Dirk Olyslager: “These incidents have had a severe impact on this type of insurance. The attacks in May led to insurers declaring the entire Persian Gulf and Gulf of Oman a war zone. After the attacks in the Gulf of Oman in June, premiums for war risk insurance for oil tankers shot up. While there has been a slight correction since then, the premiums are still very substantial. As a result of this exceptional instability, cargo insurers are now asking for supplementary premiums for the first time. These additional premiums represent a substantial additional cost and many are still being applied today.”
Dirk Olyslager: “A maritime war risk insurance policy consists of a (low) fixed annual premium. For transit through risk zones, however, insurers may also demand direct (high) additional premiums depending on the perception of the risk. Lloyd’s, the market leader in war risk policies, raised its premiums fourteen-fold within 24 hours after the attacks in the Gulf of Oman. New incidents succeeding each other have reinforced this trend, such as the drone and rocket attacks on refineries in Saudi Arabia and tankers in the Red Sea. This puts pressure on insurance premiums, and they will probably remain high throughout 2020.”
Walter Justers: “Yes, the contracts between the consignors and the shippers are drawn up in such way that the additional premium and conditions are negotiated by the shipper’s broker. They then bill these to the consignor, which is to say the party managing the cargo. Some shipping agreements will impose limits to this, for example, that the additional premium must be in line with what the Lloyds market would apply.”
Dirk Olyslager: “The two main forms of shipping insurance are:
- Liability insurance (= Protection & Indemnity or P&I), which the shipping company can claim against if their vessel causes damage to third parties (for example, other vessels, port installations, loading of passengers and crew, environmental pollution, etc.).
- An insurance policy for their own risks (= Hull & Machinery or H&M), which covers any damage to the vessel and other property on board belonging to the shipping company.
I’d point out here that the above policies explicitly exclude risks of war, meaning that the shipping companies have to take out a special separate policy for this.”
Dirk Olyslager: “There is generally plenty of capacity to place war policies for ships with specialist insurers. The premiums for voyages to the Middle East and especially the Persian Gulf remain on high because of the tense situation between Iran on the one hand, and the US and Saudi Arabia on the other. Although attacks using mines or other explosives represent the greatest threat, ships also run other risks, such as confiscation, for example. An example of this is the recent seizure by Iranian military vessels of two ships flying the British flag. It is our job as a broker to ensure that clients sending ships to high-risk zones have sufficient cover against potential risks.”
Walter Justers: “The cover for the crew is included in the liability insurance (P&I). A crew will also normally receive a bonus whenever they sail through a high-risk area. At that point they have two options: they have the opportunity to leave the ship or accept the so-called “danger money”. There may also be an additional kidnap & ransom policy that provides cover for ransom payments, loss of time and costs if a crew is taken hostage. This kind of insurance is normally taken out for voyages in pirate zones, such as the Gulf of Aden or the Gulf of Guinea.”
Dirk Olyslager: “Some shipping companies are indeed adopting a wait-and-see attitude to acute risks, and are, for example, waiting a few weeks after each new attack before loading in the Persian Gulf. During the first 48 hours after an incident, there is generally a great deal of uncertainty about the facts, which is driven by rumours. Given the presence of ship patrols under the command of international alliances, the situation gradually stabilises and shipping companies once again sail into the region (with additional safety measures in place). As far as we know, there is one cruise line that has decided to avoid the Persian Gulf. Their decision seems sensible to us.”
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