Insurers have stepped up despite war-risk disruption: Markel International

Paul Western and David Pressman from Markel International say worsening geopolitical threats are creating challenges for hull and cargo underwriters – but they are stepping up.

KEY POINTS:
GPS interference creates hull risk
Insurers reset terms as risks rise
Rerouting vessels can spark cargo claims

The marine war-risk insurance market has supported shipping through Somali piracy, sanctions and conflicts in the Black Sea, Persian Gulf and Red Sea. It has remained agile, adjusting pricing and revisiting terms as risks evolve – but never abandoning insureds. In doing so, it’s played a critical but often overlooked role in maintaining the flow of global commerce, ensuring that vital goods and commodities can continue to reach businesses and consumers worldwide.

That is the message from two senior hull and cargo underwriters from Markel International. Paul Western, head of hull underwriting, senior underwriter – war, and David Pressman, senior underwriter for marine cargo at Markel International, spoke to IUMI Today and offered their perspective on how insurers have stepped up through many challenges.

“We’re not stepping away from maritime interests. We’re stepping up.”

“Marine war insurance is a vital enabler of global trade. It allows trade to continue when geopolitical events would otherwise make voyages commercially unviable,” Western said, adding that even during periods of high tension, ship owners, charterers and cargo interests still need to transit globally. “Energy and commodities need to move around the world.”

Without it, Western added, global supply chains and energy security would suffer. But to maintain capacity, the market must adjust pricing and terms as risks evolve.

But Pressman dispelled the notion that carriers have cancelled coverage. “That is a misnomer,” he said. “The technical mechanism in the market is that notice of cancellation is issued, but coverage is reinstated on tailored terms & conditions,” Pressman said.

He explained that a notice is issued and back-to-back cover is provided by the market, but it does not leave insureds without cover. “We’re not stepping away from maritime interests. We’re stepping up,” he said about Markel specifically, which he notes has offered solutions that get cargo out of a high-risk area such as the Strait of Hormuz, or through the Red Sea, and avoid the significant extra time involved in going via the Cape of Good Hope. “It’s an important nuance for the cargo all risks and cargo war markets,” he added.

A wider fallout

The executives also addressed the wider implications of conflict, which can be less obvious. Efforts to avoid certain areas can mean longer voyages and greater exposure to general maritime perils.

“From a cargo perspective, we’re seeing an increase in events caused by general maritime perils,” said Pressman. “With the supply chain disruption, vessels are working harder. That gives rise to hull-related problems, and it has a knock-on effect on cargo interests, so we see more general average events causing loss to cargo.”

Rerouting has other consequences. Pressman said shipping lines diverting via the Cape of Good Hope, for example, where vessels face heavier weather than in the Red Sea, increases the chance of a maritime loss, whether that is a container stack collapse or another weather-related incident, he said. “These are not war perils, but they give the cargo market increased risk and challenge to overcome.”

Even the effects of a conflict are not also confined to the area where a threat originates. Limpet mines can be attached to vessels in one port and detonate elsewhere – theoretically anywhere in the world. “That expands the geographical boundary of a geopolitical conflict,” Pressman said.

Preparing for new risks

There are also wider, evolving challenges for the market. Western notes that cyber is a growing threat – and he highlights one specific growing problem. “We have GPS spoofing and interference in certain parts of the world, and we have to work out whether it is malicious or defensive. Militaries use GPS interference to defend regions but that has a knock-on effect on commercial shipping because the airwaves around a vessel transiting or navigating at that point can be affected.”

More broadly, he believes lessons from successive conflicts must inform future underwriting. “What matters is the discipline of portfolio management, the agility of underwriters in recognising different risks and the quality of the intelligence we now use to underwrite them,” he said. “The future depends on keeping the flexibility to adapt to the threats we are seeing globally.”

Pressman did not expect the situation in the Persian Gulf or Strait of Hormuz to change in the short term. “That means we have to think differently as a maritime industry about where the other pinch points will be, whether that’s the Straits of Singapore, China and Taiwan, or disputes between Turkey and Greece,” Pressman explained. “We have our ear to the ground with our intelligence providers so we can be proactive rather than reactive.”

David Pressman is senior underwriter, marine cargo at Markel International. He can be reached at: david.pressman@markel.com.

Paul Western is head of hull underwriting and senior underwriter – war at Markel International. He can be reached at: paul.western@markel.com.

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