Insurance Jottings

Key Stage of Nord Stream 2 Gas Pipeline Completed but Insurance Needed

Russian President Putin said a key stage of a gas pipeline to Germany which the US targeted for sanctions had been carried out, ahead of his summit with counterpart Joe Biden.

 

“I’m happy to say that today, two and half hours ago, the pipelaying for the first line of the Nord Stream 2 gas pipeline was successfully completed,” Mr Putin said on the 4th June in his address to the St Petersburg International Economic Forum. “Work on the second line is continuing.”

 

While the underwater section still needs to be welded to the section on German territory, state gas exporter Gazprom PJSC is ready to start filling the link, Mr Putin said.

 

The 1,230-kilometre (760-mile) pipeline to bring Russian gas under the Baltic Sea direct to Germany has been a major source of friction in trans-Atlantic relations for years, with the US claiming the link could give the Kremlin new leverage over its allies in Europe.

 

The Biden administration softened its stance last month, when it waived sanctions against both the operator Nord Stream 2 AG and its chief executive officer.

 

Almost Completed

Mr Biden said the link was almost completed and new sanctions would hurt relations with Europe. German Chancellor Angela Merkel sent a high-ranking negotiation team to Washington last week to discuss the project with the new administration.

 

Construction of Nord Stream 2 is set for completion by year-end, Deputy Prime Minister Alexander Novak said earlier last week. Before the first gas flows to Europe through the link, Nord Stream 2 needs to obtain insurance and certification, a task made difficult by US sanctions which restrict providing these services to the project.

 

Uniper SE CEO Klaus-Dieter Maubach said he sees “no major roadblocks so far” to completion of the pipeline. Uniper, along with Engie SA, Royal Dutch Shell Plc, Wintershall AG and OMV AG are financing half of the €9.5 billion (US$11.5 billion) cost of the project, which is owned by Gazprom.

 

In May Germany’s Federal Maritime and Hydrographic Authority allowed Nord Stream 2 to lay two kilometres of the pipeline on the seabed in the nation’s waters.

 

The temporary permission, valid until the end of May, doesn’t include further construction work.

 

Brit Launches Consortium to Simplify Underwriting of Marine War Breach Call Risks

Brit Ltd has announced the creation of a marine consortium called “Keel,” which aims to revolutionise the writing of marine war and breach call risks.

 

Keel offers up to US$152.2 million of capacity per risk and provides instant quotes which are fully sanctioned screened – an area of increasing importance in the growing regulatory environment affecting marine war risks. The cover is offered globally.

 

With hundreds of thousands of trips made by vessels each year into high-risk areas excluded from annual war risks protection, “breach calls” are required to provide insurance cover for these events. This has traditionally required a time-consuming placement process for short-term and short-notice trips which are frequently completed before the insurance paperwork is concluded.

 

A Brit representative explained why sanctions screening traditionally has been complicated. “As marine insurers, we do not just have to apply sanctions screening against the insureds and the locations they operate in, but there is also a sanctions screening requirement that goes to a vessel level,” the representative said in an e-mailed statement.

 

For example, a vessel which previously conducted activity, which was in breach of international sanctions, would be sanctioned regardless of whether or not the vessel had transferred to a new owner.

 

“However, the fully automated sanctions screening process within the Keel platform conducts these screening checks instantly and avoids lengthy manual compliance checks which add time and inefficiencies to the quotation process,” the representative explained.

 

Using a new trading platform which offers brokers a single interaction to place breach calls for vessels in seconds, the Keel consortium directly aims to improve efficiency in covering breach call risks, allowing brokers the opportunity to obtain instant, fully supported quotes around the clock.

 

“The insurance industry’s placement of breach call risks has historically been an onerous and time consuming process,” said Gary Brice, head of Marine and Space at Brit.

 

“Through our Keel consortium, Brit is aiming to directly address this, delivering a solution which enables the placement of risks in seconds, not minutes, or days, as is currently the norm. We are delighted to have created Keel, and believe its easy-to-use platform and the technology which sits behind this will help expedite and enhance the writing of marine war breach call risks.”

 

Cyber Insurers Seeing Surge in Interest by Energy Companies Since Pipeline Attack

US energy companies are scrambling to buy more cyber insurance after this month’s attack on Colonial Pipeline disrupted the US fuel supply, but they can expect to pay more as cyber insurers plan to hike rates following a slew of ransomware attacks.

 

The Colonial ransomware attack on the 7th May shut the largest fuel pipeline network in the United States for several days, crippling fuel delivery to most of the US East Coast. Pipeline companies rely on electronic networks, putting them at risk of additional attacks which could hamper delivery of crude oil or other fuels.

 

Insurers are preparing to increase cyber insurance premiums by 25% to 40% across many industries because of the number of claims, insurance companies and brokers have said.

 

But energy companies should expect rate increases at the higher end of the spectrum as the Colonial attack exposed their vulnerabilities and exposed insurers to losses.

 

Only about half of the nation’s pipeline companies currently buy cyber insurance even though ransomware attacks have become more frequent, according to Nick Economidis, vice president of cyber liability at insurer Crum & Forster.

 

“Since the Colonial outage, submissions from energy companies are up across the board,” said Economidis, adding that he started getting calls the day after the Colonial attack.

 

Anthony Dagostino, cyber insurance broker at Lockton Companies, said his Houston office

has been fielding a large number of calls from energy companies in recent weeks.

“Before the attack, the energy sector had some of the lowest interest in purchasing cyber insurance of all industries, but in the past two weeks, now they’re very interested,” he said.

 

Regulators are working with pipeline companies to strengthen protection against attacks, the US Department of Homeland Security said. The energy industry’s “cyber risk management and mitigation practices are not as advanced” as other major sectors like banking or real estate, raising the risk of successful attacks, Moody’s Investors Service said in a report on the 10th May

Cyber-attacks can be particularly damaging for the pipeline sector compared with other companies in the energy sector because fuel supply cannot be easily rerouted, Moody’s said, and pipeline operators have increased their use of digital technologies to manage delivery.

 

To date, many companies have not bought cyber insurance because of high premiums and difficulties in quantifying the costs from incidents, according to a report from the Government Accountability Office, a federal watchdog, on the 24th May.

 

Cyber Insurance: Insurers and Policyholders Face Challenges in an Evolving Market

“A lot of operators have not done the business impact assessments that banks and big retailers do to determine overall costs of being down for a certain period of time,” said Mr Dagostino.

 

Colonial had cyber insurance coverage of only about US$15 million, according to one media report. Last year, the company had net income of US$420 million on US$1.3 billion of revenue, according to regulatory filings.

 

Cyber insurance typically covers ransom payments and insurers often provide staff to negotiate with the hackers, in addition to IT and public relations services.

 

The average ransom paid is US$1.9 million, but in recent months cyber criminals have extracted ransoms as large as US$40 million from a single company, according to a Bloomberg News report.

 

Companies which have cyber insurance often retain the initial loss that can range from US$500,000 to US$10 million, depending on the policy. Then the insurance kicks in to cover the ransom, which in Colonial’s case was US$4.4 million, its chief executive told the Wall Street Journal.

 

Insurance also covers business interruption costs, and costs from supply-chain partners after a waiting period of eight to 24 hours.

 

Colonial, which carries about 2.5 million barrels of fuel a day, could have lost US$9 million to US$15 million in revenue from the six-day outage, depending on the waiting period, according to calculations by Reuters. Colonial has not commented on its losses.

 

Companies started to buy cyber insurance in recent years after state laws began requiring them to notify consumers of data breaches. Pipeline companies, however, have little consumer data, which may have prevented them from purchasing protection, Economidis said.