Strikes in the Red Sea: How to insure ships during war? | Insurance business America
“We insure both the hull and cargo on a war footing,” said Andrew McMellin (pictured above).
Weeks of Houthi attacks on shipping in the Red Sea have impacted the global war insurance market, reportedly increasing some premiums by hundreds of thousands of dollars.
Brokers have told Insurance Business that war exclusions are impacting customers, and other reports suggest war insurance could become unavailable and unaffordable.
However, McMellin, managing director of wholesale at Markel International, noted that his company and other London syndicates are heavily committed to this war-affected insurance market.
The London-based boss recently spoke to Insurance Business in Sydney during a visit to Australia.
Fracture Zones and the Joint War Committee
“The way it works is we issue an annual policy to the freight company or shipping company,” McMellin said. “Then when they venture into what we call safe zones, we apply a seven-day policy and an increased premium to allow them to use that particular route.”
He said war zones or fracture zones are high-risk areas where the shipping company has to pay a higher premium. McMellin said this allows insurers to adjust coverages and terms “if the intensity of war suddenly increases.”
“There is a Joint War Committee (JWC) in London that determines where the zones are and then everyone in the naval market follows that,” he said. “So if a shipping company sails into one of these zones, they know they have to pay an additional premium.”
“To avoid getting caught,” McMellin said the policies offered by Markel last for seven days and can be canceled.
“It’s really just in case,” he said. “If everything suddenly gets worse, you have the option of not necessarily canceling the insurance coverage, but rather renegotiating the conditions.”
Comparison of Russia and Ukraine
McMellin said some insurers that offered war insurance for the Russia-Ukraine conflict have tried to cancel coverage.
“There were some markets that tried to walk away from their commitments and effectively said they would not provide coverage,” he said. “That’s not actually possible because these are annual insurance policies, so you can really only charge an additional premium for travel to these war zones.”
IB asked McMellin about reports suggesting that some insurers may withdraw from offering war insurance in the Red Sea?
“Yeah, some people look at it and back off,” he said. McMellin said premiums have increased significantly “because obviously the risk has increased significantly.”
“We have been a leader in this market for many, many years and will continue to insure there,” he said.
IB asked if Markel being a “leader” means insuring more vessels in this high risk zone than most other insurers?
“We set the terms,” he said. “What happens in a syndicated market like Lloyd’s is that there are often one, maybe two executives who set the terms.”
McMellin said the other markets agreed to the terms because they recognized the expertise of these “leaders” in this particular insurance area.
“Usually that makes the syndicated market pretty efficient because not everyone is trying to ask all the questions — we evaluate the entire business,” he said.
There are “incidents” in the Red Sea every day
IB asked if McMellin could give an idea of how many ships his company currently insures in the Red Sea?
“In the time this conflict has been going on, there would have been hundreds,” he said. “Incidents happen every day that are not often reported because they are not particularly dramatic.”
McMellin said in many of these cases the damage to ships was “pretty superficial.”
IB asked if Markel receives daily claims about ships in the Red Sea?
“We get notifications daily, yes,” he said. “But some will report that a missile hit part of the load and they were able to put out the fire and move on under their own power.”
So far there have been very few incidents in which a ship sank.
“It can happen,” McMellin said. “Right now there is one ship that we cannot assure is actually on the list and they have withdrawn the crew.”
The Belize-flagged British bulk carrier sank after being hit by a Houthi anti-ship ballistic missile on February 18, according to a US Central Command media release.
“It’s not just the Red Sea”
McMellin said his firm is using consultants to keep abreast of the Yemen conflict and attacks in the Red Sea.
“This doesn’t just apply to the Red Sea,” he said. “These fault zones exist in different parts of the world, including the situation in Russia and Ukraine.”
McMellin said Markel had war insurance teams in both London and Shanghai. This shipping insurance is “an integral part of the maritime war business”.
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2024-03-14 18:55:17
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