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Shipping

War in Ukraine impacting on shipping insurance line

Russia’s invasion of Ukraine is also having far-reaching consequences for the shipping market. Not only have vessels and their crews been lost. Global supply chains, already severely affected by the COVID-19 pandemic, have also been further impacted. Imposed sanctions regimes are also having a significant impact on the industry.

Market situation

The war in Ukraine began suddenly, on a scale that was unexpected, once again presenting the world with a new challenge – and new risks. The insurance industry has responded.

While it is not yet possible to predict future developments and long-term effects, initial trends at least starting to emerge among insurers, a summary of which is outlined below.

Hull insurance

In light of the situation in Ukraine, the sanction clauses already included in the provisions of insurance policies are likely to be tightened. Initial signs that this is happening are already evident. Whether and to what extent a further shortage in insurance capacity is to be expected cannot be answered with any confidence as things currently stand. In 2022, the focus will therefore remain on technical underwriting.

War insurance

As a rule, war risks are excluded from marine hull insurance. Ship owners therefore buy suitable war insurance on a regular basis, the main insurance market being in London. Immediately after Russia’s invasion of Ukraine, however, war insurers made use of their right to cancel at short notice and listed Ukraine and the corresponding ports as “exclusion areas”. For these areas, additional insurance cover must be requested, if required.

P&I insurance

As is generally known, liability risks for third party damage in the shipping industry are covered by P&I insurance. Ship owners found the most recent round of renewals demanding. This led in particular, to increased premiums, sometimes massively so. These were mainly due to higher reinsurance costs incurred by P&I Clubs.

The future also brings opportunities.

Outlook

Although there are initial signs that tensions are easing, especially in the London insurance market, clients must also be prepared for challenging renewal negotiations in the 2022 renewal round. Insurers’ technical underwriting means high demands on risk presentation and an increased need among customers for expert advice, with support from experienced international brokerage firms a vital ingredient.

Customers who have so far been able to avoid the inclusion of a “pandemic clause“, are once again being confronted with such a requirement and are usually forced to accept it. This situation is mainly due to the given reinsurance structures and the restrictions imposed by the requirements of such structures.

Furthermore, a sound response to the actual, long-term effects of the war in Ukraine cannot yet be given. It is to be expected that individual insurers will tighten their respective sanctions clauses, a move which is likely to lead to intense discussions between all parties involved. This is all the more true as not all insurers have yet adopted a final position on how to deal with these issues.

There is currently no sign of a further shortage in capacity – especially against the backdrop of the signs of easing from London. However, this does not mean that all risks can automatically be placed with acceptable conditions. Crisis-related effects are to be expected in various areas.

In view of the current global trends, some insurers are already trying to incorporate rising energy prices and strong inflation into their renewal negotiations – to the customers’ detriment.

They usually mention massively rising, inflation-induced loss expenses to justify their approach. If inflation continues to rise rapidly, it can be assumed that many more will follow suit.

Market trends

In addition to the current challenges, the issue of sustainability remains centre stage. In this context, the climate protection goals of the industry are an indispensable driver of innovation, meaning future potential. The current trend in energy prices is also expected to accelerate innovation and, ultimately, help the industry’ achieve its ambitious climate targets.