More than 100 underwriters have been involved in the successful binding of insurance coverage for the FSO Safer operation, enabling the United Nations (UN) to proceed with an emergency ship-to-ship transfer to avert an oil spill that would amount to one of the world’s largest man-made environmental disasters in history.
Led by the United Nations Development Programme (UNDP), the FSO Safer operation involves the transfer of the oil to a replacement vessel and the scrapping of the vessel at a green salvage yard. It is highly complex and involves a range of environmental, geopolitical, financial and humanitarian risks.
Over 100 individual underwriters have been involved in the issuance of an exceptionally specialised set of policies covering FSO Safer, the ship-to-ship transfer operation (STS) operation and the replacement vessel.
Howden, appointed in open tender as UNDP’s broker, packaged, structured and then syndicated the various risks across thirteen insurers in the Lloyd’s, London and P&I markets. Fidelis MGU was one of the lead underwriters for the program.
The FSO Safer was constructed in 1976 and converted a decade later into a floating storage and offloading facility (FSO) for oil. It is currently carrying 1.14 million barrels of light crude.
Its structural integrity has significantly deteriorated as maintenance of the vessel was suspended in 2015 upon the outbreak of the conflict in Yemen. Without immediate action she will break apart or explode, threatening more than 17 million people and 200,000 livelihoods, as well as coral reefs, mangroves and fish stocks of every country on the Red Sea.
Complicating matters further, the FSO Safer sits in waters that are designated as ‘high risk’ by the Joint War Committee in London, the body which de facto sets insurance rates and exclusions for marine war underwriters globally.
UNDP Administrator Achim Steiner highlighted the importance of finalising the insurance policies, both in terms of financially de-risking the operation, and for protecting millions of lives, livelihoods and aquatic species.
Commenting on the news, Steiner said: “FSO Safer is an ecological and humanitarian timebomb. Without urgent intervention, the damage to the environment, lives and livelihoods could be immense. Insurance became a critical element of enabling this salvage operation to proceed.
“Without it, the mission could not go forward. UNDP has been broadening and deepening its work with the global insurance community over recent years. That collaboration is delivering impact in many ways. We are especially grateful to Howden for facilitating this process with the insurance industry on this critical initiative to ensure that coverage has been secured in the most challenging of contexts.”
David Howden, CEO, Howden commented: “This is the perfect example of the power of insurance to be a force for good in the world. By de-risking the investment required and mitigating the risks involved in this complex and delicate operation, insurance is playing a central role in preventing one of the largest, man-made disasters the planet will have ever faced.
“As unique as the FSO Safer operation is, there are a whole host of scenarios where insurance plays a crucial role in protecting our planet and its inhabitants. I hope that, as an industry, we can all be inspired to do everything within our power to help build a more resilient future.”
John Neal, CEO, Lloyd’s said: “Following the success of the Black Sea grain corridor, this pioneering coverage again shows insurance plays a leading role in helping society not just respond to disasters, but prevent and prepare for them. It’s encouraging to see the knowledge and expertise held in the Lloyd’s market being used to protect what matters most – in this case, our natural environment and the economic activities our world relies on.”
Richard Brindle, Group CEO and Chairman, Fidelis MGU, added: “Whenever the insurance industry has the opportunity to play its part in vital efforts on behalf of the environment, it must step up. This is one such opportunity and we are very pleased to be able to work alongside Howden, UNDP and our industry peers to provide the protection necessary for the successful outcome of this important project.”
While the FSO Safer project is a very important, urgent and high-profile example, Jan Kellett, Head of the IRFF, drew attention to the fact that embedding insurance-thinking into development cannot be limited to individual interventions.
He commented: “The partnership with the insurance industry to de-risk the FSO Safer operation is a very visible demonstration of UNDP’s leadership in harnessing risk-sharing techniques to secure the SDGs in the most challenging of contexts. However, more is needed.
“As the most recent edition of the Human Development Report emphasised, policies that focus on ‘investment, insurance and innovation’ are required to enable people to thrive in the face of unprecedented uncertainty. For this reason, UNDP is investing in the long-term transformation of insurance markets to the benefit of vulnerable communities and ecosystems.”
