Best Practices Guide for AUV Polar Operations

Insurance for autonomous underwater vehicles

Introduction

Managing risk is essential to the effective use of autonomous underwater vehicles (AUVs) in marine science, industry and defence applications. One option for managing risk is to transfer it to, or to share it with, others. Over the last decade, increasing use has been made of commercial insurance by marine science and commercial operators of AUVs. In the recent past, as more vehicles are sold to operators, the risks have changed; and as insured vehicles have been lost, severely damaged, or required expensive retrieval, the cost of AUV insurance has increased - underwriters are in business to make profit.

This page explores the relationships between the client seeking insurance for an AUV, the insurance broker, and the underwriter of the risk. We also outline what might happen following a claim and discuss a number of factors that might affect the cost of insurance for an AUV. To illustrate these points we present two case studies from experienced developers and users.

Relationships between client, broker and underwriter

The client will first need to contact an insurance broker. The broker is the agent of the client and will need to develop an understanding of the client's AUV operations in order to best represent his interests and ensure that the cover bought is the best value. In theory, it is also possible for the client to go directly to the underwriting markets to obtain insurance. However, via this route the client has no guarantee that he will find the best value. The issues are complex and it is important to have an insurance professional to advise on the types of cover, what they actually provide, and in the event of a claim to represent the client's interests.

One insurance market is Lloyd's of London. Lloyd's is a specialist insurer that is capitalized by some of the largest financial companies. While the spirit of risk taking and innovation is still foremost, Lloyd's is now regulated by the UK Financial Services Authority, and the Corporation of Lloyd's provides guarantees of security through the quality of its investors and rigorous internal checks.

Into this world came the first subsea risks. Unlike the maritime industry in which the early underwriters had themselves been seafarers, Lloyd's underwriters in the 1970s were unfamiliar with subsea robotics. Risks at Lloyd's were at that time normally spread over a number of different syndicates, which meant that a number of underwriters had to feel the risk was worth assuming. Underwriters must of necessity turn a profit and so into this specialized arena came Leviathan.

Leviathan is a binding authority that is supported by seven Marine and Energy Syndicates at Lloyd's and was specifically set up to underwrite specialist subsea risk on behalf of Lloyd's Underwriters.

Importance of appropriate wording in an AUV insurance contract

AUVs are complex. They are also intended for use in unusual or hazardous conditions. It is therefore most important that the wording of the insurance contract for an AUV provides the coverage that the client requires:

On land - in storage, and if the vehicle is being launched and recovered from shore.
In Transit - while being transported, by land, sea or air.
During upkeep - while being maintained, modified or upgraded.
At Sea - while in operation, including launch and recovery, monitored transit and unattended operations.

To ensure that the wording meets the client's requirements, the underwriter is likely to meet with the client to understand first-hand their business, their operation and the likely risks.

Other coverages include:

Third party liability - likely to be taken on a case by case basis.
Consequential damages - likely to be hard to find due to the prototypical nature of many AUVs.

When it comes to making a claim

The first response to an incident that may result in a claim is for the client to 'act as a prudent uninsured' in the steps that are taken. There has to be a cut-off point, for example, on the time (and hence money) spent on searching. It may be that when a vehicle is lost, the client may have suitable equipment to effect a recovery, for example an ROV with an experienced support team. Under a sue and labour clause, the client will be able to claim for the additional costs incurred in locating and retrieving the AUV.

Underwriters outsource claims to an adjuster to avoid conflict of interest. In the case of damage, the adjuster may survey the vehicle, check that the claim falls within the scope of the insurance, and examine the options with the client to put the vehicle back into the condition it was in before the incident.

Soon after a claim has been lodged, the underwriter will table the total costs of the claim, including all fees. The record of the client will show the loss against premiums paid. If an incident occurs that is within the deductible on the policy, especially for a newly insured AUV, the underwriter may suggest that a loss adjustor look at the case to exercise the process and possibly identify any improvements that may be necessary.

Factors that may affect the cost of insurance

Among the factors that are likely to affect the cost of insurance for an AUV are:

Experience, track record, qualifications and training of the staff involved with the AUV;
Vessel operators involved in launch and recovery;
Evidence of clear risk assessments, checks and controls in operating procedures;
Evidence of risk mitigation measures. These might include technical measures, such as homing and emergency beacons, and procedural measures, such as maximum allowed sea states for recovery;
Details of the operating environment and its specific risks;
The extent of co-insurance between the underwriter and the client.

Case studies

Autosub - National Oceanography Centre, Southampton, an established developer and user for research

The National Oceanography Centre (NOC), Southampton has been operating and insuring its Autosub series of science research AUVs since 1996. As a consequence of a long track record of insuring high-value oceanographic equipment, when it came to insuring their first AUV NOC had both the contacts and track record.

