Warning that ship seizures could “adversely impact” premiums

Ship seizures will “adversely impact” insurance premiums, according to law firm DWF.

It follows heightened tension in the Middle East, which led to Iranian forces boarding and seizing a British flagged tanker in the Strait of Hormuz, which sits between the Persian Gulf and the Gulf of Oman, last Friday. It is said to be a retaliation to the British forces boarding an Iranian tanker by Gibraltar. 

Jonathan Moss, head of transport and marine at DWF said: “The rising tensions as a result of these incidents will continue to have a knock-on effect on global fuel prices and insurance premiums.

“Ultimately, this uncertainty in the Gulf region is likely to lead insurers to raise premiums, renegotiate terms of cover and introduce riders to marine and energy contracts of insurance and reinsurance, in the face of a cocktail of instability in the region.”

Closely scrutinising

Moss said that the seizure of the British vessel is “unacceptable and clearly an act of retaliation as a consequence for the British authorities seizing the Iranian Grace 1 super-tanker offshore Gibraltar on 4 July”.

He explained that the global insurance markets are accustomed to factoring in geopolitical uncertainty into pricing models, and that such geopolitical fallout had not been seen since 2003.

“In particular, global marine insurers are already closely monitoring the current situation and employ complex risk models. Given the hostility escalating, underwriters will also be closely scrutinising voyages on a case-by-case basis with premium increases covering vessels in the region a near certainty,” he added.

In 2003, rates for hull & machinery and war risk cover for tankers in the Persian Gulf increased significantly owing to the political instability in the region.

Trade impacts

Richard Bridges, head of marine hull and war at AXIS Insurance, told Insurance Times: “As such, any disruption to this trade impacts the wider global insurance marketplace. Increased insurance premiums will be passed by the ship-owner to their charterer and will ultimately impact the end consumer.

“Following the recent ship attacks, the Joint War Committee updated the areas of perceived enhanced risk to incorporate a wider navigating restriction for vessels entering the Persian/Arabian Gulf.

“The level of additional premium charged for this region has increased dramatically in recent weeks, the quantum of which ultimately reflecting underwriters’ perception of the prevailing risk. Any further incidents, or continued escalation in tensions, will drive further increases in war additional premiums and/or restrictions in coverage provided.”

He explained that a significant proportion of the world’s oil exports are shipped through the narrow passageway of the Strait of Hormuz.

New lines 

The rising tensions come as Hiscox today released a new insurance product for seized shipping. Malicious Vessel Seizure is designed to respond directly to incidents like this where a ship owner or charterer has their vessel seized by a nation state, who may have taken the ship as a retaliatory measure.

Stuart Bisson, head of Guernsey and Europe for Hiscox special risks, said: “It [the new product] provides ship owners and charterers with the reassurance of knowing that they have the resources and expertise of control risks to help them manage the crisis as well as the financial support of Hiscox to meet their loss of hire costs.”

Graham Libaert, director of alliances at Concirrus concluded: “Hostile and dynamic situations like these do reinforce the importance of having access to robust data.”

The insurtech processes data available on ships trading in these regions. This allows it to quantify the exposure and better understand the associated risks.