Subscribe to our Blog
Summary
- From Ukraine and the Black Sea to China and the Taiwan Strait, culminating in the recent Red Sea turmoil as a result of the Israel/Hamas conflict, the current geopolitical shifts underscore the world's profound reliance on the uninterrupted functioning of shipping and highlight the potential challenges that vessels and shipping companies may encounter in troubled maritime regions.
- It is clear from these ongoing events that the world is dependent upon shipping for global trade. With between 80% and 90% of international trade moved on board ships, the risk continues to rise, with insurance costs increasing to reflect the increased risk.
- A coordinated international effort is required to ensure these vital trade paths remain viable, and tech-powered insurance is a big part of the solution.
- For example, during the early days of the conflict, a collaboration between Russia, Ukraine and the UN where a deal was brokered to allow grain to be transported through the contested waters.
- When analysing the current state of affairs in the Red Sea, through data management platforms like Insurwave, insurers could better track the vessels operating in the area and effectively automate the administrative effort involved in quoting and charging additional premiums.
- Insurers and operators will need to operate with increased diligence, and the added insights technology providers can share can afford these entities a degree of strategic preparation during a period of uncertainty and high risk.
From the Ukraine conflict to the escalating tensions surrounding the Taiwan Strait, the shifting geopolitical landscape significantly impacts the marine insurance market.
Recent geopolitical shifts have pressured insurers to prove they have a holistic view of their accumulations and aggregate limits. Technology will play a pivotal role in supporting this through platforms that allow real-time tracking of exposures and greater efficiency of insurance administration.
Technology aside, effectively addressing the impact of recent conflicts on the marine insurance market will require coordinated international efforts from industry stakeholders alongside governments and shipping companies. Read on to learn more about the mark geopolitics has left on the marine insurance industry, the collaborative role of governments and insurers in addressing it and how technology can assist them.
Setting the scene
Ongoing conflicts in the Red Sea have created challenges for global shippers of essential goods, but this is just one of the many issues confronting major carriers as 2024 begins.
From Ukraine and the Black Sea to China and the Taiwan Strait, culminating in the recent Red Sea turmoil as a result of the Israel/Hamas conflict, the current geopolitical shifts underscore the world's profound reliance on the uninterrupted functioning of shipping and highlight the potential challenges that vessels and shipping companies may encounter in troubled maritime regions.
The war in Ukraine was a poignant reminder to the marine market of the potential claims resulting from blocking and trapping, with insurers typically paying out for total losses on ships if they are detained in war zones for over a year.
The mass detention of ships in Ukrainian ports following Vladimir Putin's invasion resulted in a sizeable claims bill for marine war underwriters and prompted an increased focus on global exposures and aggregations. In recent news, Iran-backed Houthi militants in Yemen have stepped up attacks on vessels in the Red Sea to show support for the Palestinian group Hamas following the start of Israel's military campaign in Gaza.
As a result, many cargo ships were rerouted through the Cape of Good Hope, which, while offering a solution, will also extend transit times, increase transportation costs, and strain supply chains globally.
For example, through the Insurwave platform, Maersk was able to track its vessels, which left Europe in early December and headed through the Strait of Gibraltar on the 18th of December but had to then turn around due to the escalation of the Red Sea situation. As a result, the vessel had to alter its path, travelling around the Cape of Good Hope and through the southern Indian Ocean, adding approximately 5,000 miles to its journey.
It is clear from these ongoing events that the world is dependent upon shipping for global trade. With between 80% and 90% of international trade moved on board ships, the risk continues to rise, with insurance costs increasing to reflect the increased risk.
A coordinated international effort is required to ensure these vital trade paths remain viable, and tech-powered insurance is a big part of the solution.
International collaboration
Collaborative efforts among maritime stakeholders, such as governments, insurers, and shipping companies, are essential to implement robust risk mitigation measures successfully. Strengthening security protocols, fostering intelligence-sharing mechanisms, and making strategic investments in state-of-the-art surveillance technologies enhance the region's maritime safety.
For example, during the early days of the conflict, a collaboration between Russia, Ukraine and the UN where a deal was brokered to allow grain to be transported through the contested waters. Implementing a "safe corridor" system guaranteed the shipments against bombing or other threatening actions.
In this instance, Lloyd's market brought together skilled teams who mobilised quickly and facilitated a bold solution, creating the AsOne Ukrainian grain facility in partnership with the UN. Brokered by Marsh, with Ascot as the lead underwriter and Insurwave as Ascot's technology partner, AsOne increased the speed to cover risk with access to real-time data on Insurwave's platform. This resulted in more than 100 cargo policies (representing over 80 shipments) recorded and tracked on Insurwave, with almost 1.5 billion dollars of goods covered and transported safely.
The collaboration enabled by Insurwave's platform unlocked a new efficiency level for all parties involved in the AsOne Ukrainian grain facility. We provided the services around the mapping of assets to a facility led by Ascot and brokered by Marsh. It enabled all parties to track the vessels in the Black Sea, so they were completely aware of the exposures and, more importantly, the aggregation of those exposures. As a result, all parties benefited from a better flow of information and faster, more accurate decision-making thanks to the visualisation of live risk data and automation.
The role of technology
As the previous example demonstrates, technology plays a vital role in geopolitical tensions, acting as an integrator between all insurance parties, ensuring they all gain access to the same data to allow for faster, more accurate decision-making and increased speed to cover. Insurers are going to need to know what the risk is and what the assets are that they're insuring, where the assets are, what the value is, and what the aggregation is in certain locations. That can only be achieved if the data is collected digitally and housed in a completely visible way to the insurers and financiers.
When analysing the current state of affairs in the Red Sea, through data management platforms like Insurwave, insurers could better track the vessels operating in the area and effectively automate the administrative effort involved in quoting and charging additional premiums.
Looking to the future, insurers could potentially react to the situation in the Red Sea in three different ways: those who avoid the exposure to the risk, those who perceive it as an opportunity and offer higher quotes to provide cover and those who seek a middle ground between the two solutions.
In this scenario, the insurers could get engaged with a consortium of insurers and offer reduced capacity only for significantly more premium alongside increased government intervention and protection.
Insuring the foreseeable future
Undeniably, the continued escalation of geopolitical conflict worldwide has increased the risks of sending ships across the globe.
While a multinational naval coalition is expected to address the security challenges in the Red Sea, the financial impact on shipping lines, cargo owners, and insurers will remain for some time.
During times of uncertainty, data management platforms like Insurwave are vital to helping insurers and operators keep pace with the developments and have visibility of their exposures at all times.
Insurers and operators will need to operate with increased diligence, and the added insights technology providers can share can afford these entities a degree of strategic preparation during a period of uncertainty and high risk.