High insurance costs limit Arctic shipping to niche cargo

Routes can cut sailing distance by up to 40% between Asia and Europe or North America.

Arctic shipping may create a limited opening for insurers, but the market is still defined by higher risk and higher cover costs rather than a major shift in global trade.

A new Coface analysis says Arctic routes can cut sailing distances between East Asia and Northern Europe or North America by 20% to 40%, but the insurance case is mixed.

In its cost model, Coface applies a 40% surcharge to insurance premiums for Arctic voyages because of the added risks of ice, remoteness and difficult operating conditions. 

By comparison, it uses a 0.07% risk premium on vessel value for ships using the Suez route, based on the rate in place before the Houthi attacks in the Red Sea.

That cost gap matters because Arctic shipping is only competitive in a narrow part of the market. 

Coface says bulk cargo is where Arctic routes make the most sense. Liquid bulk could see transport cost savings of as much as 45% to 50% on some routes, whilst dry bulk may also benefit, but less strongly. 

For insurers, the main issue is that Arctic voyages still carry a different risk profile from traditional routes. Ships may need icebreaker escort or reinforced hulls, and sea ice remains variable and hard to predict even as overall ice coverage declines. 

The report also points to environmental exposure, including oil spills, black carbon emissions and noise pollution in a fragile region.