Some insurance executives indicated that war cover for marine cargo could face cancellation.
The Strait of Hormuz is being seen as “high risk” due to strikes in the region with the fear of the passage closing.
The strait accounts for nearly 20 per cent of global trade in oil and is a key route for other lines of trade.
The Persian Gulf and the Red Sea-Suez Canal corridor have been designated as “high-risk zones” for the past three years.
“The hull war market has reacted more immediately due to aggregation exposure and capital sensitivity. Additional premiums for vessels transiting high-risk waters are rising sharply and may continue to fluctuate in the short term. Cargo war risk remains available; however, rates are increasing and quotations are being reviewed on a voyage-by-voyage basis, particularly for energy and bulk commodity trades,” said Stephen Rudman, head of marine (Asia), Aon.
According to Gaurav Agarwal, vice-president (marine insurance), Prudent Insurance Brokers, the situation remains fluid. War-risk rates will increase, coverage terms will be restricted or withdrawn for certain voyages, or the market will stabilise, depending on geopolitical developments, he said.
“Some major global shipping companies have issued an advisory to their clients that they will not carry cargo to the Gulf. Although alternative routes through the Red Sea and Saudi ports are being considered, these will depend on regional stability and may result in higher costs and delays,” Agarwal said.
GIC Re has said it will stop covering marine hull war in several high-risk global regions effective from March 1, and has identified seven regions.
This applies to vessels in the high-risk zone, including the Pakistan Waters, the Persian or Arabian Gulf, and adjacent waters or ports (including the Gulf of Oman), Iran and all other countries under sanctions by the United Nations, United Kingdom, United States, or European Union; specific zones of the Sea of Azov and Black Sea; and Waters of Ukraine or Russia or Belarus. It also termed certain areas of the Indian Ocean, Gulf of Aden and Southern Red Sea “high-risk zones”.
The reinsurer also said that a breach of warranty would not be available in any of these zones. Any vessel passing through this area, calling on any port located in this area, or being dry-docked in any of these areas will be a breach of warranty.
Taking alternative routes might delay reaching the destination. However, insurance experts said although delayed payments triggered claims on trade risk insurance, a delay of around five days would not invoke claims.
The notice of cancellation by the reinsurers implies that any new voyage by a vessel into the war zone will not be covered, which will not apply to vessels that have departed.
The standard notice period for cancellation owing to “War, Strikes, Riots, and Civil Commotions (SRCC) risks” is 48 hours, 72 hours, seven days, or 14 days. After this period, the reinsurer offers new contract terms with revised rates or it may withdraw coverage for the route.
According to experts, the marine war premium is generally 0.2-0.3 per cent of the premium. The area is classified as a high-risk area and might see the marine war premium rising 1-1.5 per cent.
Insurance experts say the aviation hull is not likely to see immediate tightening in rates if the situation does not escalate.
Since passenger airlines are not using this route, civil aviation will not be affected and military airlines are not insured.
However, during renewal, aviation might see an increase in aviation hull war cover with reinsurers citing the increasing propensity of seeing such incidents as the reason for increasing rates.
“For aviation insurance, war risk coverage will become expensive or unavailable for affected countries,” said Hari Radhakrishnan, expert, Insurance Brokers Association of India.
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