Legal Focus: Regulatory change creates headaches for Italian marine insurers

Date: Tuesday, February 14th, 2023 by Michaela Hickson.

Italy’s shipping sector faces challenges in the year ahead including regulatory changes to decarbonise the industry, disruption from the war in Ukraine and M&A activity involving its ports

Italy’s ship and port owners are bearing the brunt of a rapidly changing marine environment.

Italy has significant maritime trade across Europe, Asia and north Africa as its location close to the Suez Canal and Straits of Gibraltar as well as at the centre of the European cruising and passenger transport zones make it both a shipping and passenger hub.

Today, its ports are some of the busiest shipping hubs in the world and are global leaders in cargo, container and passenger transit. However, 2023 will present some major business risks for maritime insurers and insureds in Italy, challenges that could bring new types of claims and increase costs for the insured.

The first major risk will be changes to legislation and regulations in the global shipping industry, including switching to low-sulphur fuel.
While overall carbon emissions in Italy decreased 19% between 1990 and 2019, transport is one of the few sectors (alongside residential, services and waste) that recorded an increase in emissions (3.2% compared with 1990).

In 2019, greenhouse gas (GHG) emissions from domestic shipping in Italy accounted to 4.5 million tonnes of CO2 equivalent, which was 1.1 % of total national emissions. In addition there was 8.5 million tonnes of CO2 equivalent from international shipping.

LNG investment

The Italian government is investing heavily in the use of liquefied natural gas (LNG) in shipping for several reasons. A structural reason is linked to energy security and, similarly to other European governments, the desire to reduce dependence on Russian gas. The increased use of LNG as a marine fuel is also made possible by the increase in commercial flows of natural gas imported into Europe on LNG carriers (which transport and use natural gas as an energy source), to progressively replace gas flows carried by pipelines between Europe and Russia.

A clear confirmation of this trend is the recent decision to add a floating regasification unit vessel (FRSU) in Piombino, besides the one already operating at full capacity two miles outside Livorno and the Panigaglia ENI terminal. This will boost the Italian regasification capability in line with the recent agreement signed between Italian energy public holding Eni and Algeria’s Sonatrach. The two energy companies signed new deals during Italy’s prime minister Giorgia Meloni’s first trip to Algiers, where she met the country’s president, Abdelmadjid Tebboune.

The agreement means Italy will benefit from increased gas supplies from Algeria using the existing gas transport infrastructure (the Trans Mediterranean Pipeline). Rome clearly aims to further increase its energy imports from Algeria, acting as a hub for supplies between Africa and northern Europe in the coming years.

New regulation to support the transition to net zero is also high on the agenda for the industry. LNG can help reduce emissions of NOX, SOX and other air pollutants compared to standard marine fuel. It can also reduce direct CO2 emissions from ships around 20%, allows for lower black carbon emissions and is considered the most promising fuel to replace HFO (heavy fuel oil) in ships operating in the Arctic from July 2024 (as decided by the International Maritime Organization), with an eye on methane fugitive emissions, which must be controlled and reduced to avoid a new high in GHG emissions even compared with liquid fuels.

Shipowners and ports need to invest in new high-cost but high-impact technology. The Italian government and Italian shipowners association the Confederazione Italiana Armatori, along with EU guidelines on the subject and funds available from the country’s national recovery and resilience plan, the Piano Nazionale di Ripresa e Resilienza, are also working on the development of technologies to increase energy efficiency and wind assistance for all ships; the construction in some ports of an electricity access infrastructure for stationary ships, coupled with policies requiring its use; the transition to electric power for ferries (roll-on/roll-off) on less than 50 km routes and for high-speed vessels on slightly longer routes (including those serving smaller islands and starting with those that run more frequently) and the development of engines suitable for different fuels.

Port M&A

Italy’s port terminal infrastructure is the subject of significant merger and acquisition (M&A) activity. Italy is seeing significant foreign investment in the marine sector, with some of the world’s largest shipping companies investing in port terminal infrastructure. In January, Mediterranean Shipping Company (MSC) completed the acquisition of Terminal Darsena Toscana (TOT), the largest terminal container in Livomo. MSC already controls or participates in several container terminals across Italy, including Calata Bettolo and lntermodal Marine Terminal in Genoa, La Spezia Container Terminal in La Spezia, Lorenzini Terminal in Livomo, Roma Terminal Container in Civitavecchia, Conateco in Naples, Medcenter Container Terminal in Gioia Tauro, Adriatic Container Terminal in Ancona, Terminal lntermodale Venezia in Venice Marghera and Trieste Marine Terminal in Trieste.

Meanwhile, in January international shipping giant Hapag-Lloyd bought a stake in Italy’s Spinelli Group after the deal was approved by antitrust authorities. The German operator will acquire a 49% stake in the terminal and transport operator, with 51 % remaining in the hands of the Spinelli family.

However, the war in Ukraine has brought a new layer of complication. On top of all these changes, cyber incidents, supply chain disruption (which continues to have an impact on insurance claims) and climate change events will continue to pose major logistical challenges. The war in Ukraine has exacerbated the ongoing supply disruption and port congestion issues, adding fuel to the fire. The signature of the Black Sea Grain Initiative in July last year enabled a restart of shipments of grain and fertiliser from Ukrainian ports to Italy and the rest of Europe, which allowed “blocking and trapping” coverage to be (re)inserted in marine hull and cargo insurance policies issued by Italian insurers.

With significant M&A, long-term structural changes requiring big investment from shipowners and infrastructure owners and a war rather close to home, insurers need to look out for a new front of claims stemming from Italy, with some significant cost challenges for their insureds.

Alberto Batini is a partner at BTG Legal, a member of Global Insurance Law Connect

This article first appeared in Insurance Day on 8 February 2023

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