Recent statistics presented at the plenary session of the International Cable Protection Committee (ICPC) 1 continue to clearly attribute the cause of telecom submarine cable failures to human activity, accounting for 85% of all cases, with fishing followed by anchoring as the main factor. Other causes such as natural events (e.g. seabed slides), wet equipment failure and abrasion (permanent contact of the cable with rocks) remain at very low levels.
Unfortunately, there are no official statistics on how actively cable owners pursue legal claims against the perpetrators. However, based on the author's more than 20 years of experience investigating cable failures worldwide, including international waters, it is fair to say that one-third of these cases were settled with the shipowners or their insurance companies within months of the date of the cable failure, a further one- third have to wait a few years in litigation with mixed results depending on the evidence and case law, while the remainder had no conclusive evidence for finding a suspect to blame.
So where are the missing insurance companies that should be providing coverage for these vital telecommunications infrastructure owners? Insurance companies are mostly reluctant to issue these policies to submarine cable owners, and in this article, we will also address and analyse the reasons why this same industry is generally negligent in controlling its own customers (e.g. fishermen) who damage telecom submarine cables.
Insurance Coverage for Wet Plant
Typically, insurance companies will not provide coverage for the wet plant portion of a subsea telecom system (underwater components), unlike the terrestrial segment, against third party risks such as fishing activities or even earthquakes. In recent years, however, there have been a few exceptions where international connectivity is regularly affected by seabed landslides or volcanic activity.
Yet, this leaves 85% of telecom submarine cable failures without adequate insurance coverage. Even the floating wind industry, still in its infancy, has adequate bespoke coverage because those involved have made risk management a priority. Their projects get bigger every year, and they always make sure they are both bankable and insurable.
It can be argued that power cables are shorter and therefore less risky than telecom cables. Nevertheless, today's major energy projects, such as the link between Morocco and the UK show that their days as 70-100 km systems are long gone. Moreover, according to the ICPC statistics mentioned above, only 2% of telecom cable failures occur on the high seas.
There may be other reasons to justify the insurance industry's absence from this telecom sector, perhaps related to past experiences where the insurance industry suffered heavy losses, the financial basis or even the complexity of understanding subsea systems. However, this has not prevented regional investment banks and development finance institutions from investing in this telecommunications infrastructure.
Now, if we imagine for a moment a hypothetical future scenario in which telecom cable companies could obtain insurance coverage on a broad basis at affordable prices, this would surely provoke an immediate reaction from the shipping industry. The insurance companies would feel compelled to control the negligent activities of their own customers (e.g. reckless fishermen), which are the main cause of disruptions to undersea telecommunications systems.
Otherwise, they would be forced to start paying compensation to distressed cable owners, in a world where there are at least 3 cable outages per week, or more accurately, about 7 cable failures every two weeks. This would indeed benefit the telecommunications industry. But would it also benefit the insurance industry?
P&I Clubs
A shipowner will normally have Protection and Indemnity (P&I) insurance coverage, which protects and indemnifies them against their legal liabilities to third parties (e.g., telecom companies) arising out of the operation of a vessel (e.g., trawling, anchoring).
It is well known that 90% of the world's goods are transported by ship, and if we add the fishing industry as a major customer of marine insurers, its economic importance far exceeds that of the submarine cable industry. If an insurance company begins to control the activities of these powerful customers, they would surely flee to another competitor with fewer restrictions. Thus, they simply choose to prioritize these deep-pocketed customers over the owners of the telecommunications cables.
In addition, P&I insurance is a form of mutual marine insurance provided by P&I Clubs 2. The risks of merchant shipping are too great for individual companies to bear, so shipowners/operators have decided to insure each other by forming "clubs", a risk pooling system. They are called "members" of the club, where they insure each other against such liabilities on an annual basis.
It is estimated that 13 P&I Clubs insure approximately 90% of the world's ocean-going fleet (e.g. cable-layers). Their cover is provided on an indemnity basis; normally the insured (e.g. the owner of a fishing vessel) first compensates the telecommunications company and the club then reimburses the member. The fixed premium liability insurers are another type of mutual insurance with some differences from the P&I Clubs and deserve the same comments.
As a member of these clubs, a cable-laying vessel owner would be sitting on both sides of the table. He would be collecting money from cable owners to repair a cable damaged by fishermen, while at the same time he would be part of a mutual insurance system, a P&I Club, that might include the same fishermen. Would there be any adverse effect in such a P&I Club as a result of such a cable failure? Not at all. As a result, there is no further incentive for either of them to impose any restrictions or controls on the fishing vessel operators in that club, or they might lose a member who would look for a better club without such restrictions.
