The Daily View: Their word is still their bond

THE claim circulated earlier this week that some shipowners had their war risk insurance cancelled at short notice while their vessels were operating in the Middle East Gulf was incorrect.

The story spread quickly after two general news reporters misinterpreted developments in the marine insurance market, and it was subsequently repeated by major broadcasters and business publications.

It is important to be clear about what actually happened. As confirmed by the Lloyd’s Market Association and the International Union of Marine Insurance, underwriters honoured the terms of all existing contracts. No shipowner found themselves suddenly uninsured while in a high‑risk area.

The confusion stemmed from the decision by International Group P&I Club affiliates to issue 72‑hour notices of cancellation on fixed‑premium and charterers’ war risk cover following US and Israeli military action against Iran on Saturday. For those unfamiliar with the technicalities of marine insurance, this may have appeared to signal a withdrawal of cover.

In reality, it was a procedural step triggered by reinsurers’ demands for higher premiums to reflect the abrupt escalation in geopolitical risk. The notices applied only to specific, relatively narrow classes of business.

The key takeaway is that this cover is still on offer. It’s just that it is now eye-wateringly expensive.

In most cases, assureds are being asked to fork out a minimum of $30,000 a week for insurance that previously cost $25,000 a year.

There are strict strings attached too, including no US or Israel nexus, and no Israel or Iran port calls.

When it comes to charterers such as the oil majors and the big trading houses, this outcome falls short of the threshold to qualify as a modern tragedy.

Given the windfall profits they will make as a result of crude hitting $85 per barrel, the sums involved essentially represent pocket money.

For the operator of a single anchor handling tug, on the other hand, the sums probably won’t stack up.

Spare a thought, too, for the P&I underwriters who have worked 20-hour days to smooth things over.

But the key point is that nobody is being greedy here. A marine underwriters’ word is still their bond, and the insurance is still available.

Well, at least to those who can afford it.

David Osler
Law and marine insurance editor, Lloyd’s List

Click here to view the latest Lloyd’s List Daily Briefing