Marine insurance premiums rise amidst Red Sea attacks

Economy

Published: 2024-02-23 16:26

Last Updated: 2024-04-16 13:05


Marine insurance premiums rise amidst Red Sea attacks
Marine insurance premiums rise amidst Red Sea attacks

The escalation of Houthi attacks on commercial vessels in the Red Sea has triggered a significant surge in marine insurance premiums.

Fees have been levied to mitigate the heightened risks associated with conflicts, compounded by the substantial increase in shipping costs resulting from the adoption of longer alternative routes.

Since November 19, Yemen’s Houthis, backed by Iran, have targeted commercial ships linked to the Israeli Occupation in the Red Sea and the Arabian Sea, or en route to its ports, in solidarity with Gaza.

Container shipping through the Red Sea has seen a staggering decline of around 30 percent within a year, as reported by the International Monetary Fund (IMF). Prior to the conflict in Gaza, this region accounted for approximately 12 to 15 percent of global trade, according to statistics from the European Union.

- Three types of insurance for commercial ships -

Commercial ships should have three types of insurance: hull insurance, which covers damages that may occur to the ship; cargo insurance, which covers its shipments; and finally, protection and indemnity (P&I) insurance, which includes unlimited coverage for damages that may occur to other parties.

However, the cost of insuring ships and cargoes against conflict-related risks has "increased significantly" given the current conditions in the Red Sea region. This increase rises in proportion to the given threats.

Neil Roberts, Head of Marine and Aviation Insurance at the British Lloyd's Market Association, explained that the "Red Sea is a classified area, meaning that ships intending to enter it must notify insurance companies," as reported by AFP.

In this case, insurance companies have the ability to change the terms of insurance contracts. This includes additional fees to cover conflict-related risks, which are sold in complement to the basic insurance policies.

However, the official responsible for global cargo insurance at the global insurance company Marsh clarified that this new coverage is usually valid for only seven days, considering that hostile activities may escalate.

The General Manager of Ascoma International Insurance, Claire Amonick, pointed out that insurance rates "have increased between five and tenfold, whether to insure ships or goods crossing the Red Sea."

The current rate for insurance fees related to conflict risks ranges between 0.6 and 1 percent of the ship's value.

These amounts are substantial, as commercial ships crossing the Red Sea, a strategic waterway, are usually large container carriers or oil tankers valued at over a hundred million euros.

The nationalities of the ship-owning or operating companies are also taken into account. In addition to ships associated with Tel Aviv and heading to the Israeli Occupation's ports, the Houthis target American and British ships, considering them "legitimate targets" since Washington and London have jointly carried out strikes on Houthi sites inside Yemen several times since January 12.

The US military alone occasionally carries out strikes targeting locations, missiles, and drones prepared for launch.

Maritime security expert at Vessel Protect, Monroe Anderson, said, "The Houthis have specifically indicated that they are targeting American and British ships" or those associated with Tel Aviv.

He added that some ships "are associated with countries with lower levels of risk," such as Chinese ships, many of which traverse this region and are less prone to attacks. For these ships, the insurance value against conflict-related risks is lower than for other ships.

Amonick also pointed out that there is a "significant increase" in contract prices by insurance and reinsurance companies, confirming that "there is no refusal to insure" a ship, considering it "good" for customers.

As for ships that choose to avoid passing through the Red Sea by taking an alternative route that circumvents the Cape of Good Hope at the southern tip of Africa, they face additional costs associated with lengthening the journey.

The journey via this route takes an additional 10 to 15 days, and sometimes up to 20 days depending on the ship's speed.

In this case, ships cover the cost of transit insurance through the Red Sea, but "there are additional costs for fuel" and labor, with higher wages for the crew.

The cost of a journey from Asia to Northwest Europe has increased by 35 percent for a large container ship and by up to 110 percent for an Aframax-class oil tanker (those with a capacity of between 80,000 and 120,000 tons), according to a report by London Stock Exchange Group.

There are other risks as well. Amonick warned that redirecting many ships to the Cape of Good Hope "may likely lead to increased piracy operations in the Indian Ocean," alerting that "the danger extends downwards from the Red Sea towards the Somali coast."

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