Ukraine conflict likely to drive complex marine claims across multiple lines, warns Allianz

Marine claims related to the conflict in Ukraine are likely to affect multiple lines of insurance and involve complex legal wrangling, warns Allianz Global Corporate & Specialty (AGCS) in a new report. Although marine losses from the war are currently “limited”, AGCS expects the insurance industry to book a number of claims from damaged and lost vessels, as well as ships or cargo trapped in the region, under both war policies and non-war losses. Justus Heinrich, global product leader for marine hull at AGCS, says: “We can predict the various scenarios under war cover, but it is much harder to predict how non-war losses could develop for vessels trapped in Ukrainian ports and the Black Sea.” Losses could arise from issues with crew, maintenance and safe navigation if ships are unable to leave Ukrainian ports, the Black Sea and Sea of Azov, AGCS says. “The longer vessels are trapped, maintenance and crew welfare will be harder to sustain. Some crews have reportedly abandoned their ships in Ukraine due to security worries,” it says in its Safety & Shipping Review 2022. Hull and cargo claims for ships that report machinery breakdown, fire damage, collision or grounding while trapped in the region that are not directly related to war could be difficult to resolve, Heinrich says. “We have identified vessels that are affected by the conflict and are keeping an eye on the status of these ships,” he explains. There is also a risk the conflict could “spill over” to waters outside the conflict zone, warns AGCS. It adds that stray sea mines have already been detected in Romanian and Turkish waters. Many companies, including insurers, have stopped or restricted trade with Russia. AGCS says insurers will need to honour valid contracts until renewal but they cannot pay claims, or parts of claims, covered by sanctions or war clauses. “The sanctions regime poses a high compliance risk for shipping companies and insurers,” Heinrich says. “This is a dynamic and complex situation, and we have to take each contract on a case-by-case basis. While some Russian entities are sanctioned, there are exemptions and there may be multiple sanctioned parties within the supply chain. There are also challenges around how to manage exposures and services claims in Russia,” he adds. About 2,000 seafarers were estimated to be stuck on 94 vessels in Ukraine following Russia’s invasion back in February, and 84 merchant ships remained with nearly 500 seafarers onboard by 20 April. At least eight merchant ships were attacked in Ukrainian ports and the Black Sea in the first month of conflict, the report says. This included the Helt, which sank off the coast of Odessa after likely hitting a mine, with two crew members killed. “This is yet another blow for the industry and global supply chains. Crew levels have not yet returned to normal levels, and now many Russian and Ukrainian seafarers may be unable to return home or rejoin ships,” says Captain Rahul Khanna, global head of marine risk consulting at AGCS. The report also reveals that the international shipping industry continued to improve its long-term safety record last year with the number of total losses down to 54, less than half the number suffered just ten year ago. But it adds that risk managers in the sector face number of growing risks that cannot be ignored.