UK: Marine Insurance In Murky Waters

Newsworthy events in the Middle East usually find a captive audience among the global insurance community. Due to the relatively insignificant reinsurance capacity in the Middle East insurance markets, it is not unusual to see reinsurers from around the world participating in regional risks. This is particularly true of marine insurance.

Marine risks in the region tend to have more international linkages compared with other parts of the world. It is fairly commonplace to see reinsurers from five or six different markets on one slip. This broad exposure to the international markets creates interesting challenges. 

On the underwriting side, regional insurers find themselves faced with varying expectations when it comes to risk assessment and forms of wording. On the claims side, insurers face mixed expectations in relation to claims handling and investigation. However, the impact of the extensive international linkages is felt most acutely when any event causes the international media to focus on the region. Such focus also makes marine insurance lawyers' lives that much more exciting (although, one should add, the lives of marine insurance lawyers generally tend to be exciting any way).

It has to be commented that we have not seen as many fraudulent claims or scuttlings as many had anticipated at the start of the financial crisis. Personally, we have only been involved in one yacht-scuttling policy claim. For marine insurers, the effect on claims resulting from the economic crisis has not, therefore, been as bad as anticipated, but premium income certainly has suffered, particularly in the case of the cargo market.

Piracy still a danger

Before the recent political events took the world by storm, piracy was the major worry in marine insurance circles. Indeed, piracy remains a live danger to shipping and trade, and pirates do not seem to be mourning the loss of publicity to the political situation elsewhere in the region. 

The effect of piracy in the region has kept H&M, P&I and cargo insurers and marine lawyers busy for some time now with interesting issues such as liability to contribute in General Average; off hire; sanctions issues, etc. It has also led to an increased demand for Kidnap & Ransom cover and one broker even being at the forefront of the establishment of "convoy support/security" operations.

Insurers also have to consider the stance they will take on certain owners arming their crew and/or having security personnel on board vessels and have been taking an active interest in the security arrangements and contracts entered into by vessel owners. 

Ports still relatively safe

The recent political events in the region have seen the insurers' phones ringing off the hook, with reinsurers obviously assessing the impact of these recent events on the risks that they reinsure here. The extensive coverage of these events in the mainstream media does not give reinsurers too many clues as to the impact on their reinsured risks. For example, pictures of violence on the streets could lead one to conclude that the local port is up in flames, but (with a few exceptions), the ports and waters have been a lot safer than the streets. 

Oil is obviously the mammoth in the room when discussing marine insurance in the Middle East. The sheer number of tankers going in and out of the regional oil ports is enough to worry insurers on any given day. Add political uncertainty to it, and one ends up with a perfect recipe for sleepless nights.

Libya a major concern

So what has been causing the most concern from a marine insurance perspective?
It should not come as a surprise that Libya has been the major source of concern. FD&D (freight demurrage and detention) insurers have borne the brunt of what has been a flood of requests for guidance. With little useful information coming out of the country as to the safety and security of its oil ports, ship owners and charterers found themselves grappling with "safe port" issues under charterparties. 

The fact that some oil ports kept changing hands between the Qaddafi forces and the rebels did not help matters. There was, at least in one instance (in which we were involved in providing advice to ship owners and their FD&D insurers), news that a particular oil port was in rebel control.  However, it later turned out the port had been under government control all along. It stayed that way until a VLCC got there, by which time fighting had erupted, prompting the master to get out of there as fast as he could.

Also complicating matters was the fact that the international sanctions were not yet in place in the crucial first couple of weeks. A number of vessels were underway to load cargoes, but nobody knew whether the cargo would be available, or indeed, whether it would be legal to lift the cargo once the vessel got there.

There was concern in marine insurance circles as no additional war risks premium was payable for Libyan sailings during the initial couple of weeks. The Joint War Committee included Libya as a Listed Area on 3 March 2011, thus calming the market some. 

Elsewhere in the region

In other parts of the region, the protests have not had much of an impact of marine insurance. The Egyptian ports seemed to be relatively unaffected by the situation on the streets. The absence of weapons seems to be a major factor in this regard. The impact of production and shipping delays remains to be fully assessed.

Likewise, in Bahrain, Oman and Yemen, the protests do not seem to have had much of an impact on the marine market. The exact impact of production / shipping delays apparently caused by employee absenteeism during the protests remains to be fully assessed.

Then, of course, there are the sanctions-related issues faced by regional insurers (particularly those with expatriate staff from USA and Europe) and the reinsurers of regional insurers. The sanctions (not only the Iran Sanctions Act; and Comprehensive Iran Sanctions Accountability and Divestment Act, but also the sanctions as they relate to dealings with certain Somalian pirates) with their far-reaching effects, have caused significant concerns.  We have been asked to advise regional insurers with expatriate staff and, in some cases, with indirect US shareholdings on their risks and exposures.

In the coming months, one can expect greater clarity on claims arising out of the political situation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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