The marine insurance landscape is rapidly evolving in the wake of conflict in the Middle East. Also, a conflict involving Iran will have material implications for the insurance market in Singapore, given its role as a regional aviation hub and one of the world's leading maritime centres, according to Mr Nick Francis, Marine Partner at Kennedys, a global litigation and dispute resolution firm.
He said, “The most significant impacts would likely be concentrated in marine and aviation lines, with flow-on effects for reinsurance and trade related covers.
“Marine insurance will be the most immediately exposed segment. There have already been broad cancellations of war risks (Hull & Machinery) policies, which can be reinstated only through higher-premium buy-backs. In the Protection and Indemnity insurance (P&I) market, IG Clubs have also cancelled non-mutual war risks cover.”
“As a global transhipment hub, the Port of Singapore handles substantial volumes of cargo linked to energy, commodities and manufactured goods moving between Asia, the Middle East and Europe. Any escalation affecting shipping routes through the Strait of Hormuz or the Persian Gulf would materially increase war risk exposure for vessels trading to and from Singapore,” said Mr Francis.
War risk premiums for hull and cargo have already increased sharply, particularly for voyages transiting high risk zones. Underwriters may impose voyage specific approvals, higher deductibles or additional exclusions. In more severe scenarios, insurers could withdraw cover for certain routes altogether. For Singapore based shipowners, charterers and commodities traders, this would increase operating costs and working capital pressures.
Mr Francis said, “Owners, operators and cargo interests will need to be mindful of “gaps” in War Risks/Strikes - which encompasses terrorism - coverage. A particular concern for cargo would be a coverage gap for loss or damage caused by delay – as opposed to direct physical damage.
“On the owner side, there are also many vessels currently “trapped” in the Gulf. If the war continues with vessels stuck, then constructive total loss issues will arise as the 12-month deprivation period looms (as occurred in the Black Sea/Sea of Azov after the Russian invasion of Ukraine).”
For operators/charterers, this is in addition to the sudden exponential increase in charter rates, with a VLCC tanker just being fixed for over $430,000/day – the highest spot rate ever. This increased cost will inevitably flow through the supply chain.
“Given Singapore’s position as a marine insurance and broking hub, local insurers and intermediaries will face increased underwriting scrutiny, aggregation monitoring and capital management considerations,” said Mr Francis.