Earlier this week, Lloyds urged marine insurers to review their compliance procedures around international sanctions to limit their exposure to breaches. Sanctions compliance is a complex challenge for the marine insurance market and there’s not a one size fits all solution to the problem. Caught in the middle of US sanctions, EU law, divergent jurisdictions and daily changes to sanctions lists, shipowners and insurers have a tough job - as discussed by Mark Church, director (FD&D) at The North of England P&I Association Limited in Insurance Business UK in December.
“… It’s becoming very difficult for [shipping firms] without the resources to actually keep on top of what’s going on because the lists are changing every day. The pace of change [when it comes to sanctions] is huge,” said Church.
Despite the challenges, technology can play a significant role in helping insurers take the first steps to limit their exposure and to support the work of sanctions enforcement agencies in detecting and disrupting illicit activity. But how much can insurers do with the resources and information that’s readily available today and how far is it reasonable for an insurer to push the envelope in quantifying the unquantifiable?
The first step in mitigating risk would be for the insurer to complete their company and financial due diligence upfront. If insurers get this bit right, they can limit their exposure from the outset. There are several general purpose and specialised services utilised in the market today that provide these types of screening solutions. Additional enhancements can include pro-active monitoring for any changes in company and ownership structure whilst the cover is in force.
Yes indeed, there is technology available that can help insurers take a more proactive approach to monitoring sanctions compliance with policyholders, but the idiosyncrasies of each technology mean that combined, harmonised solutions can be required to achieve meaningful results.
Automatic Identification System (AIS) data is used primarily for collision avoidance for marine vessels. It can provide information such as identification, location information, course and speed. This information allows insurers to track journeys and, if everything aligns, offers some inference regarding breaches of international sanctions by analysing operating patterns. However, it’s far from infallible! AIS can be switched off, or the transmission lost as a result of the local environment, it might be easy to think that if a vessel ‘goes dark’ they’re hiding something, but figures show that overall, only 5% of the time is this due to illegitimate activity.
We looked at one specific example in Iran and ran the data against AIS and ICEYE’s SAR satellite technology, which demonstrates the current challenges with relying on one data source for managing compliance. ICEYE detected a total 33 vessels of a commodity trading size in Iranian waters over two passes, in January 2019. AIS detected nine trading vessels in the same area. Further analysis by Concirrus revealed that five of the nine vessels reporting AIS were in fact spoofed (reporting as a different vessel) and four were Iranian. The potential unknown liability exposure using this data was 29 cargo vessels, how brave should the industry be in digging deeper?
Optical satellite imaging has been utilised in insurance for several years in property risk modelling, this can also provide a further layer of enhancement to the AIS data in specific areas of interest, but cloud cover and lack of light can be constraining factors. A new wave of recent innovation and investment into space technology has resulted in significant advancements in cost, scale and data processing speeds of technologies such as SAR (Synthetic Aperture Radar), and RF (Radio Frequency) Signal Mapping, designed to address the blind spots.
These solutions are promising, but they’re still developing and over the next 12-months the increased volume of sensors in the sky are likely to become a robust complement to AIS when critical exposure is unknown.
Using a few data sources in combination, insurers can improve their current processes for detecting potential breaches to international sanctions. Behavioural analytics can reveal a lot about an insureds fleet activity and movements, providing insurers with better insight into the risks they’re navigating. It’s important to use multiple data sources to help bridge some of the gaps that currently exist in the technology and be open to expanding those sources as new technologies become readily available.
Using technology, insurers can benefit from alerts based on a variety of activity that could point to international sanctions breaches such as: zone entry, ship-to-ship transfer, signal loss, vessel draft and suspicious behaviour.
An alternative and robust solution for total fleet visibility would be to deploy a tracking solution to each vessel. This requires greater than ASBO reasoning and reciprocal benefits for the shipowners in order to gain their commitment to participate in such a scheme. If only the legitimate shipowners are willing to take part the levels of unknown exposure are unlikely to change.
Quest Marine , Concirrus’ unified data platform uses machine learning (ML) algorithms to identify these types of activity using data from multiple sources. Rather than embedding an inherent bias in beliefs that a certain behaviour is good or bad the platform simply floats to the surface the factors most often seen with known sanction breaches. Much like Google’s search algorithms, Concirrus’ Core technology reacts to real-time changes in the data. They provide an underwriter with the tools to interpret the risk in ways not previously possible. With greater visibility of these types of activities and anomalies, insurers are in a much better position to spot the early warning signs of potential illegal behaviour and act to limit their exposure.