Autonomous Ships Shaping New Coverage Considerations

As the global economy expands and oceans become more crowded, the shipping industry is looking to autonomous ships to reduce accidents, increase efficiencies and cut costs. Last month a Dutch consortium engaged a vessel equipped with collision avoidance technology in 11 test scenarios in the North Sea, and earlier this month the Maritime and Port Authority of Singapore announced its $7.2 million investment in five autonomous shipping projects.

While autonomous vessels are still a rarity on the high seas, the future may be nearer than many people assume, according to the Electrical and Electronics Engineering Institute. The world’s first autonomous ferry launched trial runs between two ports in Finland in December 2018. In 2020, a fully autonomous ship will cross the Atlantic for the first time, sailing from Plymouth, England to Plymouth, Massachusetts, to celebrate the 400th anniversary of the Mayflower.

“In excess of 90 percent of all the goods consumed in the world, at some point, are on board a vessel.” – Andrew Hills, Managing Director, Lochain Patrick

“These vessels are no longer hypothetical. They are turning into reality,” said Andrew Hills, Managing Director, Lochain Patrick Insurance Brokers Ltd., London, England. As the technology becomes more prevalent and autonomous vessels join working fleets, he added, it will become all the more important for vessel owners to ensure that insurance coverage for their costly equipment and operations stays current with evolving technology.

“In excess of 90 percent of all the goods consumed in the world, at some point, are on board a vessel,” Hills said. Human error is responsible for an outsized share of commercial marine mishaps, including groundings and collisions that together represent more than half of casualties. “I think automation could eliminate a lot of those instances,” said Hills.

Automation may reduce risks and insurance costs

In particular, Hills speculates that autonomous vessels will result in fewer injury claims and also a reduction in other maritime casualties usually covered by Protection & Indemnity (P&I) Insurance policies. “A lot of claims are the result of human error, and involve crew injury or other bodily injury,” Hills said. “If there are no crew on board, there should be a massive reduction in injury cases, crew negligence and human error claims.”

The advent of autonomous shipping will herald a new age of marine architecture. Vessels that no longer require accommodation blocks are likely to be more fuel-efficient. Cargo ships burn significant quantities of bunker fuels, Hills explained, and so there is interest in reducing shipping’s carbon footprint through various means. Vessel autonomy is therefore likely to go hand in glove with an attempt to use cleaner energy to power them. The International Maritime Organization has set stringent new rules for marine bunker fuels, Norway is testing the world’s first electric-powered autonomous container ship, and many vessels are being converted or built to be powered by LNG.

New technology introduces new uncertainties

Yet as with any sweeping new technology, autonomous ships will usher in serious questions regarding accidents and liability that could take many years to resolve. “A lot of international conventions and regulations will need to be reviewed and reworked,” Hills said.

For example, the International Convention for the Safety of Life at Sea (SOLAS), generally regarded as the most important international treaty governing safety standards for merchant ships, was first signed in 1914 in response to the sinking of the Titanic. The most recent major revision to SOLAS dates to 1974.

One of the biggest issues when it comes to P&I Insurance coverage, as well as Hull & Machinery Insurance coverage, is determining the degree of responsibility, and the apportionment of liability, of each ship involved in a collision. “One issue that needs to be addressed is how you would apportion liability in the event that a manned vessel collides with an unmanned vessel,” Hills said.

“We are going from a person controlling just one vessel, to one person potentially controlling hundreds (of vessels) from shore, with the help of artificial intelligence.” – Rahmad Bauldrick, Burns & Wilcox

“In addition, there are many other issues such as how should an unmanned vessel navigate and interact with a manned vessel on busy routings? Ports will have to change the way that they handle unmanned vessels. All of this flows into insurance,” Hills said. “Ship owners will need to make sure that they are covered for every eventuality.” For now, he added, the key is to stay on top of the technology and have ongoing conversations with experienced marine insurance brokers.

Protecting shipping assets in case of cyber piracy

Autonomous vessels will further drive the necessity for ship owners to invest in Cyber & Privacy Insurance coverage. Considering the sophisticated navigation and other equipment aboard a modern cargo vessel, cybersecurity is already a serious concern for the industry.

The risk of cyberattacks could increase dramatically when computers become the only “crew members” aboard cargo ships. “We are going from a person controlling just one vessel, to one person potentially controlling hundreds (of vessels) from shore, with the help of artificial intelligence,” said Rahmad Bauldrick, Brokerage Manager, Professional and Executive Liability Center of Excellence, Burns & Wilcox, Chicago, Illinois.

The potential danger, of course, is that if people with good intentions can control ships remotely, bad actors have the potential ability to do the same. If a criminal were to hack into a ship’s operating system, that individual could then control how the ship was routed and otherwise manipulate it to achieve nefarious objectives, Bauldrick said.

“Hackers might manipulate data to make it appear that an autonomous ship was cruising along on its intended route when in fact it was being guided hundreds of miles off course into the hands of pirates,” noted Erica Rangel, Broker, Professional Liability, Burns & Wilcox, Chicago, Illinois. “Not only would the receiver of the goods not get their products, the shipper probably would not get paid,” Rangel added.

Increasingly, companies of all kinds are covering themselves against business interruptions related to cyberattacks, Rangel explained, and cybersecurity is quickly becoming an essential consideration for insurance policies covering shipping companies.

“Hackers might manipulate data to make it appear that an autonomous ship was cruising along on its intended route when in fact it was being guided hundreds of miles off course into the hands of pirates.” – Erica Rangel, Burns & Wilcox

In addition to diverting cargo, hackers that steer an autonomous vessel off course could cause physical harm to crew, passengers on other ships, or people ashore, creating a potential injury liability issue. Such an event might be covered by a company’s Cyber & Privacy Insurance, Rangel said, but only if the policy has a contingent bodily injury and property damage (BIPD) trigger. “That’s something that you need to request when you are looking at cyber policies, because it is not automatically included and not every policy offers it.”

Likewise, she added, owners may want to speak with their insurance brokers about the advisability of including Cyber Extortion coverage in their Cyber & Privacy Insurance policies, to manage costs in the event hackers make off with a ship and demand payment for its return.

As with any coverage need, an insurance broker or agent must be consulted. Click here to forward this article to your insurance broker or agent to ask if you need this coverage, or share this with clients to start the conversation and ensure proper protection.

This information was provided by Burns & Wilcox, North America’s leading wholesale insurance broker and underwriting manager. Burns & Wilcox works exclusively with retail insurance brokers and agents to assist clients like you with their specialty insurance needs. Ask your insurance broker or agent about Protection & Indemnity Insurance, Hull & Machinery Insurance or Cyber & Privacy Insurance that might be right for you.