London market insures ‘highly complex’ UN operation to avert catastrophic oil spill off Yemen

The London insurance market has facilitated a “highly complex” de-risking operation led by the UN to prevent a gigantic stranded vessel causing a catastrophic oil spill and potentially one of the largest man-made environmental disasters in the world.

Broking giant Howden was appointed by the United Nations Development Programme (UNDP) via a public tender process to identify the insurable risks and arrange insurance cover for a non-standard Ship-to-Ship (STS) transfer operation of FSO Safer, which has been moored approximately 4.8 nautical miles off the coast of Yemen, holding an estimated 1.14 million barrels of light crude oil.

Conflict in Yemen prompted the suspension of maintenance operations on FSO Safer in 2015. As a result, FSO Safer’s structural integrity has significantly deteriorated, leaving the ship vulnerable to breaking up, and, without a functioning system to pump inert gas into its oil tanks, the vessel could explode at any time. A catastrophic spill will not only pollute the environment, but also destroy livelihoods in coastal communities and endanger food and medical supplies in a war-torn region already suffering chronic shortages.

Howden has successfully arranged insurance coverage that enables the UN to proceed with FSO Safer STS transfer. The coverage, both for FSO Safer for the duration of the STS operation and for the replacement vessel, the VLCC Nautica, was bound in the Lloyd’s, London and P&I markets, with Fidelis MGU acting as one of the lead underwriters.

Thirteen different entities are underwriting the operation, with more than hundred individuals involved in the risk assessment of what Howden described as an “exceptionally specialised” set of policies.

The insurance is supported by significant engineering expertise, which has been mobilised to undertake the movement of the oil, and includes naval architects, chemists, surveyors and oil spill response organisations, as well as government entities and the UN.

Insurance has played a pivotal role in de-risking the operation, which is highly complex and covers a range of environmental, geopolitical and humanitarian risks. Coverage has been placed to respond to a wide array of hazards that could arise over the course of the operation, including pollution from the transfer, explosion of the gas on the ship, personal security of the individuals involved in the operation and the removal of the Safer wreck. The entire process is expected to take several months, Howden said.

The UN-led operation involves the transfer of the oil to a replacement vessel, Very Large Crude Container (VLCC) Nautica, and the towing and scrapping of the FSO Safer at a green salvage yard. The most immediate danger of an oil spill will be prevented once the oil has been transferred to the replacement vessel. The UN Development Programme is undertaking the emergency phase of the operation to remove the oil.

Achim Steiner, Administrator, United Nations Development Programme, said: “FSO Safer is an ecological and humanitarian timebomb. Without urgent intervention, the damage to the environment, lives and livelihoods could be immense. Insurance became a critical element of enabling this salvage operation to proceed. Without it, the mission cannot go forward. UNDP has been broadening and deepening its work with the global insurance community over recent years. That collaboration is delivering impact in many ways. We are especially grateful to Howden for facilitating this process with the insurance industry on this critical initiative to ensure that coverage has been secured in the most challenging of contexts.”

David Howden, CEO of Howden, said: “This is the perfect example of the power of insurance to be a force for good in the world. By de-risking the investment required and mitigating the risks involved in this complex and delicate operation, insurance is playing a central role in preventing one of the largest, man-made disasters the planet will have ever faced. As unique as the FSO Safer operation is, there are a whole host of scenarios where insurance plays a crucial role in protecting our planet and its inhabitants. I hope that, as an industry, we can all be inspired to do everything within our power to help build a more resilient future.”

John Neal, CEO of Lloyd’s, commented: “Following the success of the Black Sea grain corridor, this pioneering coverage again shows insurance play a leading role in helping society not just respond to disasters, but prevent and prepare for them. It’s encouraging to see the knowledge and expertise held in the Lloyd’s market being used to protect what matters most – in this case, our natural environment and the economic activities our world relies on.”

Richard Brindle, Group CEO and chairman, Fidelis MGU, said: “Whenever the insurance industry has the opportunity to play its part in vital efforts on behalf of the environment, it must step up. This is one such opportunity and we are very pleased to be able to work alongside Howden, UNDP and our industry peers to provide the protection necessary for the successful outcome of this important project.”

Did you get value from this story?  Sign up to our free daily newsletters and get stories like this sent straight to your inbox.