Sharp Increase in Marine Cargo Insurance Rates Due to Red Sea Attacks

Attacks on commercial vessels in the Red Sea have caused a sharp increase in maritime cargo insurance rates, including additional fees to cover risks associated with conflicts.

This comes on top of a significant rise in shipping costs due to the use of a longer alternative route.

Since November 19, there have been attacks on commercial ships in the Red Sea.

According to the International Monetary Fund (IMF), container maritime traffic through the Red Sea has dropped by approximately 30% within a year.

Before the conflict, the region accounted for 12 to 15% of global trade, as per European Union figures.

Commercial vessels require three types of insurance: hull insurance against damage to the ship, insurance for their cargo, and ‘protection and indemnity’ insurance, which includes unlimited coverage for damages inflicted on third parties.

However, the cost of insuring ships and cargoes against conflict-related risks has “increased significantly” under the current conditions in the Red Sea area, according to Frederic Denefle, General Manager of the Garic group specialized in conflict-related risk insurance, who confirmed that the increase is “proportional to the threats.”

Neil Roberts, a representative from the marine and aviation insurance department at British company Lloyds Market Association, explained to the Agence France-Presse (AFP) that “The Red Sea is considered a Classified Region, which means ships intending to enter must notify their insurance companies.”

In such cases, insurance companies have the capability to modify the terms of the insurance contracts.

This includes additional charges to cover risks associated with disputes that are sold in a way that complements the primary insurance policies.

However, the global cargo insurance lead at the multinational insurance firm Marsh clarified to AFP that this new coverage is “usually valid for only seven days, taking into account that hostilities could escalate.”

The General Manager of ASCOMA International insurance company, Claire Amonique, mentioned that insurance rates have increased by five to ten times for both ship and cargo insurance passing through the Red Sea.

According to multiple sources France Press has contacted, the current insurance premium rate for conflict-related risks ranges between 0.6% and 1% of the ship’s value.

These are significant amounts given that the commercial vessels crossing the strategic maritime corridor of the Red Sea are generally massive container carriers or oil tankers valued often at over 100 million euros.

The nationalities of the companies owning or operating the ships are also taken into account.

In addition to vessels associated with Israel heading to its ports, American and British ships have been targeted.

Amonique pointed out that there has been, of course, a “major increase” in policy prices from insurance and reinsurance companies, but she affirmed that there is “no refusal” to insure a given ship, considering it a “good thing” for customers.

Ships that choose to bypass the Red Sea by taking an alternative route around the Cape of Good Hope at the southern tip of Africa encounter additional costs associated with the lengthened journey. The trip can take an extra 10 to 15 days via this route and sometimes even up to 20 days, depending on the speed of the ship.

In such cases, ships save on the cost of insuring passage through the Red Sea, but there is an “additional fuel cost” and higher labor expenses due to increased crew wages.

According to a report by the London Stock Exchange Group finance company, the cost of a journey from Asia to Northwest Europe for a large container ship increased by 35%, and by up to 110% for an Aframax oil tanker, which has a carrying capacity of between 80,000 and 120,000 tons.

There are other risks as well. Amonik warned that redirecting many ships to the Cape of Good Hope “is likely to lead to an increase in piracy activities in the Indian Ocean,” highlighting that “the risk extends down the Red Sea towards the Somali coast.”

AFP