How the Ukraine conflict affected cargo and marine insurance
It would be hard to imagine just two years ago that the topic of cargo and marine insurance could make international headlines. But then came two large-scale events that made us seriously reassess that situation: first, a container ship called the Ever Given was grounded in the Suez Canal in March 2021, blocking the major through-route and causing disruption to global supply chains. Then, from February last year, Russia’s invasion of Ukraine produced widespread implications that have affected the cargo and marine insurance line – just as it has affected most of our daily lives. Gone are the days when cargo and marine insurance could shy away comfortably into tranquil obscurity.
At the outbreak of the invasion, predictions were that the war would significantly increase cargo and marine premiums. That came to fruition at the end of May when it was reported that premiums for certain aviation and marine activities had increased by 100% or more. Despite this, the insurance sector is still expected to record growth for the past year, albeit at a slightly modest rate.
What impact has the conflict had on shipping?
It’s not just the increased risk to insurers that has spooked the cargo and marine industry: like many industries, it has had to face up to the heightened threat from cyber attacks, whether from state-sponsored actors or lone individuals.
Shipping companies have had to make a decision about continuing to operate in Black Sea waters, in particular, being near to Russo-Ukraine fighting. And, of course, there’s the reputational damage that occurs for operators who choose to continue importing and exporting to Russia, or those who don’t terminate existing contracts with Russian firms. All of these factors have accumulated to compound the already-difficult situation that the global cargo and marine industry found itself in.
Writing at the beginning of this year, Rishita Agarwal and Shamil Adeeb of the Centre for Maritime Law at India’s National Law University Odisha, said: “The International Monetary Fund had forewarned that this year’s already high shipping costs would increase dramatically and could stay there for a long time, leading to inflation. In the 18 months that followed March 2020, the cost of shipping a container on the world’s transoceanic trade routes climbed sevenfold, and the cost of transporting bulk items increased even further. The majority of the war’s consequences were felt in the Black Sea by ships going to or conducting business with Russia. As a result of the conflict and a Russian naval blockade of Ukraine, important ports like Odesa were closed.”
Agarwal and Adeeb suggested there could be broader implications further down the line – but not exclusively because of the war: “Unfortunately, carrier uncertainty has intensified due to the effects of COVID-19, traffic, rising costs, the energy transition, as well as the growing threats brought on by the conflict. Additionally, investment is constantly at odds with uncertainty. Although we will need more and more modern, energy-efficient ships, shipowners and bankers will now expect a larger return on investment than before, postponing investment.”
Pete Townsend, writing in a Miller Insurance report published in the middle of 2022, says: “The impact of the war on the insurance market is as much a result of the significantly changed perception of war risks, as it is the reality of the totality of the vessels currently detained due to the conflict.
“The total sum of vessels detained/deprived pales into insignificance relative to the reported US$15bn of aircraft confiscated or deprived from owners due to the conflict – some 388 foreign leased aircraft. In contrast, the marine exposure is, in total, likely to run into tens or hundreds of millions.”
What does 2023 hold in store for shipping?
Despite the headline-grabbing effects of the Ukraine war, there continues to be “a surge in appetite to underwrite marine cargo”, according to a separate report from Aon.
“Specific risk appetite varies among insurers, but all show interest to write medium-sized general cargo accounts, while some are open to writing more complex project cargo and DSU.”
Aon continues: “We are seeing a trend for project cargo and delay-in-startup insurance from clients who are entering into renewable energy projects, such as wind farms, solar farms and battery energy storage systems. The appetite for project cargo in the market is increasing, but with large limits and short indemnity periods, only a few can write 100% capacity.”
Looking ahead to this year, Aon adds: “The market will always be subject to industry losses, as well as any further impacts COVID-19 and the war in Ukraine have on the reinsurance market. Importance will be placed on accurate declaration of goods and shipments, marine warranty surveys and client risk management strategies. In turn, we will likely see rates ease and capacity increase.”
Timeline of the Ukraine war
24th February 2022: Russia invades Ukraine, an act that is roundly condemned by international politicians and multinationals alike
March 2022: Russia begins blockading Ukraine’s Black Sea ports, preventing vital exports like grain from leaving the country and threatening to disrupt global supply chains
June 2022: The European Union (EU) announces a ban on European insurers from insuring any vessel carrying Russian oil – an attempt to double-down on sanctions against Russia, as some third-party countries continue to remain neutral on the war. The ban is thought particularly hard-hitting, as a majority of large insurers are based in Europe; other countries, like the UK and US, soon follow
July 2022: A deal is struck to lift the grain blockades, allowing grain and other exports to transit freely through a safe corridor to the Bosphorus
October 2022: Russia withdraws from the grain deal, apparently in retribution for a drone attack that it believes was carried out by Ukraine
December 2022: P&I clubs, which insure up to 90% of ocean-going ships, say they are beginning to step away from policy renewals for vessels in the affected region, which usually happens on 1 January