How technology can help manage the energy transition

The IMO advocates that by 2050 the shipping industry should aim to become NetZero compliant. However, if business continues as usual, emissions could soar by as much as 130% over the next three decades. 

Shipping is now undergoing major change to tackle this issue. Moves towards larger tonnage vessels, the development of shipping routes and advances in fuel technology could drive the widespread transformation that is needed.

The ability to handle and analyse these increased levels of data, utilising it to create value for all parties involved in an insurance transaction, will be crucial. And we must also recognise that with significant technological change will come a new breed of risks and exposures, each of which will require consideration to mitigate the potential for unwarranted surprises.

Launched in 2021, the Poseidon Principles for marine insurance recognised the importance of data, introducing a standardised methodology for data collection and reporting of emissions from banks’ shipping portfolios, with the overall ambition of supporting and facilitating the decarbonisation of the shipping industry. Covering more than 80% of the global ship finance portfolio, the Poseidon Principles now boasts 35 signatories from diverse geographies.

The world has started the shift toward a new energy system, ushering in a new era of geopolitics. This raises questions about key assumptions for how countries relate, in terms of economic ties, political alignments, and interdependencies. 

As efforts to act on climate change increase, there is a need to look at all these elements together to understand the emerging geopolitics of the global energy transition. This includes examining how geopolitics and the energy transition affect one another. 

As countries shift to renewable energy systems, their international and national policies for energy security will shift. Trade will become less of a security risk for fossil fuel importing countries. Natural resource extraction, while still important to the build-out of renewable systems, will not be a powerful security concern.

With that said, how can insurers accurately monitor, incorporate and tackle these new exposures that are arising from the energy transition? In some ways the challenge is akin to that facing the cyber insurance market. Not only is there a lack of historical data; it would be of questionable value, due to the fast-changing nature of the underlying risks.

For example, wind offshore farms pose a particular challenge not only due to their remote location but also because expensive heavy lift vessels are necessary to repair any damage. The construction of offshore wind farms requires major marine operations and relies on special vessels to carry out the installation. 

These risks can’t be properly quantified or underwritten without exposure information/data at hand. However, with data management platforms like Insurwave, there are opportunities to not only capture this information but actively monitor your exposures in real-time, sharing any changes with all your relevant stakeholders.

Similarly, developments in satellite technology are creating exciting opportunities to use images and sensory data from above for insurance and risk management. As satellite imagery becomes more accessible and of higher quality, insurers like AXA are using the technology to help underwriters better assess and quantify their exposures by combining it with high-resolution aerial and drone imagery to help insurance professionals better understand how their exposures are linked to climate change. Applied as a tool to monitor remote assets like wind turbines or identify areas at risk of wildfires or floods, space data is well placed to further enhance insurers capabilities, with the sector predicted to grow to $1 trillion by 2030, according to Mckinsey.

As the maritime and energy sectors navigate the complexities of the energy transition, the imperative to adapt and innovate within the insurance industry becomes increasingly apparent. The trajectory towards NetZero compliance by 2050, advocated by the IMO, underscores the urgency of addressing emissions and embracing transformative measures.

However, as the energy landscape evolves, so too must our approach to risk management. The unprecedented nature of emerging exposures demands agile solutions. From offshore wind farms to satellite technology, the ability to harness data in real-time offers a pathway to proactive risk mitigation.

Advancements in real-time exposure monitoring and satellite imagery exemplify the transformative potential of data-driven insights. By leveraging these tools, insurers can not only monitor exposures but also anticipate and respond to evolving risks effectively.