Underwriting the first commercial bulk carrier trip through the Northwest Passage was no easy feat
Declining ice cover and improved ship design have allowed for the possibility of commercial travel through the Northwest Passage, but for many shipping companies, it is still not a viable trade route. Travel through the Northwest Passage requires best-in-class equipment and expertise—and, of course, it requires insurance.
Setting a Precedent
When Nordic Bulk Carriers A/S, the owners of the Nordic Orion, decided to transport coal from Canada to Finland via the Northwest Passage, their broker, London-based BMS Harris & Dixon Marine, placed the risk with RSA—an insurer they had a strong relationship with. Given that a trip like this had never been done before, Andrew Teasdale, a marine surveyor with RSA, had his work cut out for him. “[This risk] is not something that is easily contemplated by underwriters,” says Teasdale. “We have spent a great deal of thought and resources underwriting this.” Teasdale spent two weeks examining the risk to ensure it was acceptable to take on. “You can imagine there’s a big [checklist],” says Teasdale. “Is [the ship] fully ice-class? What’s the weather window? Do they have icebreaker support?”
The Nordic Orion is an ice-class 1-A bulk carrier, which is capable of operating in ice up to 0.8 metres thick. “The vessel has sufficient strength, engine power and equipment to operate in broken channels made by icebreakers in first-year ice or open waters with small ice flows,” explains Teasdale. Once it was determined that the right type of vessel would be used and the trip would take place at the right time—midway through the summer season—Teasdale then had to determine whether the Nordic Orion had the right expertise to successfully navigate the route. “I’ve got no experience travelling through the Northwest Passage. So that was the biggest challenge. What is actually going on up there? And can I find somebody who has travelled in those areas?” he says. RSA brought in a consultant, who had worked with the Canadian Coast Guard, to ensure that the Nordic Orion had the proper expertise, routing and equipment. The shipping company also hired a consultant as an ice pilot to accompany the Nordic Orion on its voyage, as well as a captain who had already travelled through the Northern Sea Route, which runs along Russia’s Arctic coast, and who had experience travelling through ice. RSA was provided the routing for the voyage, confirmed the ship’s under keel clearance, and was confident in the piloting expertise; the trip was a go.
The Nordic Orion left Vancouver on September 6, carrying 73,500 tons of coal and arrived at its destination in Finland on October 7. According to a Nordic Bulk Carriers press release, travelling through the Northwest Passage cut 1,000 nautical miles off the distance of the trip, resulting in approximately $80,000 (USD) in fuel savings. Additionally, because the ship did not travel through the shallower Panama Canal, it could carry 25% more cargo. Though RSA would not divulge specifics of the insurance policy, it did state that ice-strengthened vessels such as the Nordic Orion are typically valued at roughly $80 million. RSA provided hull insurance for the Nordic Orion and other insurers provided protection and indemnity cover.
The Gold Standard
RSA’s approach to underwriting the first commercial bulk carrier voyage through the Northwest Passage had the same pioneer spirit as the voyage itself. “We didn’t want to write this as a single risk. We realized that if we were going to take this risk on, it wasn’t simply a matter of open and shut, here’s a premium, thank you very much,” says Teasdale. “It’s really that we have a responsibility to the world to make sure that we set this as a gold standard for the future of Arctic shipping.”
Of particular importance to RSA was ensuring that the Nordic Orion’s trip was environmentally responsible. “Because you haven’t had vessels going through these routes before, there’s a very protected ecological system that you’ve got to understand,” says Martin Thompson, senior vice-president of global specialty lines for RSA in Canada. Prior to the Nordic Orion voyage, RSA and the World Wildlife Foundation had partnered to map potential Arctic shipping routes that could open up due to melting sea ice. When the insurance company got involved with the Nordic Orion trip, it was able to use this research to point out ecologically significant areas, whale migratory paths, and wildlife the Nordic Orion should be aware of. “We didn’t initially do that research with a view to use it as an underwriting tool, but what we were able to leverage out of that was the insight to help us manage some of those [environmental] exposures,” says Thompson.
Though travel through the Passage will certainly become more popular as sea ice continues to melt, neither Teasdale nor Thompson believes traffic will increase dramatically any time soon. “I don’t think this is going to be something that’s going to take off in a big way, given that the window [for transit] is fairly short,” says Thompson. Teasdale adds that companies need to be equipped with ice-class ships to make the voyage, and “many aren’t at this point.”
But the Nordic Orionwon’t be the only vessel to tackle the Northwest Passage and, for future trips through this challenging route, RSA wants to ensure the bar for obtaining insurance is high. “We believe that, for the future of the Arctic and the indigenous Inuit who live up there, we can only recommend the highest standards and underwrite the highest standards,” says Teasdale. “It may be that other people will not be able to transit the Northwest Passage because they couldn’t find insurance—and that will be good.”
Copyright 2013 Rogers Publishing Ltd. This article first appeared in the December 2013 edition of Canadian Insurance Top Broker magazine