Don't hope for insurance savings through automation... at least not straight away explains Alex Hughes
Given that computers tend to make fewer mistakes than human operatives, automated or semi-automated terminals should, in theory, attract lower insurance premiums. But it seems that theory has not yet caught up with practical setting of premiums.
Tony Pugh of Sharjah-based insurance brokers City Marine explains to Port Strategy that, while the company has a large ports and terminals portfolio, there have not been that many changes either in the cost of insurance or in changes to the cover as ever greater numbers of semi-automated or fully automated operations have come into place.
“Others specialists in ports and terminals seem to have a similar outlook at the moment,” he says, although he acknowledges that, in terms of insurance, the majority of terminal claims that City Marine has dealt with over the years have been a result of human error. “With this in mind, we would expect accidents to go down in more automated environments, which would mean cheaper premiums if there were fewer claims,” he said. “However, having said that, an equipment meltdown has been known to create epic events and some say this could accordingly increase the CAT [catastrophe] event risk.”
Neil Roberts, marine and aviation manager at Lloyd’s Market Association (LMA), is similarly cautious. He says that, were a port terminal to shift to either fully automated or semi-automated operation, there would have to be a completely new insurance assessment.
“The presence of much fewer people operating the terminal could have major implications,” he says. “The underwriters would need to understand exactly how the terminal would work before making an assessment. In particular, they would be looking at the reliability and testing of both the software and the hardware in the new system. Of special interest would be what happens when there is a problem and how that problem is subsequently resolved.”
He adds that as fewer people are present, the underwriters would also be looking at the standards of training of the personnel that are left controlling cranes and overseeing operations.
He suggests that, given the low number of automated terminals working today, it might be somewhat difficult to assess the level of cover required. And without data being available, that would imply a lot of investigation.
“Initially, underwriters might have to price defensively, which implies premiums going up. But they might come down as they become more comfortable with the system. In the insurance industry, it is important for the underwriter to know whether they would be more or less exposed to error by taking away operatives. And it is on that basis that they would assess premiums,” says Mr Roberts.
Mr Pugh adds that the consensus seems to be that many terminals are now mainly looking at automation for operational efficiency improvements, rather than savings in insurance costs. “In terms of premiums, therefore, it has to be borne in mind that there isn't an automatic saving for a port or terminal going semi- or fully automated,” he says. Nevertheless, moving forward, his analysis chimes with that of Mr Roberts in that, with more ports and terminals looking at automation, it would not be a surprise to see a drop in reported claims, which would accordingly appease insurers and bring insurance premiums down.
“You have to bear in mind, however, that because not all aspects of terminal operations are currently automated, claims outside this aspect of the business could still occur, so the operating risk is still there. If claims still occur under the insurance policy, irrespective of whether the terminal is manually, semi- of fully automated, insurance premiums could accordingly be increased,” he says.
For his part, Mr Roberts does not view higher short term premiums as a barrier to making the switch to automation since the majority of savings would likely not be expected to come from insurance.
“There is no immediate win-win just by automating. The savings would start to emerge as things were reassessed over time,” he says.
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