Opinion: Marine Risks in the Gulf & Middle East Region

Simon Dempsey, Marine Claims Executive at Meridian Risk Solutions, gives advice on dealing with War Risk claims and assesses what the current volatile situation in the Gulf region may mean for insurers;

Simon Dempsey meridian risk

Following a period of relative calm, all eyes are once again on the Gulf region as the consequences of the Trump administration’s military actions have raised tensions with Iran to levels last seen during the hostage crisis of 1979.

The killing by drone strike of Iranian general Qassem Soleimani in Iraq on 3 January started the new year with fresh uncertainty, with the quick retaliatory strike a few days later by Iran on Iraqi military bases that housed US and UK troops demonstrating the deadly elevation of war risks, which of course in turn means tense times for insurers covering the globally important waterways of the region.

The latest developments mark a stark return to the period of regional instability during the spring and summer of last year, which saw the Strait of Hormuz become a flashpoint for international conflict as tankers traversing the strategically vital waterway came under attack.

Oil prices rose following the drone strike last week, as fears were raised that any fallout could disrupt shipping in the seaway through which approximately one-third of the world’s liquefied natural gas and almost 25% of total global oil consumption passes through.

As Rockford Weitz reported in Navy Times on 8 January, the US Maritime Administration issued an alert over potential Iranian action against “maritime interests in the region” and the UK announced that the Royal Navy would resume escorting vessels through the Strait of Hormuz as a precaution.

This is a situation that the Meridian Risk Solutions Marine team will be closely monitoring after having first-hand experience of this type of escalation of conflict when a client’s tanker was one of four ships hit by explosions in May in the nearby Gulf of Oman.

The attack came during the period of heightened tension that gripped the region last year, but despite being an extraordinary incident, our Marine team’s decades of experience in the area meant calm heads prevailed and the client’s claim was successfully and quickly dealt with.

Although the attack was the result of an explosion and therefore covered under the War Risks policy, we also needed to notify Hull & Machinery (H&M) insurers until the cause of loss was apparent. This was a high-profile incident, so was a topic of conversation in the office, but the focus was to remain calm and support our client, as it was a prime example of why clients buy insurance, i.e. that they can rest assured that they are well covered in the event of a catastrophe.

Such attacks are not frequent, but Meridian has a very experienced claims team that has dealt with a number of War Risk claims over the years, so there is little that will surprise us. The key to any claim is collating the necessary information to support the claim and look where this may be covered under our client’s policies. As War Risks is an addition to standard H&M insurance, which does not cover acts of war, if the client did not have this, then there would have been a gap in their protection/cover.

When dealing with this kind of claim, it is important to have the support of a specialist broker who can consider the clients’ needs and how the insurance coverage which is in place may respond to the situation.

The secret to this successful claim, despite its extraordinary nature, was employing traditional solid brokerage practices, delivering the kind of reliable service a client expects, no matter what the situation. We were able to work closely with the client, lead insurer, surveyor, adjuster and solicitors to bring everyone together and ensure that the client was able to provide us with the necessary information in order to support their claim. This involved the usual high volume of emails and phone calls, but, of note, we found that arranging conference calls with the relevant parties really helped us to get everyone on the same page.

Due to the nature of the attack, the damage was extensive to the hull of the vessel, but until a complete inspection was completed and quotations obtained it was not clear that the vessel would be a constructive total loss (CTL), but we were able to guide our client through the whole process and given the size of the claim, obtain a swift settlement once it was clear that the costs would exceed the insured value. As our client had lost a costly asset, this was key to ensuring their business was impacted as little as possible.

The international attention, while always present, of course did not distract the Meridian team from executing the claim in a timely and efficient way. It was certainly an interesting claim to handle, but the media focus did not add any pressure as we treat all of our clients’ claims very seriously. The incident was a talking point, but the key for us was to ensure that the right outcome was achieved for our client.

Fortunately, these types of attacks are not a regular occurrence, but we have to be prepared as they can happen at any time, and it is because these types of incidents can be very costly that the structure of the insurance cover is so important, rather than the frequency of claims.

According to Rockford Weitz, Iran could resort to similar tactics to those witnessed last year, putting maritime assets once more at risk. He said: “I have seen how past skirmishes in this waterway fit into Iran’s use of hybrid warfare – unconventional tactics that achieve strategic goals without triggering conventional military retaliation. In fact, Iranian leaders will likely feel tremendous political pressure to ratchet up maritime hybrid warfare in response to the drone strike that killed the general.”

Further complicating the already fractious situation is the assertion by some Western intelligence services that a Ukrainian passenger plane that crashed shortly after take-off from Tehran on 8 January was accidentally shot down by an Iranian anti-aircraft missile.

Although this claim has been denied by Iranian officials, it will undoubtedly result in some reassessment of Trump’s decision to assassinate the Iranian general while also forcing Western governments to further consider and possibly rethink their next steps.

There is no doubt that the situation will remain fluid and highly uncertain for the foreseeable future. Underwriters are in the main resisting the temptation to immediately increase their war additional premiums following the Iranian attack on the allied bases in Iraq, waiting, we believe, to assess the proportionality (or not) of any US response.

War underwriters are, however, all taking mixed views as to what is a sensible additional premium to be charged for both Persian Gulf calls west of 58° east, and into Iraq during this time.

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