/unloading facilities? Any transhipment challenges?  One of the main obstacles identified along the NSR, for instance, is lack of adequate water depths suitable for potential vessels trading into the ports. There are all factors that would be important when underwriters consider the likelihood for any damage to cargo and vessels when using the ports.

Previous studies show that the international insurance market would be willing and able to underwrite NSR risks. Nevertheless, lack of empirical data and significant statistics makes it difficult for marine insurance underwriters to compose an overall risk assessment related to the risks of the various Arctic shipping routes. As a result, the provision of insurance for Arctic shipping tends to be on a case-by-case basis. Some statistics are available, based on Russian marine traffic (1954-1990). Approximately 10% of ice damage to ships occurs when navigating independently; 60% of damage occurs when following an icebreaker; and the remaining 30% results from towing, grounding and other operations in ice. However, further research is required in order to examine the risk.


  •  1. ARCOP (2006), Arctic Operational Platform, Working Paper D2.4.2, Marine Insurance Coverage for the Sea Carriage of Oil and Other Energy Materials on the Northern Sea Route: Moving from Theory to Reality. By E. Gold and L.Wright, Fridtjof Nansen Instit
  •  2. Van der Zwaag, D.L. (ed.) (2008), Governance of Arctic Marine Shipping. Marine & Environmental Law Institute, Dalhousie University, Halifax, October 2008.
  •  3. A consignee is the person to whom the shipment is to be delivered.
  •  4. Gold, E. (1999), Economy and Commercial Viability. In Østreng, W. (ed.) (1999b), The Natural and Societal Challenges of the Northern Sea Route. A Reference Work. Kluwer Academiv Publishers, Dordrecht, 1999
  •  5. Self insurance is a risk management method in which a calculated amount of money is set aside to compensate for the potential future loss.
  •  6. The major clubs are based in Japan, Norway, Sweden, United Kingdom and United States,
  •  7. International Group of P&I Clubs: http://www.igpandi.org/

Karl Magnus Eger, 2010, Marine Insurance in Arctic Waters, CHNL.©

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