While the brokers that NOC have bought insurance through have changed over the years, the underwriter has remained the same. This has enabled them to establish a close liaison, which helps the underwriter understand the risks with AUVs in science research. The insurance package covers damage to the vehicle in use and in transit and it covers third party liability.

AUV missions under sea ice in 2001 were covered by insurance at an acceptable premium. When missions under shelf ice were being planned, a thorough analysis was made of the risk and reliability of the vehicle[1]. This report was passed to the underwriters to ensure that they were fully briefed as to the risks from the environment and the risk from failure of any of the vehicle systems. It was the conclusion of the report that it was more likely than not, over the three campaigns envisaged, that the Autosub would be lost. Perhaps surprisingly, the underwriter did not turn down the potential business.

The premium quoted was, however, substantial, and, even though an offer was made to return part of the premium at the end of each year of insurance if the vehicle was not lost, NOC could not justify the cost. A factor in this decision was that if insurance was taken out, and the vehicle was lost, there would be at least a year's interregnum while a replacement vehicle was built and tested. Notwithstanding this decision, the insurance agreement remained in place, and an acceptable premium paid for all of the periods of engineering trials in open water, for third party liability during these trials and for damage or loss of the vehicle during transit to the working area.

Armed with the underwriters' offer NOC approached the funding agency (NERC) and reached an agreement that the Autosub Under Ice (AUI) programme would receive funding up-front to build and commission a second Autosub within the programme. The intention was that there would be a replacement vehicle available in time for operations in the next polar season. In essence, this was a form of self-insurance; one that had the advantage of ensuring that the gap between loss and replacement would be shorter than had the underwriters' offer been taken up. As it turned out, the prediction became true - Autosub was lost on the third campaign of the AUI programme[2]. Through this self-insurance arrangement the replacement was at sea on its trials five months after the loss - covered by insurance.

International Submarine Engineering (ISE), Canada, a developer and supplier

ISE has been in the business of developing and selling underwater vehicles since 1974, delivering over 200 vehicles to clients. With all of these vehicles, builder's and sea acceptance trials form part of the contractual agreement between the company and the client, and responsibility remains with the company until the client accepts the vehicle. Generally, the high cost of underwater vehicles compared with the relatively low cost of short-term coverage from an underwriter has made the latter alternative more attractive. For these short-term trials, ISE is able to purchase this insurance on a pro rata, monthly basis.

In the 1990s, ISE began development of an under-ice cable-laying vehicle with the Canadian Department of National Defence (DND). This AUV (Theseus) was required to deliver 220 km lengths of underwater cable to remote sites under Arctic sea ice and then return to an under-ice base station[3]. These missions, up to 450 km in length, remain among the longest AUV missions conducted to date.

Over the next two years, the programme team worked closely with the broker to mitigate the risk as seen by the underwriter, involving: vehicle design, pre-deployment testing, and the planning and conduct of on-ice operations. To further mitigate risk, extensive sub-system and system testing was conducted6 in 1994 and 1995, and prior to mission deployment in 1996 two complete missions were conducted in.

During the last operation in the Arctic, Theseus laid its cable successfully, but did not show up at the mid-point rendezvous on its return journey. The search plans were put into place, and after two days, the vehicle was located on the bottom and on its planned track. An error in failsafe programming had caused the vehicle to shutdown and sit on the bottom. Once found, it became a relatively simple matter to rectify the problem and send the vehicle on its way back to the ice-camp.

This case clearly highlights the value of planning for insurance coverage in the design and operation of AUVs. Without this planning, ISE would have faced a premium of several million dollars and a significantly higher probability of a loss.

Conclusions

Insurance is one important element in the risk management strategy for the owners and operators of AUVs. All of the case studies point to the need for open and constructive dialogue between users/manufacturers and insurance professionals - especially with underwriters. Where there has been effective communication, the case studies show that efficacious risk management solutions, including insurance, can be reached.

References

Griffiths G., Millard NW., McPhail SD., Stevenson P. and Challenor PG. (2003). On the Reliability of the Autosub Autonomous Underwater Vehicle. Underwater Technology, 25(4): 175-184.
Strutt J. (2006). Report of the inquiry into the loss of Autosub2 under the Fimbulisen. National Oceanography Centre, Southampton, UK. 39pp. Available as a pdf via http://eprints.soton.ac.uk/41098/
Ferguson J. (2003). Cargo carrying AUVs. In Griffiths G. (editor) Technology and applications of autonomous underwater vehicles, 217-226. Taylor and Francis, London, UK.