By Robert Mackay, Business Development Lead, FDR

The Impact of Climate Change on the Maritime Industry

The maritime industry is facing escalating climate-related challenges. The rising frequency and severity of extreme weather events, such as hurricanes and typhoons, profoundly affect offshore construction projects. However, with all the warnings in place, there is a feeling that, despite all the data demonstrating the climate’s shift into dangerous territory, many are refusing to act upon their warnings. These climatic shifts not only disrupt operations but also significantly inflate costs, underscoring the need for outside-of-the-box thinking with insurance solutions that can help mitigate financial risks.

The Rise of Climate-Induced Financial Risks

Climate change has intensified adverse weather conditions, leading to substantial delays in both renewable and the oil and gas offshore construction sectors. Waiting on weather to resume operations can delay construction, inflate costs, and strain project timelines, potentially leading to liquidated damages and financial distress. Several studies confirm that weather-related downtime can account for 15-30 per cent of total time during offshore wind construction and maintenance phases, depending on the region, time of year, and project phase.

According to Standard P&I Club, claims due to increasingly volatile typhoons, storms, and hurricanes are now among the biggest concerns for insurers. As adverse weather becomes more frequent, the risk of delays, structural damage, and financial instability grows. A study by the Environmental Defense Fund projects that, without proactive measures, climate change impacts could impose an additional $25 billion in annual costs specifically on the shipping industry by 2100.

Parametrics Play Their Part

In response to these challenges, parametric insurance has emerged as a viable solution for managing weather-related risks in offshore construction. Unlike traditional indemnity insurance, which compensates for assessed losses post-incident, parametric insurance offers predefined payouts triggered by specific events, such as wind speeds and wave heights exceeding a certain threshold.

For offshore wind farm projects, where installation phases can experience 20-30% downtime due to adverse conditions, parametric insurance provides a structured financial safeguard. Integrating parametric insurance into risk management strategies also reinforces investor confidence in the offshore sector.

At FDR, we believe that as the maritime and energy industry adapts to an uncertain climate change future, the need for proactive insurance solutions will only grow. Parametric insurance, by offering rapid and predictable financial support, is a crucial tool to help the industry navigate these turbulent waters with greater certainty.