IUMI: latest sanctions bring more pain for marine insurers

The latest EU sanctions against Russia have added to the complexity of the “polycrisis” marine insurers face as the industry is “caught in the nets of nationalism” and buffeted by global economic uncertainty, according to Frédéric Denèfle,  IUMI president.

The fresh sanctions, which were announced on February 5, ban the import of Russia’s diesel fuel and other oil products.

He said the new sanctions against Russia brought a “huge pressure” for marine insurers and that IUMI was working to find solutions to cope with the regulator's decision and at the same time, understand the regulation and how it works so IUMI can explain it to marine insurance customers.

So far, IUMI has had “good dialogue” with the regulators on the latest sanctions, Denèfle said. “We said it [the diesel ban] would overburden us as an industry if we had to assert the concrete price of purchased goods we are transporting or ensure we insure the transport of these goods."

Declaring concrete prices would potentially undermine the transport of oil to developing countries, he warned, which is something that nobody wants to see. This latter point was "very well taken by the regulators”, Denèfle said.

However, he commented that discussions had been “more fragmented” than before and had involved talks with the EU Commission, the UK, and the US. But this enabled a “a kind of harmonisation in the G7 countries, which is to say first movers agree, so it was a good dialogue this time”.

But the IUMI president added: “It's not only about Russia, it's also about Iran. And now we are facing sanctions taken by Iran against the rest of the world… expressed by Iran when it comes to the freedom of navigation into the Persian Gulf.”

Tensions in Southeast Asia are another increasing concern for the industry.

Reinsurance retreat

Denèfle also acknowledged the challenges and concerns of marine insurers about “the reluctance” of reinsurers to provide cover for maritime vessels in war-related regions.

While some in the market have been shocked by the retreat of reinsurance from the marine market following Russia’s invasion of Ukraine, Denèfle said, “it shouldn't be such a surprise” given the “massive amount of losses” and the fact the war is ongoing.

“We can understand the fact that reinsurance and direct insurance as well may feel really uncomfortable with such a situation,” he said.

Lars Lange, IUMI secretary general, said: “We have seen in the markets that many insurers took the decision to do less with regard to Russia-related business than sanctions demanded. We call it ‘self sanctioning’ in that many companies decided that although they would be allowed to do certain Russia-related business, they as a company decided against it.”

He said it has an ESG component as it is a compliance issue in the company. “You define your own risk appetite, and you take a company decision, although not forced by the regulators to do less than that direction, to fulfil your obligation to society. So that was something pretty new. And it also puts you on the safe side if you are unsure how far sanctions are going to go, so what might come next month.”

Denèfle and Lange, said IUMI is working on solutions but ultimately there is competition in the market and companies take their own decisions.

Lange said: “The advantage of IUMI is that we provide a platform on which we can discuss this.”

Denèfle also highlighted the recent and significant reduction in international trade, which has resulted in slower port turnarounds as cargo volumes are low and freight rates have declined. Marine insurers have been left with “far less value to insure”, he said.

However, Denèfle said digitalisation must remain at the forefront of developments in the industry.

"Keeping up to date with data-led innovations and digitalisation is essential for marine insurers. This includes the technical development of vessels and the ongoing challenges regarding fires on container and RoRo vessels. IUMI must advocate for proper regulations to address these challenges.”

An IUMI conference on resilience and how to deal with these complex issues is under consideration for September, he said.