The challenge: Managing the impacts and uncertainties of the FuelEU legislation
The FuelEU legislation, introduced on January 1, 2025, is a major compliance challenge for ship owners, managers and charterers. The regulation sets tough targets for reductions in ships’ greenhouse gas (GHG) emissions – caps on permitted carbon intensity levels will fall every five years until 2050 – as part of the EU’s efforts to shrink the maritime sector’s carbon footprint.
The manager provides their services as the shipowner’s agent, however under FuelEU Maritime, the manager becomes directly liable for payment of these financial penalties.
Maritime businesses that fail to meet these targets will face financial penalties. That has the potential to drive up costs across the sector and leaves businesses facing uncertainty about their future liabilities. Unlike other emissions regulations, compliance with FuelEU Maritime is the responsibility of the Document of Compliance (DOC) holder, which is normally the manager of the vessel. A large percentage of ships are managed by professional third parties, appointed by the shipowner. The manager provides their services as the shipowner’s agent, however under FuelEU Maritime, the manager becomes directly liable for payment of these financial penalties.
The solution: Innovative insurance solutions to reduce risk
Willis, a WTW business, engaged with one of the largest professional ship management organizations to understand their potential exposure arising under the FuelEU legislation. Industry standard clauses for FuelEU developed by organizations like BIMCO required ship owners to put up significant amounts of collateral in the form of bank guarantees or letters of credit. Willis, in collaboration with the ship manager’s decarbonization, legal and insurance departments, identified an opportunity to reduce the burden of this by developing an alternative credit risk insurance solution. We successfully worked with our partner Markel, an innovative provider of non-payment insurance solutions, to build a detailed understanding of the FuelEU legislation and its potential impact on the ship manager’s business. Based on that work, we were able to provide an insurance solution that:
- Manually underwrites each of the liabilities faced by the ship management organization.
- Provides a lower cost and more convenient solution to ship owners than complex and expensive bank guarantee indemnities.
- Scales with the FuelEU exposure, which varies depending on number of voyages and emissions inside the European Union.
The outcome: Enhanced compliance and risk management
The insurance solution implemented for our ship management client offers significant benefits:
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Critically, insurance can help maritime businesses to address the immediate risks associated with the FuelEU legislation, but also to position their organizations for long-term success, based on stronger relationships of trust with key stakeholders and partners.
To find out more about how our insurance solutions can help you manage FuelEU compliance and reduce risk, get in touch.
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Insurance can help maritime businesses to address the immediate risks associated with the FuelEU legislation.
