Added value, added risk
Ports looking to add value must consider the insurance risks. Felicity Landon reports
Ports around the world are extending their ‘value added’ propositions as they seek to make the most of assets and find ways of pinning down their customers. But ports and terminals must also beware of the pitfalls.
As broker Andrew Webster points out, if you soup up your car without telling your insurance company and then have an accident, the underwriter has the perfect right to avoid paying out on your policy. Equally, if you don’t put on your winter tyres by the due date in Switzerland and then have an accident, you are unlikely to be covered.
Of course, underwriters already cover a hugely mixed bag of activities for their port clients and there is little that can really surprise them. But for ports considering ‘modifications’, the advice is clear. “Understand, be aware and, if you don’t know – ask,” says Mr Webster, partner in JLT Specialty’s marine division.
“We are seeing ports marketing their services more widely than just providing services to load and unload the ship and putting things in the warehouse. Now they are getting involved in building partnerships with customers and other interested parties, and looking at things like Port Community Systems, so they can bind their clients to them more closely.
“Shipping lines are very footloose – they can go where they like and do what they want. This is the ports’ reaction to the global alliances, saying – you are busy binding your customers to you, we are going to do the same thing and find customers for you, so you have to call at our ports.”
Of course, the port-centric approach is nothing new, he says, but ports are intensifying the focus. “They are trying to find the best way of delivering added value and are perhaps investing in services that in the past they would have subcontracted out or left to others to provide. This includes warehousing, local collection and delivery, container stuffing and stripping, repacking. It is about control – having more of a slice of what the customers want. Ports are waking up to the fact that they need widen and develop their customer base in the face of competition.”
Contracts and risk
The insurance market is well able to cope with that and has been providing such cover ‘for ever’, he says. But ports should pay attention to two key points. The first is contractual, the second risk management.
“We have to make sure that all the contracts they are operating under are correct and in line with the services they are providing. The underwriters have to understand correctly what their clients are doing – a lot of it has to do with contractual situations, which also depend on local law. Ports also have to be aware of their risk management/loss prevention management strategies so they are providing least risk to their customers.”
If a client wants to provide a service but doesn’t have the correct contractual framework in place, the underwriters have difficulty in providing the correct cover at the right place, says Mr Webster.
“Always make sure the contractual framework is properly articulated – ignore it at your peril.”
While there’s the risk of not being covered if the underwriter hasn’t been informed, there is no obligation to have everything insured and nor do the underwriters have to provide a service, he points out. “Sometimes you get to a point where the client says they are doing this service and makes their own decisions and contracts but there are some elements that will not be covered.”
The background to all of this is the need to keep talking. “This is an industry which relies on people asking each other questions and having a reasonably civil relationship that allows you to ask questions. As intermediary, we see a lot of ports and terminals businesses and a lot of people doing different things – therefore we can use the benefit of our expertise to go back to someone who doesn’t know, and pass on the benefit of experience spread around the industry. Equally, underwriters can also give their view and be very helpful.”
Miller Insurance highlighted some of the issues in an article recently, pointing out that ports’ diversification stretches as far as providing marinas, hotels, tourist attractions, and even retail and entertainment facilities.
“Often the risk and insurance implications of diversification are considered towards the end of the process, when it may be too late to take action to reduce liability,” it warned. “If the risk implications are not fully considered, ports may find that they end up with exposures that they were unaware of, and that may not be covered under their existing policy.”
Even the most innocuous of activities can bring big responsibilities and a wide range of liabilities, it warned. For example, opening a café or shop, even when contracted out to a third party, could give rise to substantial public liabilities, as could staging events such as sporting events, fun days, music festivals or fireworks displays.
“Any activity that creates liability can result in a significant change in risk profile, and will need to be brought to the attention of insurers.” In short, if an underwriter is unaware of a material activity or exposure, depending on the circumstances, it could refuse to pay out all or part of a claim.
Peregrine Storrs-Fox, risk management director at the TT Club, agrees that ports are looking to extend their range of activities. “Because we insure across the supply chain, ports getting involved in other risks is bread-and-butter to us,” he says.
“The basic message is, any port looking to extend the services they are providing should talk to us, or another. The nature of ports is hugely variable depending on type of traffic and location – from the landlord port looking after conservancy and navigation, to those providing stevedoring and terminal services, to those providing warehousing, logistics, freight forwarding, trucking and even marina services.
“As long as they have thought through the different activities and responsibilities they have put in place and have good contractual terms appropriate for the type of activity they are doing, then there is no reason why they shouldn’t carry on.
“This is part of the philosophy around the port community and trying to make it a user-friendly environment. Ports are obviously key nodal points; the more they can make things work for their shipping customers as well as the hinterland interface, the better. Making the port safe and interacting with and creating a community that works for trade is obviously positive.”
LONG AND VARIED VALUE-ADD WISHLIST
TT Club admits it is rarely surprised by the variety and different permutations of activities that a port either already undertakes or is looking to pursue. It can, says TT Club's Peregrine Storrs-Fox, "be a long menu".
The key from an insurance perspective is "understanding what the options are and ultimately rating it reasonably so the client gets the extent of coverage they want, while the insurer isn’t bled dry", he says.
Apart from adding activities, ports are also entering potential new areas of risk due to regulatory changes, he adds. “There will be emerging risks around fuel and waste disposal, for example. There are new things coming around the corner, whether it’s bunker supplies for ships or electricity substations which tenants will potentially link into. Equally, ports might run an IT community system.”
Ports supporting the construction and/or maintenance of wind farms are another area. “These are high-value items which are also quite vulnerable to damage. But again, it is subject to contractual terms – there is no mystique about that. There are other cargoes that are sensitive in different ways, such as biofuels, which have their own risks.
“With all sensitive cargoes, there needs to be a thorough risk assessment. Also, try to link into any international community there is, because there will be experts that have done something similar, or have handled these cargoes, and can assist. I am a strong believer in the collaborative approach. Other people may have a good idea, or something to add; taking advice is always going to be of value.”
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