Date: 24.01.2024

Insurers withdraw war risk cover

Since December 2023, nearly 30 commercial vessels transiting the Red Sea have faced missile strikes or near misses from the Yemen-based Houthis, including container ships owned by Maersk, MSC and CMA CGM.

As of last week, 550 container ships have been diverted away from the Suez Canal or are planning to reroute around the south of Africa via the Cape of Good Hope to avoid Red Sea attacks.

Some ships are still travelling through the Suez Canal. Beijing has been neutral on the Houthi attacks but the disruption has raised freight rates, while France’s CMA CGM is still sending some ships through the canal when they can get French warship escorts.

Last week Lloyd’s and London market marine insurers confirmed that they are continuing to maintain cover for cargo and ships transiting the Red Sea despite increasing tensions, but some ship insurers are starting to avoid covering commercial ships against war risks when they navigate the southern Red Sea.

War-risk insurance premiums have already climbed from 0.75-1% of the vessel’s value, which means, shipowners will now have to pay $millions for war-risk insurance cover, depending on vessel age, size and type, with underwriters seeking exclusions for vessels with links to the UK, US and Israel, when issuing cover for ships transiting the Red Sea.

In addition to the soaring annual premium, shipowners will also have to pay an additional premium if they want to transit via the Red Sea. It is because several Protection and Indemnity (P&I) clubs have expanded their additional premium zones across the Indian Ocean, Gulf of Aden and Southern Red Sea.

We have seen evidence however, that some insurers won’t cover anything from a war risk perspective around the Horn of Africa and the Red Sea, which means even more commercial shipping companies will be rerouting through The Cape of Good Hope in the near future.

The massive boost to insurance rates is likely to make the Cape of Good Hope routing more cost effective for carriers relative to the Suez Canal, even with the higher fuel costs.

Metro recommends All Risk marine insurance to protect you against all loss of cargo, to the full value of the goods.

Carriers and other supply chain participants operate under conditions that limit their liability and may even require you to compensate them, in certain circumstances, which means that any compensation you receive is likely to be considerably lower than your actual loss.

Metro work with selected partners to offer All Risk marine insurance cover that protects your cargo during every stage of transportation and storage, on a per shipment or annual cover basis.

Please contact your Metro Account Manager for further information.