The third biggest payout in the energy sector
An accident in Maersk Oil resulted in one of the biggest insurance payouts ever in the energy sector globally. In February 2011, 175 miles northeast of Aberdeen, Gryphon FPSO (floating production, storage and offloading unit) was hit by a violent storm. Four anchor chains broke and the vessel moved 180 m off-station, causing severe and complex damage to the subsea architecture. Following the incident, Gryphon was out of action for over two years. In the end the insurance claim was close to USD 1 billion, covering physical damage and the loss of production income.
“Maersk Oil made a root cause analysis of what went wrong, and a loss prevention programme to assess how to improve the mooring system for other FPSO units in the Group. Maersk Oil was very open about what happened and the findings were shared across the Group and with the rest of the oil industry,” says Henneberg.
As a result, insurance costs have always been high on Maersk’s agenda. In 2010 it was estimated that the Group was spending USD 300-350 million per year on insuring its assets.
But the last few years have seen a major shift in the way the Group manages risk. An in-house insurance company, Maersk Insurance, was established, meaning that today most of the Group’s risk is insured internally, leading to a dramatic decline in the amount paid out to insurers of around USD 100 million per year.
“We have a big balance sheet and can retain a lot of risk ourselves,” explains Henneberg. “It means we don’t have to pay a premium to the external insurance market.” Typically, losses below USD 1 million are taken on by the business unit, while the Group will take on losses of up to USD 50 million.
Changing the mindset
With substantially more risk retained in the Group, this has entailed a step change in the way the Group approaches risk in general.
“Insurance is not the solution to protecting our assets,” says Henneberg. “We need to do something about our losses and not let others pay for them.”
“It is a change in mindset, as today we focus less on risk transfer or buying insurance, and more on risk improvement. This means loss-prevention activities, assessing our exposure to certain risks and how prepared we are for when things do go wrong.”
To support this, an ongoing risk assessment programme examines areas of concern on a yearly basis. This year the focus has been the security situation at oil assets in West Africa and how to mitigate the threat of piracy. A major study has also been launched into the risk picture surrounding the new breed of mega vessels entering Maersk Line’s fleet.
Also being analysed are the Group’s cargo acceptance procedures and risks posed by container contents. “There are procedures for declaring what is in the containers, but as they are not x-rayed it’s difficult to verify,” says Henneberg. This has resulted in some dangerous situations. In August last year for example, a container full of chemicals spontaneously self-combusted on board Maersk Kampala, causing a serious fire which burnt for seven days before it was finally extinguished. The fire damaged 250 containers and put the vessel out of action for two months.
Learning the lessons
Learning and sharing the lessons from when things go wrong is an important part of risk management. Following the Svendborg Mærsk incident, new procedures have been introduced, making it mandatory for all vessels to apply weather routing when forecasted weather exceeds wind force eight, and to deviate or postpone the voyage if the wind force is higher than nine.
While the final bill is still being calculated months after the event, the accident was a stark reminder of the constant risk faced by all of the Group’s assets from extreme and unpredictable weather conditions. Being ready for such risks and being able to mitigate them as much as possible is firmly on the Group’s agenda.