Reports that two oil tankers have been hit by explosions in the Gulf of Oman again brings into question the potential impact political instability and rising tensions in the Gulf region could have on insurance premiums.
Unverified image of what Iran’s IRIB news agency said was the burning Front Altair
News today of explosions that hit two oil tankers, the Kokuka Courageous and the Front Altair, in the Gulf of Oman comes just weeks after attacks on four tankers close to a port in the United Arab Emirates.
While it’s been determined that limpet mines were used during the coordinated May attacks, it remains unclear exactly what caused today’s fresh explosions, although news reports say that one of the tankers suspects it was hit by a torpedo.
In a statement in response to the most recent attacks, Jonathan Moss, DWF Partner and Head of Transport and Shipping, explains that political uncertainty and growing tensions between countries in the region, as well as ongoing disharmony between the U.S. and Iran, is likely to push insurers to increase premiums, renegotiate terms and also introduce riders to Marine and Energy re/insurance contracts.
“Global insurance markets are accustomed to factoring geopolitical uncertainty into pricing models, nevertheless this geopolitical fallout has not been seen since 2003. In 2003, rates for Hull & Machinery, War Risk cover for tankers in the Persian Gulf increased significantly owing to the political instability in the region,” says Moss.
Global marine insurers will undoubtedly be watching the situation in the Gulf region very closely, and it’s likely that during 2019 and into 2020 insurers will push to raise premiums in light of widespread uncertainty and political instability.
“Determining the level of risk in the region is difficult as long periods of clam are followed by a spate of notifications to marine insurers of large claims caused by acts of aggression. Following the incidents involving the Saudi oil tankers on 12th May, London market marine insurers met on 16th May to consider whether to increase rates for tankers in the Arabian Gulf,” continues Moss.
In response to the May 12th attacks, the Joint War Committee (JWC) met to discuss the issue and, following this, London market marine insurers subsequently broadened the list of waters deemed high risk under Hull War, Piracy, Terrorism and Related Perils to also include Oman, the United Arab Emirates and the Gulf. At the same time, Saudi Arabia’s risk area was broadened to include its coastline.
It remains to be seen exactly what happens to insurance premiums in light of the most recent attacks, but history suggests that insurers in the London market and elsewhere will look to raise premiums in order to offset instability.
Reports state that all crew members of both of the oil tankers that were hit today have been rescued but it remains unclear who is responsible for the attacks and exactly what caused the explosions.
Update:
The Front Altair is insured by P&I insurer Gard, the largest Protection & Indemnity insurer among the thirteen members of the International Group of P&I Clubs, which leads on the hull protection.
Gard said that its claims team is working with the war risk insurer on the tanker to ensure the crew’s safety.
