The oil tankers typically sailing in the region which have to date been the main targets of hostile activity can be worth in excess of $200mn, once their valuable cargoes are taken into consideration. For example, the value of the hull of a very large crude carrier (VLCC) could be anywhere between US$85mn to $100mn for the largest vessels. However, size and age are important factors in any valuation – a five year-old VLCC, which could carry between 180,000 to 300,000 deadweight (dwt) would have a hull value of around $70mn, according to Baptiste Ossena, Global Product Leader Hull and Marine Liabilities at AGCS.
At the same time the estimated value of the cargo of a VLCC could come to around $130mn, based on the price of oil being around $65 a barrel and the vessel being at full capacity, carrying in the region of 2,000,000 barrels.
As a leading insurer of both marine hull insurance and marine cargo insurance, which can either be bought at the same time or separately from different insurers, AGCS insures such vessels transits every day. A marine hull insurance policy covers physical damage to a vessel, which can include collision liabilities. However, such hull policies do not cover acts of war, piracy or the seizure of vessels, as in the case of the Stena Impero. These risks require a standalone war coverage policy to be purchased, which AGCS also offers, although it is not a major provider of this type of insurance. Sometimes the war risk cover is placed by a broker alongside the hull cover, sometimes it is placed separately.
Cargo insurance provides cover for all risks of physical loss or damage to goods while in transit. Unlike with marine hull insurance cargo war risk premiums have typically been included within the “all risks” premium without a separate rate for a number of years.
Marine war premiums for ships entering the Persian Gulf have increased since the first tanker incidents occurred. Although ship owners are paying more for their war risk insurance it isn’t just an overall rate increase; rates for certain transits have increased because of the enhanced risk now perceived. In many cases ship owners pass on the cost to the charterer of the vessel.
Once the Gulf was listed as representing an enhanced risk to vessels, additional breach premiums for ships entering the region applied. Following further attacks on two tankers in June, the Front Altair and the Kokuka Courageous, the risk of sailing in the region was perceived to have become greater, culminating in the detaining of the UK-flagged tanker. During this period there have been reports of additional breach premiums being applied in the range of between 0.2% to 0.5% of the value of the hull, although terms and conditions could reduce this amount.
Following the incident with the UK-flagged tanker there have been reports of percentage rates in excess of 0.5% of hull value being applied for UK and US flagged vessels which only make up a small proportion of the vessels in the global fleet. The UK government‘s decision to provide a navy escort for its ships through the Strait of Hormuz will positively impact pricing for ship owners.
The marine cargo insurance market has predominantly applied additional war rates to oil and gas risks as the general view has been that the vessels carrying these cargoes are at greater risk but the situation could of course change in future.
The detaining of the Stena Impero also brings questions about how insurance responds when a vessel is seized. The most concerning aspect about this incident is the fact that 23 crew members were confined to the vessel by Iranian forces. On vessels, the crew is typically insured by P&I clubs, mutual insurance associations that provides risk pooling, information and representation to its members. In such an event as the seizure of a vessel the insured party would contact their broker who would then contact the claims team, who would instruct lawyers and potentially a team of professional negotiators to make contact with the party which had seized the vessel.
For ship owners seizure of a vessel is covered under a specialist war insurance policy. Typically, if the vessel has been taken and has not been returned after six months, the owner has the chance to claim a total loss. However, some contracts require 12 months before a total loss is allowed.
Of course, from a financial point of view, every day a ship is detained also results in a business interruption in terms of the vessel being unable to deliver its cargo. In this situation insurance can also respond in the form of war “loss of hire“ cover, which can cover the vessel for loss of earnings for the period during which it is detained. However, this is an optional coverage and is not always taken up by ship owners.
Kinsey explains that for vessels transiting the Arabian Gulf, Strait of Hormuz and the Gulf of Oman several key references are available which can help shippers keep abreast of latest developments, such as (United Kingdom Maritime Trade Operations) 002/JUL/2029; BMP5 and (The UK Hydrographic Office) Security Chart Q6099.
Similarly, the following guidance has been developed by the BIMCO Maritime Security Committee to help prepare vessels in the event of incidents transiting the Strait Of Hormuz.
While this is not officially permitted, there have been reports of some ships turning off their transponders while passing through the Strait of Hormuz in order to avoid detection. However, turning off transponders increases the risk of accidents, injuries and collisions at sea, Kinsey concludes.
The above incidents do not include piracy incidents.
Data source: Lloyds List Intelligence Casualty Statistics.
Data analysis: Allianz Global Corporate & Specialty.