The latest chapter of turbulence in the Middle East will undoubtedly lead to insurers and reinsurers, particularly in lines such as hull, war, piracy, terrorism, cargo and construction, raising premiums, renegotiating terms of cover and introducing riders and endorsements to policies to reflect the increased risks of trading in the region, said Mr Jonathan Moss, head of marine and trade at the UK-based multinational law firm DWF.
Referring to the US-Iran tensions that led the US to kill Iran’s top military commander, General Qassim Soleimani, Iran’s missile attack on two US air bases in Iraq, and the accidental shooting down of a Ukrainian jetliner, Mr Moss assessed the impact that these developments in the Middle East are having on the marine insurance market.
He said, “Insurers and reinsurers have been looking for a marked correction to the downward pressure on rates. The recent tensions, however, will lead to insurers and reinsurers imposing draconian conditions in policies, significantly increasing the costs of specialist insurance and pulling out of underwriting certain lines of business. Insurance rates are set to increase exponentially in the coming months.”
Ships will have to navigate longer routes to avoid dangerous areas. Furthermore, ships’ crew wages will rise owing to the heightened risks of attacks to vessels in the Strait of Hormuz, adding costs to end-consumers for commodities transported globally, hampering trade.
Following the 12 May 2019 attacks on two Saudi tankers, a Norwegian and a UAE flagged vessel, the Joint War Committee (JWC) comprising representatives from the Lloyd’s and company markets added the Gulf to its list of high risk waters. Insureds were instructed to notify underwriters before vessels entered the region and additional premiums started to be levied. The attacks have transformed the region for insurers.
Amidst the heightened Iran-US tensions, the JWC held an extraordinary meeting on 7 January to discuss potential marine insurance implications. In a statement, it said, “There are clearly increased tensions in the Gulf region, with American assets now referenced, but the underlying maritime threat remains heightened with an ongoing possibility of escalation.
“The London insurance market has been operating with these strategic factors in mind since last May, and underwriters will continue to ask appropriate questions of assureds in order to ascertain the risk dynamics of individual sailings seeking war-risk cover.”
Mr Moss said, “Insurers have not withdrawn completely from writing risks, but each international insurer is taking a close interest in how events unfold. Underwriters are used to factoring in geopolitical instability into pricing, but the events of last year created a perfect storm for companies trading in the region, increasing insurance premiums by an average of 10% in six to seven months.
“The fact that all UK flagged ships in the Strait of Hormuz are being escorted by UK navy vessels has done little to restore the status quo. Previous attempts to contain the aggression have had little effect in stemming the flow of the meteoric rises in premiums.”
He added, “A new period of disorder and unrest means that an unpredictable and turbulent picture is emerging with the inevitability that insurers and reinsurers will choose to exit insurance lines and/or adopt pricing models which will have an adverse impact on the passage of trade, increasing costs for the end-consumer.” M