Sanctions are a growing burden for insurers
The growing use of international sanctions is increasingly hindering global insurers and reinsurers which must tread increasingly carefully when navigating what has become a complex web of rules and regulations around this issue.
According to Chris Jones, head of Market Services at the International Underwriting Association (IUA), sanctions have gone right up on the compliance agenda for members over the last five years. “They are now in the top three issues that we are asked about by our members,” he said.
The issue came to the fore for the industry recently when India revealed it was planning to form a reinsurance pool to cover insurers working with refineries that process Iranian crude oil. Sanctions discourage international reinsurers participating in such risks.
Often, it is insurers and reinsurers focused on marine and transport risks that run the greatest risk of inadvertently breaching sanctions due to the nature of their business.
“The broad issue of sanctions compliance is challenging from the insurers perspective, particularly in terms of maritime and transport insurance,” said Neil Smith, head of underwriting at the Lloyd's Market Association.
“This is because the wholesale nature of much of the business written means that insurers may not become aware of potential problems until such time as a loss arises and investigation shows that the activity is in breach of a particular sanction.
“This situation is further complicated because the scope and application of sanctions will vary from insurer to insurer dependant on a number of factors which may include the domicile of the insurer, the composition of the board, and sometimes even the nationality of the individual broker/underwriter placing/writing the risk.”
The challenges have come to the fore in recent times because many regulators, recognising that the financial sector plays a critical part in international trade, now specifically include this sector within their regulatory documentation.
“The increasing focus on this issue by regulators has meant that in many cases inclusion of a suitable clause, by itself, might not be seen as providing sufficient evidence that insurers are fulfilling their obligations under regulations,” said Smith.
“From a Lloyd’s/London Market perspective our response to these challenges has been to encourage regulators to engage with us so that we can assist in drafting and framing appropriate sanctions language which will meet the needs of those regulators in limiting/prohibiting illegal activity while recognising the commercial and competitive aspects of the industry.”
