Marine insurers face ‘cocktail of risk’ after Gulf of Oman tanker attacks

Attacks on two oil tankers in the Gulf of Oman on Thursday will force insurance underwriters to scrutinise voyages more closely with premium increases for vessels in the region a “near certainty”, an industry expert has said.

Jonathan Moss, head of transport and shipping at global law firm DWF Partner, said the incident was “likely to lead insurers to raise premiums, renegotiate terms of cover and introduce riders to marine and energy contracts of insurance and reinsurance”.

The attacks happened near major shipping lane, the Strait of Hormuz, which is already a focus for geopolitical tensions as it links middle east oil producers to the global market.

A Japanese and a Norwegian tanker were damaged, reportedly by limpet mines, prompting US secretary of state Mike Pompeo to blame Iran. The Iranian mission to the UN “categorically rejects” his claim.

“This coming year will see a drive by insurers to raise premium in the face of a cocktail of instability in the region," said Moss. "Global marine insurers are closely monitoring the current situation employing complex risk models.

“Determining the level of risk in the region is difficult as long periods of calm are followed by a spate of notifications to marine insurers of large claims caused by acts of aggression.”

Just last month (May 2019) four ships, two Saudi oil tankers, and a Norwegian and a UAE-flagged ship, were hit. In the days after, armed drones also attacked two Saudi oil pumping stations.

The shipping attacks caused London market marine insurers to extend the list of waters deemed high risk under their hull war, piracy, terrorism and related peril policies to include Oman, the United Arab Emirates and the Gulf, while risk areas for Saudi Arabia were extended to include its coasts.

Global insurance markets are “accustomed to factoring geopolitical uncertainty into pricing models” but this level of geopolitical fallout had not been seen since 2003.

In 2003, rates for hull and machinery, war risk cover for tankers in the Persian Gulf increased “significantly” in response to political instability in the region.

Moss said: “Given the risk of hostility in the Persian Gulf, underwriters will be closely scrutinising voyages on a case-by-case basis with premium increases covering vessels in the region a near certainty.”

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