Insurance premiums up

HUTHI WAR: RED SEA ATTACKS EXACERBATE ALREADY STRETCHED COSTS

Cover for ships rises in proportion to the threat level, say experts.

Attacks by Yemen’s Huthi rebels on commercial ships in the Red Sea have sent insurance premiums surging, exacerbating costs already stretched by soaring freight rates and longer alternative trade routes.

The Huthis have carried out relentless attacks since November on shipping transiting the Red Sea, a maritime hub through which 12% of global trade usually passes.

Maritime container transport has sunk by almost one third so far in 2024 compared with a year earlier, according to IMF data.

The Iran-backed Huthis argue the attacks are in solidarity with Palestinians in Gaza during the Israel-Hamas conflict.

The war started when Hamas launched its attack on 7 October, which resulted in the deaths of about 1 160 people in Israel, mostly civilians, according to an AFP tally of official Israeli figures.

Hamas militants also took about 250 hostages – 130 of whom remain in Gaza, including 30 presumed dead, according to Israel.

Israel’s retaliatory campaign has killed at least 29 313 people, mostly women and children, according to the latest count by the Hamas-run health ministry in the territory.

Commercial boats need to obtain three types of insurance. Hull insurance covers damage to the vessel; cargo insurance covers the vessel’s load; and protection and indemnity insurance includes coverage for damage caused to third parties.

Premiums for ships and their cargoes have “increased significantly” following the Huthi attacks, according to Frederic Denefle, head of Garex, a French firm specialised in marine risk insurance. And they have increased in proportion to the threat level, he told AFP.

The Red Sea threat is unusual but not exceptional, according to Neil Roberts, head of marine and aviation at the Lloyd’s Market Association (LMA), which represents all underwriting businesses on the Lloyd’s of London insurance market.

“The Red Sea situation is both dynamic and unusual in the respect that a noncombatant country is targeting commercial shipping to achieve a political aim in a third country,” Roberts told AFP.

“It is not exceptional because, unfortunately, commercial shipping regularly comes under threats, whether in West Africa, off Somalia or elsewhere.”

The Red Sea is a listed area, meaning that vessels planning to enter have to notify their insurers, he noted.

Insurance providers can then review both the vessel and its voyage and can demand an extra war premium on top of normal coverage.

This war premium, however, is limited to a short period of time.

Claire Hamonic, general manager of Ascoma International, estimated that the war insurance premium has multiplied by between five and 10 times for vessels and cargo crossing the Red Sea.

According to several anonymous industry sources, the current rate of war risk premium stands at between 0.6 percent and 1.0 percent of the value of the ship. –