The hijacking of the Galaxy Leader cargo vessel by the Houthi group and other attacks in the Red Sea has resulted in the diversion of ships towards a longer route, this alongside the cancellation of war cover for these vessels has led to higher marine insurance premiums, a challenge insurance clients have to face, United Insurance Brokers Ltd (UIB) has noted.
The tension across the region combined with the lack of a clear road to resolving the conflict means further potential instability to the insurance pricing and scope of cover to the defined high-risk areas, UIB, the insurance and reinsurance Lloyd’s broker within the UIB Group,
also highlighted.
“The Houthi group’s seizure of the vehicle’s carrier Galaxy Leader on the 19th of November 2023 and the subsequent sustained attacks on international shipping vessels led to the diversion of many vessels away from the Suez Canal passage and towards the much longer route around the Cape of Good Hope, South Africa,” an UIB spokesperson said.
Adding: “While a longer route means higher marine insurance premiums for cargo vessels given the additional weeks spent in voyage, vessels continuing to travel through the high-risk areas of the Red Sea, Arabian Sea and the extending waters near Eritrea, Djibouti, and part of the Gulf of Aden (as defined by the Joint War Committee) are facing their own insurance challenges.”
On November 19, 2023, the cargo vessel Galaxy Leader passed near the Iranian flagship, Behshad, in the early morning of November 19th. A few hours later, it was approached by an MI 17 helicopter deploying Yemen’s Houthis militia, which took over the ship in the southern Red Sea.
According to experts, the Houthi Militia launched the hijacking operation on the international flag vessel allegedly due to its group ownership being associated with an Israeli national, Abraham Rami Ungar.
However, it is worth noting that Israel’s military, writing on X, said that Galaxy Leader is “not an Israeli ship,” adding that it was “staffed by civilians of various nationalities, not including Israelis.”
Since then, several major shipping lines have suspended their services through the Red Sea as Yemeni-based Houthi rebels have attacked more than a dozen vessels since the beginning of the Israel-Hamas war.
The rerouting of cargo ships through the Cape of Good Hope extends transit times which not only increase transportation costs, but strain supply chains globally.
According to UIB’s spokesperson, in order to “control exposures and ensure adequate pricing, most international marine underwriters have issued notice of cancellation for war cover for vessels for the high-risk areas” and have allowed underwriters “to exercise their option to charge additional premiums for each insured shipment.”
“We are not concerned about a lack of international appetite and reinsurance capacity to meet the increased demand for marine hull and cargo war cover but the challenge for our clients is the significant increased costs,~” the spokesperson highlighted.
Noting: “Despite the recent airstrikes on Yemen having a positive impact on marine underwriters’ risk perception and on the war rates, the tension across the region and the absence of a clear road to resolving the current conflict means further potential instability to the insurance pricing and scope of cover as well as possible changes to the defined high-risk areas.”
Analysts at DBRS Morningstar have also highlighted the pressure the Red Sea attacks have placed on war insurance premiums, as they have also observed that the marine insurance market has responded to the heightened security risks in the region by increasing the price of marine war coverages.
Restricting insurance capacity, and expanding the geographic area deemed unsafe for sea navigation, are also part of the marine insurance market to this issue, according to DBRS analysts.
