January 2017

Aret Taşcıyan – Lloyd’s’da elektronik plasman brokerlikte yeni bir dönem / MarineDeal News

The European Union’s Emissions Trading System (EU ETS) was extended to cover emissions from shipping as of 1st January 2024.

The EU ETS is limited by a 'cap' on the number of emission allowances. Within the cap, companies receive or buy emission allowances, which they can trade as needed. The cap decreases every year, ensuring that total emissions fall.

Each allowance gives the holder the right to emit:

  • One tonne of carbon dioxide (CO2), or;
  • The equivalent amount of other powerful greenhouse gases, nitrous oxide (N2O) and perfluorocarbons (PFCs).
  • The price of one ton of CO2 allowance under the EU ETS has fluctuated between EUR 60 and almost EUR 100 in the past two years. The total cost of emissions will vary based on the cost of the allowance at the time of purchase, the vessel’s emissions profile and the total volume of voyages performed within the EU ETS area. The below is for illustration purposes:
  • ~A 30.000 GT passenger ship has total emissions of 20.000 tonnes in a reporting year, of which 9.000 are within the EU, 7.000 at berth within the EU and 4.000 are between the EU and an outside port. The average price of the allowance is EUR 75 per tonne. The total cost would be as follows:
  • ~~9.000 * EUR 75 = EUR 675.000
  • ~~7.000 * EUR 75 = EUR 525.000
  • ~~4.000 * EUR 75 * 50% = EUR 150.000
  • ~~Total = EUR 1.350.000 (of which 40% is payable in 2024)
  • For 2024, a 60% rebate is admitted to the vessels involved. However, this is reduced to 30% in 2025, before payment is due for 100% with effect from 2026.
  • Emissions reporting is done for each individual ship, where the ship submits their data to a verifier (such as a class society) which in turns allows the shipowner to issue a verified company emissions report. This report is then submitted to the administering authority, and it is this data that informs what emission allowances need to be surrendered to the authority.
  • The sanctions for non- compliance are severe, and in the case of a ship that has failed to comply with the monitoring and reporting obligations for two or more consecutive reporting periods, and where other enforcement measures have failed to ensure compliance, the competent authority of an EEA port of entry may issue an expulsion order. Where such a ship flies the flag of an EEA country and enters or is found in one of its ports, the country concerned will, after giving the opportunity to the company concerned to submit its observations, detain the ship until the company fulfils its monitoring and reporting obligations.
  • Per the EU’s Implementing Regulation, it is the Shipowner who remains ultimately responsible for complying with the EU ETS system.

There are a number of great resources on the regulatory and practical aspects of the system – none better than the EU’s own:

PPL (Placing Platform Limited), an electronic placement environment that will allegedly provide faster and more flexible placement, was launched at Lloyd's in 2016. PPL was created as part of the modernization process of the London Insurance Market and as a system to further facilitate and support the personal contact based face-to-face placement system that is the most important feature of the London Market. The three main organizations that create and support the PPL are the International Underwriting Association (IUA), London and International Insurance Brokers' Association (LIIBA) and Lloyd's Market Association (LMA); They are the three main bodies of the London Insurance Market.

PPL, which still believes in the necessity of placements made as a result of face-to-face meetings and discussions, and which is claimed to have been created as a supporting element of this system; It is an environment that allows rapid placement, where documents will be arranged and sent electronically, and therefore human error will be minimized. PPL is also especially supported by Mega Brokers as it will be a system that brings flexibility to placements and can be placed more with less brokers. As of December 2016, more than 1,000 risks have been placed and 1,600 addendums have been issued with this method in the branches of Finance, Professional Responsibility, Terrorism and Political Risk, and now it is the turn of Marine Insurance. As of March 2017, the electronic placement system stipulated by PPL will be implemented in Marine Insurances as well.

However, there is an important point that has been overlooked. Marine Insurances such as Boat/Machinery are sui generis and the risk of each ship creates a different risk depending on the type of ship, the type of cargo it carries, the navigation area and the ship owner/operator. No boat insurance is alike and does not carry the same types of risks. The trio of brokers, shipowners and insurers, who are connected to each other with the principles of trust, respect and transparency, form a trivet without mutual negotiations. I am not sure how well they will evaluate and price the risks in the PPL environment without discussing the risks face to face by looking each other in the eyes of the three main parties that make up this triangle.
Although PPL; Although it claims that the placements made as a result of mutual negotiations will continue and that electronic placements will only have a complementary feature, it seems that the course of the market and the preparations made by Mega Brokers will end this sooner or later. In the presence of these mega-organizations, where the human element has become increasingly insignificant, will the shipowners, who only appear as an account number, lose personal contact even more from now on? I have never opposed technology, I have always defended the necessity of electronic placements in certain insurance branches, but Marine Insurance is not like other insurance branches. Here, as soon as personal relationships disappear and the broker, the insurer and the ship owner do not look into each other's eyes, you may encounter unexpected results that you cannot predict. By then, it might be too late. I hope our generation does not see those days.

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