The recent tensions in the Middle East are expected to result in draconian conditions in maritime insurance policies, and surging of insurance costs.
The comments come amid growing fears of Iranian retaliation on commercial vessels in the region following the assassination of Qassem Soleimani, an Iranian military commander, by the United States on January 3, 2020.
Companies have already started pulling their vessels from the region, such as the Brazilian state oil giant Petrobras. What is more, governments are sending their naval troops to the region to protect their assets and avoid similar scenarios to the Stena Impero from last year.
“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,” Jonathan 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.
Due to the heightened risk in the regions, ships are advised to alter their courses and 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.
“Following the 12 May attacks on two Saudi tankers, a Norwegian and a UAE flagged vessel, the Joint War Committee made up of 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,” he added.
“Insurers have not withdrawn completely from writing risks but each international insurer is taking a close interest in how events unfold.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.”
Jonathan concluded that a new period of potential disorder and unrest would bring more uncertainty and inevitably 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.