Middle East situation triggers maritime transport insurance premiums

The Secretary of Finance and Public Credit of Mexico, Rogelio Ramírez de la O, reported that the war between Israel and Hamas has skyrocketed maritime transport insurance premiums globally.

“Risks of losses have increased and there have been significant increases in insurance premiums for maritime transportation,” said the official.

The increasingly marked geopolitical tension is putting increasing pressure on trade and the world economy, explained the economist.

As Ramírez recalled, since the end of 2023, attacks by violent groups in the Red Sea generated disruptions in the transit of goods through the Suez Canal.

Consequently, a good number of vessels have had to opt for the alternative route through the Cape of Good Hope. This extends transfer times by between 10 and 15 days.

Maritime trade, which today represents more than 80% of world trade, has been one of the spaces in which insurance historically thrives.

Ramón Gascón, coordinator of the Asia-Pacific working group of the Exporters and Investors Club, adds that “the price of insurance has multiplied by 10. There are many that either decide not to insure or increase the price of their premiums.” .

This is a sector led mainly by large UK insurers, which include in their policies war coverage that includes damage or losses due to wars, rebellions, insurrections, revolutions, or civil strife related to these causes. But they do not take charge when it comes to unstable areas or areas in potential conflict.

In many cases, policies are not offered by general insurers. “They are located in very specialized markets in London. And many times they are subscribed by unions with niche subscribers, where war and strike coverage, which is purchased separately, has very high premium conditions,” explained Tomás Barona, director of Maritime at Howden Iberia.

War coverage covers the entire globe except for unstable or potential conflict areas. If a ship must travel to these areas, it may do so upon payment of an additional premium, the cost of which depends on the situation. The areas in which coverage must be agreed on a case-by-case basis are defined by the Joint War Committee (JWC), originated in the group of large London companies that laid the foundations of the field more than a century ago. The exclusion zones extend to their respective territorial waters, 22 kilometers offshore, and are located throughout Africa and the Middle East.

The list can be altered with at least 7 days’ notice, giving scope for coverage against unexpected outbreaks of war. In this case the invasion of Kuwait is remembered.

In February, amid rising tensions in Ukraine, the JWC included the Ukrainian and Russian waters of the Black Sea and Sea of ​​Azov on the list. Thus, if a ship was in Ukraine or en route there, it would have had up to 7 days to leave the area or modify its route, having coverage during that period. Otherwise, you could contact your insurer to extend her protection, with a price according to the situation.

Helmet insurance establishes another important limitation, as it does not apply coverage after a war breaks out between the main military powers: the United States, China, Russia, the United Kingdom and France. Note that the exclusion only applies if the conflict occurs between two or more of these nations, not when one of them confronts another country.

Cargo insurance covers war risks only while they are afloat on the ship carrying them. It means that the coverage ends when they are disembarked. After downloading, it is considered a political risk.