While tensions between the US and Iran, as well as fears of a possible Third World War, have cooled somewhat, the recent events in the Middle East have made their mark in the insurance industry and will be felt in the months to come.
According to Jonathan Moss, head of marine and trade at international law firm DWF, the turbulent situation in the Middle East will greatly affect insurers and reinsurers, particularly in lines such as hull, war, piracy, terrorism, cargo, and construction. It will also be felt in renegotiating terms of cover and introducing riders and endorsements to policies to reflect the increased risks of trading in the region.
“Insurers and reinsurers have been looking for a marked correction to the downward pressure on rates,” Moss said in a statement. “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.
“Ships will have to navigate longer routes to avoid dangerous areas, Ships’ crew wages will rise owing to the heightened risks of attacks to Vessels in the Strait of Hormuz, adding costs to end consumers for commodities transported globally, hampering trade.”
Moss highlighted the attacks on two Saudi tankers, a Norwegian and a UAE flagged vessel on May 12, 2019. These attacks led to the Joint War Committee, made up of representatives from the Lloyd’s and company markets, adding 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.
“Insurers have not withdrawn completely from writing risks but each international insurer is taking a close interest in how events unfold,” he said. “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.”
He added that despite UK-flagged ships in the Strait of Hormuz being escorted by the UK navy, this has done little to restore the status quo. Prior attempts to contain the aggression have had little effect in stopping what he described as “meteoric” rises in premium rates.
“A new period of disorder and unrest means that an unpredictable and turbulent picture is emerging with the inevitability that 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,” Moss added.