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Summary of Working Paper No. 46-1996

IV.3.3: Marine Insurance for the Northern Sea Route: Towards a New Risk Regime?

By Edgar Gold, John Cantello and Peter Wright, Oceans Institute of Canada, Halifax, Canada.

There is a general agreement that the Northern Sea Route would fail if the insurance market would or could not provide the required risk coverage. In other words, marine insurance coverage is an essential foundation for Northern Sea Route viability. The shipping industry operating anywhere today cannot survive without an organized an guaranteed form of financial protection against the multitude of marine risks that exist. This is especially true when operating in a region where particular hazards and difficulties will be encountered and where the long-term actuarial records, on which the insurance industry relies, are either non-existent or unreliable. In other words, if the Northern Sea Route is to be developed, if it is to attract Western investment, carry goods to Western markets - and be profitable, it will require Western insurance coverage.

This Working Paper provides an initial assessment of the marine insurance requirements for the Northern Sea Route. The three principal marine insurance areas, covering hull and machinery risks, cargo risks, and protection and indemnity (third party liability) risks, are outlined. In addition, the capacities of the major insurance markets, to accept this type of risk, are analyzed briefly. Although ice navigation has had limited insurance coverage for some years, there is no question that the large volume of navigation contemplated by INSROP presents the international insurance market with substantially new risks.

The Working Paper is also designed to present information to the many other INSROP research groups and to emphasize the importance of this aspect of the project. It is argued that it will be very difficult for insurers to assess the risk exposure without being provided more comprehensive information on the technical, operational, environmental, political and legal aspects involved.