Maritime risk and insurance solutions provider FDR has issued a warning that inland shipping operators are facing considerable financial risk due to insurance policies that do not account for recent European Union (EU) climate regulations.
The company said unless insurance offerings are updated, vessel owners could incur significant financial losses as new EU rules increase operational pressures.
The EU’s Renewable Energy Directive (RED II) and FuelEU Maritime regulations are designed to promote the use of greener biofuels, such as Hydrotreated Vegetable Oil, which can reduce emissions by up to 80% compared to traditional fossil fuels.
In addition, the EU’s Non-Road Mobile Machinery Regulation requires any inland vessel undergoing an engine replacement to install a Stage V-compliant engine, a standard that has been mandatory since January 2022.
Current insurance policies generally provide cover only for the like-for-like replacement of conventional, fossil-fuel engines. This has created a compliance gap, as vessel owners are reimbursed for engines that do not meet EU standards, leaving them responsible for fines, retrofitting costs, or the expense of purchasing advanced alternative-fuel engines.
Climate change has become the most significant challenge for the insurance sector, with brokers reporting that rising costs and increased business risks are putting pressure on the affordability and relevance of insurance. The industry is seeing the impact of climate change in claims data, with more frequent weather events driving up losses and premiums.
In response to major climate-related events, insurance brokers have adapted by working with more restrictive underwriting parameters. This has changed the types of policies available to clients, with exclusions and limits becoming more common.
Insurance affordability remains a critical issue for businesses, as the ability to secure financing is often tied to having adequate insurance cover. Rising costs are threatening the relevance of insurance, with some businesses facing challenges in obtaining the necessary backing to operate or invest.
Armand Lans (pictured above), broking manager marine at FDR, commented, “Insurance should provide stability in times of uncertainty, but today’s policies are falling behind the pace of regulatory change. Operators are being forced to choose between financial distress and regulatory non-compliance. The insurance industry must urgently evolve to support the transition, not undermine it.”
Stage V and alternative-fuel engines are more expensive than traditional diesel models and often require modifications to vessels, resulting in additional retrofitting costs and reduced cargo capacity. With many inland shipping operators already working with narrow profit margins, these expenses could threaten the economic viability of parts of the fleet.
FDR has called on insurers, brokers, regulators, and banks to work together on a compliance-driven insurance model that would cover the costs of cleaner engines, retrofitting, and operational adjustments. The company argues that such collaboration is necessary to protect vessel operators and maintain the resilience of Europe’s inland shipping sector.
Inland shipping plays a key role in Europe’s logistics, transporting bulk commodities, agricultural products, and manufactured goods with a lower carbon footprint than road freight. FDR has cautioned that if insurance and financing do not keep pace with decarbonisation efforts, Europe could lose the environmental benefits that inland shipping currently provides as the region moves towards net zero emissions.
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