Rising geopolitical tensions, ongoing trade disputes, climate-related hazards, and post-Brexit regulatory challenges are creating a complex and volatile risk environment that is testing the resilience of the global marine insurance industry, according to global law firm Kennedys.
They noted that escalating tensions related to Russia, including bristling near Estonia and other states, are significantly disrupting logistics through imposed restrictions on the movement of goods and people.
“This ongoing instability is compounded by volatility in key shipping bottlenecks in the Middle East, including attacks by the Houthi rebels and tension with Iran, both of which result in significant disruption and substantial losses for the Marine Insurance industry,” added Chatfield and Burton. “This sustains a fragile and dangerous situation in crucial maritime routes like the Red Sea, the Arabian Sea and surrounding areas, which in turn substantially extends supply chains by forcing vessels to route around the Cape in Southern Africa.”
Ongoing trade disputes between China and the US are further heightening pressures in the global marine sector.
They stated, “The first Chinese tariff imposed on a US vessel signals a potential escalation of reciprocal actions that could directly disrupt supply chains, compel companies to seek alternative shipping channels and suppliers, and profoundly impact the China-US trading relationship. This unrest is at risk of significant escalation, as the EU proposes extended powers to board Russian vessels, which will likely lead to an increase of reciprocal seizures and boardings.”
Chatfield and Burton stressed that as sanctions tighten, insurers will need to be increasingly rigorous when considering risks insured and any financial benefits provided to insureds caught up in such disputes.
Climate change and extreme weather also remain continuous, volatile threats. The Kennedys partners noted that the insurance market still relies heavily on historical claims data, which is ill-suited to predicting today’s climate-related risks.
“The increasing frequency of climate events – such as recent floods in the Middle East and unusually warm ocean temperatures – continues to drive significant claims from floods and hurricanes. Insurers must be careful not to be lulled into a false sense of security by the recent quiet period. We are already seeing significant hurricane activity in the Caribbean,” said Chatfield and Burton.
Meanwhile, post-Brexit customs formalities are generating a wave of claims against freight liability policies.
“Due to significant increases in technical formalities and delays encountered at border controls, fines and penalties for incorrect customs declarations and for delays in delivery are beginning to catch the attention of the insurance market – around two years after the new regulations came into force.
“The return of complex procedures, reminiscent of the old T forms, represents a niche but important issue, as HMRC issues substantial bills and fines to freight operators and importers of goods. The Freight Liability insurance market – long accustomed to a unified customs system – will have to re-evaluate and tighten cover for customs-related risks, which have become increasingly common given the high volume of trade with the EU,” Chatfield and Burton concluded.
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