Marine and shipping
In this chapter of our Annual Insurance Review 2024, we look at the main developments in 2023 and expected issues in 2024 for Marine and shipping.
Key developments in 2023
2023 was another year of marine war risk focus – in Ukraine and beyond.
For vessels and cargoes stranded in Ukraine, the Black Sea Grain Initiative (or Istanbul Agreement) provided safe passage to new cargoes out of Ukraine, but many of the vessels and cargoes trapped since the beginning of hostilities were often far down the queue. Land transportation routes (routes out form Danube ports) were workable but often limited. The one-year anniversary of the invasion on 24 February 2023 triggered the balance of war risk vessel CTLs costing war risks underwriters up to USD700 million.
Unfortunately, in July Russia withdrew from the Istanbul Agreement. The Ukrainian government set up a 'humanitarian corridor' in the Black Sea for vessels bound for African and Asian markets carrying foodstuffs. However, it has had limited success and appetite to insure shipments' war risks has been low, meaning vessels travelled uninsured or with high premiums. The war risks premiums for voyages fluctuated in late 2023 with some reports noting premiums as high as 5% (in Aug '23), and 3% (in Nov '23), of the value of the vessel. Notably, the premiums saw a spike following the 8 November Russian missile strike on a Liberian flagged ship entering an Odesa port, killing the pilot and injuring four others.
In early November, Lloyd's and Marsh backed a scheme that aims to cut the cost of claims for damage to ships and crew transporting grain through the Black Sea corridor. Lloyd's insurers provide USD50 million of hull war risk cover and USD50 million of war P&I insurance for every voyage. The scheme is supported by the UK and Ukrainian governments. Not all details are public, but the scheme should make war risks cover for grain cargoes much more affordable, with the Ukrainian government bearing the first potion of any claims up to an undisclosed level. The programme will cover shipments through Ukraine’s Danube ports as well as Odesa, Chornomorsk, and Pivdennyi. But for vessels and cargoes in Ukrainian ports further east – and closer to the front line – discharge and land transit to other "open" ports remains the only option.
The war between Israel and Hamas which began on 7 October, and the subsequent Houthi attacks on commercial vessels in the Red Sea, have added further disruption to maritime trade and supply lines. On 18 December, London's marine insurance market widened the area in the Red Sea deemed high risk, causing war premiums (paid by ships and their charterers) to rise further. As a result of the Houthi attacks, one of the world's largest shipping companies – Maersk – suspended transits through the Red Sea and the Gulf of Aden – a route which typically handles about 15% of world shipping traffic.
What to look out for in 2024
It is hoped that the Ukrainian insurance schemes developed in 2023 will help to keep war risks premiums at more sustainable levels. We should expect an increase in premiums for war and cargo risks policies for vessels in the Red Sea as a result of the war between Israel and Hamas. Longer voyages (round the Cape of Good Hope) and higher war premiums will be passed on in higher shipping costs and will add to consumer price inflation.
Vessel fires remain one of the largest safety issues for the maritime industry (and for marine insurers). 2023 has been no exception with notable fires on board an (electric) car carrying vessel and a tanker (caused by a lithium-ion battery for a hand-held radio device). Sadly, continued growth in the lithium-ion battery sector plus increasing containership size (and greater scope to mis-declare cargoes) equals increased risk of vessel fire and explosions.
Written by Alex Derham and Tom Butterfield.