Subsea risk in focus: Trends, challenges and considerations

Diversifying beyond traditional energy

Subsea equipment is a niche but growing sector of marine insurance, one with its own distinct flavour, reflecting both its origins in the energy market and its transition to new areas of operation.

To understand more about the state of the subsea market we sat down with Andy Lane, Underwriting Manager, Marine Equipment and Subsea at Berkshire Hathaway Speciality Insurance (BHSI) to find out more about its origins and evolution.

“Subsea is a sector that has its origins in offshore oil and gas so is already highly specialised and that is continuing as the sector diversifies into new areas such as ocean research, renewable energy and aquaculture,” he explains. “There is still plenty of demand for subsea equipment insurance within established and new oil and gas markets, as well as within those geographic areas where the long-term trend is a decline in production or decommissioning”.

Subsea operations are global, stretching from North and South America to Europe, the Middle East and Asia to Australasia and the poles, with equipment and installations reflecting diverging demand for energy resources, oceanographic data as well as cable laying and scientific research.

“An offshore windfarm will require deployment of survey and data gathering equipment such as CTD rosettes, cone penetration tooling, buoys, current meters and the like long before a single turbine is installed,” he adds. “Marine renewables can extend from wave energy converters to tidal turbines for sustainable energy generation, so the demand is very specialised.”

Offshore Brazil, the Gulf of Mexico, Middle East and Western Australia, have a subsea market mostly concerned with conventional energy opportunities. Exploration activity is in decline however and the deployment of seismic streamers or ocean bottom nodes is mostly limited to mapping existing fields. Thereafter oil majors still rely on the services of offshore contractors to provide installation services as well as inspection, repair and maintenance services utilising remotely operated vehicles (ROVs).

The rise of unmanned surface vessels (USVs)

The growing sophistication of ROVs and underwater survey vehicles means they can increasingly be deployed for a wider range of missions and carry out an increasing number of activities.

“Unmanned surface vessels (USVs) are one area where the market is seeing big changes. Gone are the days where the performance of a pipeline inspection or seabed survey necessitated an offshore support vessel with 20 to 30 crew. These units have created huge efficiencies,” says Lane.

“A USV can be launched and recovered by a couple of trained personnel from a shoreside location and piloted by one individual sat in an office on the other side of the world if they so wish. It’s a very attractive and cost-efficient alternative to paying for large crews and daily vessel charter hire rates.”

He also identifies growing demand from universities and research institutions, particularly in North America and Asia seeking to deploy their own subsea equipment to acquire oceanographic data for the monitoring and study of sea levels, water temperature, salinity, weather effects and other impacts. The data obtained also has a commercial value which can be offered to a variety of different marine organisations wishing to deploy their own equipment such as aquaculture pens and cages.

Navigating a niche insurance landscape

Unlike conventional hull or cargo markets, there are no Lloyd’s of London classification codes that enable insurers to easily establish the size of the subsea market opportunity. Some of the equipment lends itself to cover in the hull market and topside equipment such as carousels and cable lay systems are sometimes written there.

This lack of equivalence makes it harder to estimate the total marine equipment market size and at present the opportunity is one that lends itself to a specialist approach. Lane agrees it can take time to understand a sector like subsea operations and build an approach to pricing that accurately reflects risk in both new and existing sectors.

Mitigating complex risks with tailored policies

“It’s an offshore market so big losses are still possible, for example with seismic streamers [which collect seabed data] because you are towing cables in an unpredictable environment under forward motion. There is plenty that can go wrong.”

Equipment failures – such as the loss of an ROV from its umbilical – occur less frequently than they did 10 to 15 years ago as the technology for tethering and tracking these units has improved over time. Experience in equipment handling by vessel crews can still be an issue, where these robust but relatively expensive units are exposed to ever changing sea states and weather conditions. The need for regular servicing and maintenance remains critical.

The complexity and size of potential losses makes policy wordings important to all parties. “BHSI has invested significant time in order to provide customers with a plain English all risks policy wording which is clear, transparent and adaptable,” explains Lane. Customers now have access to a tailorable marine equipment wording removing the need to rely on market cargo and hull clauses which were not constructed with subsea exposures in mind.

Addressing the growing cyber threat

 With more connectivity involved – not least remote control of assets – cyber security is gaining attention, though Lane says the market is still developing an understanding of its potential for disruption. Commercial confidentiality plays a role in how such physical and reputational risks are managed, but he believes the cyber risk has grown exponentially over the last few years. BHSI offers cyber attack insurance as an extension to its subsea policies.

Lane attests that “subsea is an exciting, growing and ever developing sector of marine insurance, so it's important to understand that this specialist market exists even if it remains, for the most part, just below the ocean surface”.