Hormuz crisis means Indian importers face huge hike in marine cargo premiums

Indian companies that import crude oil, petroleum products, chemicals and fertilisers from the Arabian Gulf and through the Strait of Hormuz are paying “phenomenally higher” cargo insurance premiums to cover war and strikes, an Indian broker has told newspaper Hindu Business Line. Standard Cargo insurance clauses exclude war and strikes. To acquire the cover, buyers need to attach the war and strikes clauses separately. According to Hindu Business Line, such cover was typically available for about 0.0006% of the cargo value. This very cheap rate was driven by fierce competition in the long, soft market in recent times. Since hostilities began in the Strait of Hormuz following the cancellation of the Iran nuclear deal by the US, marine insurers have issued notice of cancellation to withdraw the war and strikes cover on cargo that transits though what is now deemed a “high-risk area”. India’s state-owned re-insurer, GIC, has reportedly issued such withdrawal notices and is quoting an extra premium of 0.15% on the cargo value, to reinstate the cover. “West Asia is where India gets most of its crude and petroleum products from. Each ship carries on average INR300 to INR1,000 crore worth of cargo. Suddenly, when the war and strikes risk cover is withdrawn, they are in a jam,” said R Balasundaram, executive vice-president, Global Insurance Brokers Pvt Ltd, the leading Mumbai-based commercial broker that was founded in 1973, reportedly. “A couple of our clients have paid up. But, the larger sufferer is going to be the oil companies. Their premiums are going to shoot through the roof. They buy phenomenal quantities from that region,” he allegedly added. Mr Balasundaram told the newspaper that, to deal with the situation, oil companies are searching the international reinsurance markets for a better deal. The broker said he believes some of the companies have been able to secure better terms but they are still much higher than before the crisis. “Certain brokers in the London market have quoted almost half the rate – instead of 0.15%, they have quoted 0.8%/0.9%, which again is some 500 times higher than what it used to be,” he added. Mr Balasundaram’s comments were underlined last week when leading protection and indemnity (P&I) clubs confirmed that, as a result of the increased tension in the Persian Gulf area, as of 29 July the rate for any call to the Persian Gulf area (Persian or Arabian Gulf and adjacent waters including the Gulf of Oman west of Longitude 58° E) has been increased from 0.25% to 0.5%. The clubs said the war insurance market in general had reacted with increased rates for war insurance cover for transits and port calls in the area. Swedish Club has also tendered notice of cancellation in respect of certain terms for war insurance cover, together with a notice of cancellation in respect of cover for calls to Iran. The insurer said that any call to Iran must be declared to the club for prior agreement and, in respect of any calls to Iran, the Breach of Navigation Provision 2(c) of Navigational Limitations for Hull War, Strikes, Terrorism and Related Perils Endorsements shall not apply. The club also cancelled and reinstated as per relevant Clause W.1.3 Notice of Cancellation Automatic Termination of cover War, Nuclear etc and Cyberattack exclusion clause, effective from 00:01 GMT on 8 August 2019. Shipping companies are trying to manage and mitigate this risk in a number of ways, for example by hiring private military and security companies (PMSCs) and turning off their tracking devices. Marine risk and insurance experts and authorities are advising them to tread carefully. The Standard Club, for example, advised its members that there is no cover restriction or prohibition regarding the engagement of armed or unarmed PMSCs, or the use of convoy escort protection. The decision as to whether to engage PMSCs is an operational one for members, which the clubs said “should be based on a voyage-specific risk assessment”. But the club said it expected its members to exercise due diligence in the selection of a PMSC, including following the latest version of the International Maritime Organisation’s (IMO) latest guidelines. The club also recommended that members confirm that any chosen PMSC holds the applicable international standard – ISO/PAS 28007 – and that it also complies with the IMO’s guidelines. “Recent industry guidance is that privately contracted armed security personnel should not be used in the Arabian Sea, Gulf of Oman and Strait of Hormuz, because the use of force against threats recently encountered in the Gulf of Oman carried significant risk and had the potential to escalate security situations, to the detriment of the safety of ship and crew,” stated the club. According to Bloomberg, an increasing number of ships active in the region are turning off their transponders while passing through the strait. Others appear to have slightly altered their routes once inside the Persian Gulf, sailing closer than usual to Saudi Arabia’s coast en route to ports in Kuwait or Iraq. According to Bloomberg, at least 12 vessels have loaded in Saudi Arabia and shut off their transponders while passing through the strait within the past month. They include the supertanker Kahla, which turned off its signal on 20 July before passing through the strait. It reappeared two days later on the other side of the waterway. But as ships try these measures, other risks arise – such as collision – that could lead to serious problems with claims in future.

Hormuz crisis means Indian importers face huge hike in marine cargo premiums

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