This outdated system should be revised to give priority to the victims rather than the perpetrators of most submarine cable incidents, thus reversing a set of rules that unilaterally serves the interests of the latter. Similarly, with regard to environmental damage, some authors 3 suggest that there should be real insurance companies, separate from the shipping companies through their P&I Clubs, an initiative that could be replicated for the submarine cable industry.
Outdated regulations and controls
A shipowner's liability may be limited if it is covered by the 1976 Convention on Limitation of Liability for Maritime Claims (LLMC). Thus, a trawler that damages a submarine cable would be required to pay a fraction of the compensation based on the tonnage of the vessel.
This unfair rule, which benefits only the shipping industry and its insurers, clearly overprotects them against any logic based on law and economics. The cost of repairing a submarine cable can easily exceed USD 2,000,000, and compensation could be reduced to less than a quarter of that amount.
By 2024, only 54 countries will be members of the LLMC and hopefully the current trend of 13 countries denouncing this convention will continue. The latter is the right path for any nation that needs to launch its agenda as an international communications hub.
Another issue relates to the control mechanisms of port authorities on local vessels to verify that they are insured against damage to third parties (e.g. submarine cable owners). While in most countries a certificate of validity is required before departure, in others such control is difficult to enforce, leaving a subsea cable owner with an expired insurance certificate and an impounded rusty trawler worth a fraction of the damages claimed.
Clearly, additional control mechanisms should be applied by insurance companies and P&I Clubs to help enforce the rules and controls. For example, there could be mandatory cable awareness activities that insured clients should attend, or incentives such as premium discounts for further AIS control by insurance companies when their clients' vessels (e.g. trawlers) enter protected submarine cable zones.
Insurance policies also have their limitations. As seen in the 2014 Canadian court decision for the case of Société Telus Communications vs. Peracomo Inc., the captain of a fishing vessel who acted recklessly with intent to cut a submarine cable that he knew or should have known was a telecommunications cable, caused him to lose his insurance coverage and become personally liable for the damages himself.
In addition, when a cable is damaged, it is mandatory to identify the suspected vessel 4 and threaten arrest as soon as possible. A cable owner should then identify the P&I Club and investigate the financial condition of such vessel and obtain a letter of undertaking from the P&I Club on the basis that the cable owner agrees not to arrest the suspected vessel. However, some state-owned vessels are not insured by P&I Clubs, making it impossible to obtain such a letter of undertaking and making it more difficult to pursue legal action.
Conclusions
There is a problem of wrong incentives in the insurance industry for dealing with telecommunication submarine cable matters. Unfortunately, there is insufficient incentive to get the P&I Clubs to control their members who negligently damage this vital infrastructure. Both the maritime and telecommunications industries have significant power and influence on the international economy, which deserves to be treated under balanced conditions and on a fair, non-discriminatory basis, eliminating or minimizing the occurrence of unnecessarily risky activities, such as fishing in cable protection zones.
The P&I Clubs could also introduce various controls in ports and at sea. By adopting best practices and standard procedures within their industry, this would prevent clients from moving from one club to another in order to avoid these obligations.
Finally, the insurance industry should take a different approach so that cable owners could also benefit from insurance coverage for the wet plant of their subsea systems. This would allow the telecommunications industry to choose and be on the same level of protection as other similar industries that share the seabed such as the offshore wind power sector.
1. Palmer-Felgate, A. “Global Cable Repair Data Analysis”, ICPC Annual Plenary, Singapore, 1 May 2024.
2. See Lambert, L., “Cable damage claims against vessels: How safely does your cable lie (or lay)?”, Presentation to the ICPC Annual Plenary, San Diego, California, USA, 16 May 2019.
3. See Pieth, M., Betz, K., “Flags of convenience. Below the surface of global shipping industry”, 2024. Available at: https://flags-of-convenience.info/
4. See ICPC Recommendation 19 “Preparatory Actions for Civil Claims Development for Cable Damage”, March 2021.
Andrés Fígoli is the author of the book “Legal and Regulatory Aspects of Telecommunication Submarine Cables” and is the director of Fígoli Consulting, where he provides legal and regulatory advice on all aspects of subsea cable work. Mr. Fígoli graduated in 2002 from the Law School of the University of the Republic (Uruguay), holds a Master of Laws (LLM) from Northwestern University, and has worked on submarine cable cases for almost 21 years in a major wholesale telecommunication company. He also served as Director and Member of the Executive Committee of the International Cable Protection Committee (2015-2023).
This article was first published in Submarine Telecoms Forum Magazine #138 – September 2024.
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