The United Nations Development Programme (UNDP) has announced today the successful binding of insurance coverage for the mission coordinated by the United Nations to prevent over a million barrels of oil spilling into the Red Sea. Securing insurance is a pivotal milestone in enabling the ship-to-ship transfer operation (STS), which aims to avert one of the world's largest, man-made disasters in history.
UNDP Administrator Achim Steiner highlighted the importance of finalizing the insurance policies, both in terms of financially de-risking the operation, and for protecting millions of lives, livelihoods and aquatic species.
Commenting on the news, Steiner 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 could not 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."
Constructed in 1976 and converted a decade later into a floating storage and offloading facility (FSO) for oil, FSO Safer is carrying 1.14 million barrels of light crude. However, maintenance of FSO Safer was suspended in 2015 upon the outbreak of the conflict in Yemen. As a result, the structural integrity of the 47-year-old vessel has significantly deteriorated, and - without immediate action - she will break apart or explode, threatening more than 17 million people and 200,000 livelihoods, as well as coral reefs, mangroves and fish stocks of every country on the Red Sea. Complicating matters further, FSO Safer sits in waters that are designated as 'high risk' by the Joint War Committee in London, the body which de facto sets insurance rates and exclusions for marine war underwriters globally.
The UNDP-led operation, which involves the transfer of the oil to a replacement vessel and the scrapping of FSO Safer at a green salvage yard, is highly complex and involves a range of environmental, geopolitical, financial and humanitarian risks. The significant support of engineers, naval architects, chemists, surveyors and oil spill response organizations, as well as government entities and various UN agencies, is helping to reduce the operational risks of this vital intervention. However, without insurers offering their balance sheets to underwrite the residual financial risk, the mission could not progress.
UNDP - with support from its Insurance and Risk Finance Facility - was able to bind coverage thanks to its deep, long-term collaboration with the insurance industry. More than 100 individual underwriters have been involved in the issuance of an exceptionally specialised set of policies covering FSO Safer, the STS operation and the replacement vessel. Howden, appointed in open tender as UNDP's broker, packaged, structured and then syndicated the various risks across thirteen insurers in the Lloyd's, London and P&I markets.
While the FSO Safer project is a very important, urgent and high-profile example, Jan Kellett, Head of the IRFF, drew attention to the fact that embedding insurance-thinking into development cannot be limited to individual interventions.
He commented: "The partnership with the insurance industry to de-risk the FSO Safer operation is a very visible demonstration of UNDP's leadership in harnessing risk-sharing techniques to secure the SDGs in the most challenging of contexts. However, more is needed. As the most recent edition of the Human Development Report emphasized, policies that focus on 'investment, insurance and innovation' are required to enable people to thrive in the face of unprecedented uncertainty. For this reason, UNDP is investing in the long-term transformation of insurance markets to the benefit of vulnerable communities and ecosystems."
As co-founder and co-chair of the Insurance Development Forum, UNDP works closely with industry partners to deliver policy advice, practical guidance, data, methodologies, networks and capital that boost country and community resilience in the face of the potential impacts from socioeconomic, health, climate and other shocks. The IRFF's work goes far beyond the effective use of private risk capital to enable interventions like the STS to solve the FSO Safer issue. It examines legislations, regulatory environments and institutional capacity - and invests in research, advocacy, training and governance to secure the delivery of the SDGs where they matter most.
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