Commercial shipping in the Strait of Hormuz has come to a standstill due to the attacks on Iran by Israel and the United States as of March 1. This affects world trade and the insurance market.
Too many risks in one area
Although transport insurers are allowed to insure molestation (war risk), they need a mechanism to manage cumulation risks. Insurers may terminate this coverage prematurely with a notice period of seven days. This is essential to prevent too many risks from being concentrated in one conflict zone at the same time. Without this possibility of termination, supervisors, such as DNB, would not give permission to cover such risks. After seven days, insurers usually no longer have reinsurance coverage for ships that are still in the conflict zone. Because reinsurers also use similar deadlines. Insurers must then consult with reinsurers about the measures that have been taken, what the total exposure is and what the possible possibilities are to retain reinsurance coverage.
War molestation cover
Transport insurance for cargoes includes war molestation coverage. In the event of war, a transport insurer can terminate this coverage prematurely with a notice period of seven days. The coverage is only in effect as long as the cargo is on board the ship. The termination does not apply to cargo that was already in transit before the war broke out. Separate war cover is usually purchased for hull insurance (seagoing ships and yachts). These insurances can also be cancelled with a notice of seven days for those areas that are designated as 'red' by Lloyd's (war zone). This gives ship owners seven days to leave the area and reach safe waters. During that period, coverage remains in force.
After this period, companies can again take out cover for war risks, but under adjusted conditions and premiums, depending on the current situation and the location of the ship. Through the co-insurance exchange in particular, transport insurers active in the Netherlands offer cover for damage to seagoing vessels and the cargo transported. Hull insurers offer coverage for collision damage up to a maximum of the insured sum. In addition, additional cover can be purchased for war risks, cyber risks, hostage-taking (Kidnap & Ransom) and political risks ('CEND cover'). These insurances often run through the London market Lloyds.
Own policy
Every policy can be different. An insurer determines its own policy and sets its own conditions. It is therefore important to contact your own insurer or insurance broker if you have any questions about the coverage. In the case of damage risks of cargo, the delivery conditions are particularly important: does the risk lie contractually with the supplier, the shipper, or the buyer/recipient?
Leaving not always possible
For ships that are already in the closed area, at sea or in ports, departure is not always possible. They are faced with a difficult choice: stay put or continue sailing through the Strait of Hormuz, with considerable risks for crew and ship. The ship and its cargo may be insured, but the danger to the crew is great. The final decision lies with the captain, in consultation with the shipowner.
Read more about the situation on the ground: Blockade of Strait of Hormuz threatens international trade | evofenedex
International Union of Marine Insurance on the Middle East
The IUMI (International Union of Marine Insurance), the global trade association for the maritime insurance industry, and the maritime insurance community are closely monitoring the situation in the Middle East, and in particular the safety and free passage of shipping in the Persian Gulf and the Red Sea. As for all parties in shipping, the safety of seafarers is paramount for shipowners.
More up-to-date information on war coverage for the Persian Gulf and the Red Sea can be found on the site van IUMI. In the current rapidly changing situation, insurers will regularly reassess the extent to which they can and want to continue to provide coverage.
What damages are covered?
1. Damage to a ship (Hull). Outside the risk area mentioned, there is coverage in accordance with the conditions.
2. Damage to the cargo (Cargo). This is covered under a goods policy. On most policies, the war risk (including armed conflict) is insured as standard. As long as the insurer has not terminated the war risk, there is coverage, both within and outside the risk areas mentioned. In the case of cargo, it is also important under which conditions the transport is concluded. Deliveries from China are often covered by the supplier or product. If they withdraw the coverage in view of the situation, the risk of damage or delay of delivery will lie with the buyers (in the Netherlands). This can then be covered under the so-called Buyers Interest coverage of a policy.
3. Injured or hostage crew. This is only covered under a P&I policy or on a separate Kidnap & Ransom policy. There may also be coverage under the so-called WAR P&I of a Hull policy for death and/or personal injury. In any case, contact the insurance broker for advice.
4. Delay (in delivery of the cargo) due to extra sailing time or waiting. Damage due to delays is usually not covered. Some policies do provide coverage if damage to the cargo occurs due to delay (especially in the case of perishable cargo). The extra costs of detouring for safety reasons can also be covered, but then having to detour must be unforeseen, such as two years ago due to the stranding of the EverGiven in the Suez Canal. There now seems to be no question of unforeseen in the regions mentioned.