JUSTIN OGLE: Ukraine war’s risks for marine insurers and how to mitigate them

Air strikes and shelling are among marine insurers’ main concerns for vessels heading to ports in the Black Sea, but the war also has serious insurance ramifications closer to home.

At least nine civilian ships — mostly cargo vessels — have been struck by fire since the war in Ukraine broke out in February. Insuring merchant vessels in the Black Sea has become unaffordable, with marine underwriters charging rates up to 10% of the value of a ship’s hull for additional war-risk premium, according to Bloomberg.

SA insurers and consumers may not yet have recorded direct losses related to the war, but the marine sector is feeling its ripple effect, adding to the disruptions to shipping operations, logistics and supply chains already caused by the Covid-19 pandemic, the deadly floods in KwaZulu-Natal, 2021’s civil unrest and a host of other factors.

I believe we are yet to see the full effects on the shipping and marine insurance industries, so being informed and prepared is key to weathering this new storm. Here’s a look at some of the risks to consider — and thoughts on how to mitigate them.

Port delays and accumulations

With war cover excluded, insurers and brokers must be prepared to mitigate the indirect effects of the invasion — such as port delays, which have a particular impact on the cold chain management of perishable goods. SA is one of the top five citrus exporters in the world. Up to 45% of these exports are to Europe, and most of our wheat imports are from Eastern European territories such as Poland.

This problem, which emerged early in the pandemic, will now without a doubt be exacerbated by the crisis in Ukraine. The longer the cargo sits in a port the more likely it is to be subject to loss. Insurers must consider this when assessing and pricing risk.

The war’s impact on supply chains may even have a wider impact than cover for perishable goods. Where a construction project is delayed because of non-delivery of critical equipment, this can trigger a “delay in start-up” claim, cover that provides indemnity for losses incurred as a result of delay due to physical loss or damage to critical materials or components.

Ports are a crucial cog in the economic wheel. Bear in mind that when cargo is redirected away from “excluded” ports to alternative ports, this could lead to an accumulation of exposure in excess of anticipated location limits, leaving policyholders underinsured.

The knock-on effect of increasing energy prices

Fuel costs globally have increased as a result of sanctions against Russia. In recent months our industry has seen a sharp increase in freight costs, with sea and air freight tripling in some instances. Now is the time for policyholders and their brokers to review adequacy of sums insured relative to financial exposures at risk.

South Africans optimistic about a strong economic recovery following the negative impacts of civil commotion and Covid-19 have seen their hopes dashed. Unsurprisingly, the frequency and severity of hijacking and theft losses show a strong correlation with economic hardship. The latest increases in fuel costs — and their knock-on effects — may again push up the risk of crime and associated losses in the coming months.

Sanctions and exclusions

Ships need to be certified as seaworthy to be insurable. Though there are differing opinions on the matter of ships certified by the Russian Maritime Register of Shipping, they may no longer be insurable following their expulsion from the International Association of Classification Societies.

In addition, marine policies typically have a sanctions limitations and exclusions clause that prohibits insurers from providing any benefit to policyholders that could expose them to sanctions. The onus is on traders to comply with their policy conditions, to do their research through the SA Trade Commission to make sure they’re not in breach of sanctions and, most importantly, to get specialist broker advice.

The role of the broker: a vital partner in risky times

In a fast-changing environment risk cannot be controlled — but transparency and disclosure of all material facts by our industry are now more important than ever. The role of specialist marine brokers is critical. They must consider the risks and present them to the underwriters and ensure that their clients are informed of the impact the ongoing situation in Ukraine may have on their cover and insurance — directly or indirectly.

Expert brokers not only play an important role in identifying shortfalls in cover, but also in helping to make sure our mutual customers are adequately protected.

• Ogle is business development manager at Hollard Marine.