INSIGHT: Insurance Policies and Cover for Bunker Suppliers

by Anthony Mollet, Executive officer, Marine Fuels Alliance
Tuesday October 25, 2022

The review and careful consideration of company policies is a time-consuming task and one that many shy away from. This is possibly owing to a genuine lack of expertise in the specific area or perhaps the concern of cost to complete a full review and make changes. The "if it ain't broke, don't fix it" mindset does not offer proper balance sheet protection in today's ever evolving, increasingly litigious and inflationary global trading environment.

In day-to-day trading and fixing of contracts, many policies are in the foreground of attention and through necessity, are regularly studied and brought in to play in the life-cycle of a bunker supply agreement. Credit and General terms & Conditions of Sale are two clear examples. But what of insurance and the required policies that cover the operations of a bunker supplier? The importance of having the correct cover in place, that is aligned with the business operation and understood entirely by staff and counterparties cannot be emphasised enough.

In consideration of insurance cover, a bunker supplier has to be clear in their understanding of the risks that arise from their operations. The policies required have to fit according to company profile and be aligned with other structural elements such as GT&Cs. Counter-party vetting is critical to ensure policies are backed up with contractual responsibilities.

Bunker suppliers regularly own and or operate barges, tankers and trucks. Policies such as Hull & Machinery, Protection and Indemnity and cover for all assets have to be reviewed and updated according to sale, purchase or any incidents with such company property. Equally, when chartering a barge or hiring another providers' equipment, suppliers should make careful checks about insurance in place for these and how they could be impacted in the event of an incident when under their control.

Product liability insurance is possibly under-estimated and not discussed enough in regards its importance and the risk potential. Insurers continue to press for the bunker supply companies to discuss this policy and to place greater focus on the cover placed. The issues that arise from off spec deliveries and subsequent claims can be enough to severely damage commercial relationships and hit suppliers with significant financial losses. It is sobering to consider that the cost of deviating a vessel that has been supplied with off-spec fuel is not covered under a typical liability policy. With the cost of fuel related claims on the rise and the lack of a uniform testing regime, suppliers have to be absolutely sure of the liability risks they assume under contract.

The understanding of absolute risk is something insurance brokers spend a great deal of time with suppliers when negotiating new policies. A collaborative and honest approach is required when reviewing cover. Suppliers have to declare every element of their operation and where cover is needed. The insurer has to have a full picture to take to underwriters to ensure maximum cover that will be upheld in the event of a claim.

Questions suppliers must ask of themselves include: what are the liabilities within the cover? what actions or events invalidate my cover? what external triggers should be considered that could affect policy cover and cost, for example the outbreak of war, spikes in cargo prices or an environmental incident close to their place of business? Companies should sit and discuss these together. The responsibility lies ultimately with management, but such areas are encouraged to become part of team meetings to ensure wider participation and understanding. Staff in sales and operations should be equally aware of insurance policies in place when placing orders and carrying out physical supplies.

Insurance companies remain sceptical about the bunker industry and many have small books or have limits to the type and size of company they take on. A great deal of focus must be given by suppliers looking for new cover to work proactively with brokers to maximise the cover needed. It is recommended to consider packaging policies for the sake of scale and potential cost-saving. Bunker companies have to understand what is required of them, in terms of documentation to have prepared and to set time aside for a full review at set periods in the year. For this reason, they should actively seek out insurance brokers who are engaged and can advise them on a wide variety of insurance products (marine and non-marine) to avoid fragmentation and a lack of proper alignment across various insurances. Equally, there is the need to consider General Terms and Conditions of Sale. Engagement with legal teams at the time of insurance renewal is essential and vice-versa if a supplier is making any new agreement with a buyer on different terms of sale.

The Marine Fuels Alliance is spending time listening to its members and has hosted meetings with Insurance brokers including Lockton's to address the factors raised here in detail. There is expertise and there is a growing willingness by insurance companies to listen to bunker suppliers and create bespoke policies together. This can be shared and assessed by the members for greater value and understanding. The fundamental point is to make insurance a topic discussed as frequently as credit, claims and account receivables. They all work together and are not to be treated as stand alone elements of a business operation.