Richard Young, head of marine hull and war insurance at marine insurance company Beazley, has said that war risk premiums need to rise if underwriters are to adequately cover the risks they face today.
Young made his comments in broker Gallagher’s Hull and Machinery and War Risk market update.
Despite a recent spike in rates due to tensions in the Middle East Gulf he described war risk premiums as “extraordinarily low”.
He blamed the long running soft marine insurance market for the inadequacy of war risk rates.
“I would argue that war risks underwriters are still charging far too little for the exposures they are taking on. Pricing of annual war is at all-time lows. Our records suggest that annual war rates have reduced by approximately 90% since 2002,” he said.
“The annual war rate covers worldwide navigation and the additional premium mechanism in theory covers the increased risk arising from trade to a listed [high risk] area. Given that the marine war policy covers terrorism and malicious damage, which could happen anywhere at any time, it seems as though the annual rate is extraordinarily low in many cases,” he said.
Young estimates that the value of the combined fleets of the top ten shipowning nations to be in excess of $500bn, for which war risk underwriters are covering with just $100m in premiums.
That level of war risk premium income would not be enough to cover the loss of one ship, he suggested, or possible additional pollution and loss of life claims.
Young said the threat of attacks on shipping and possible seizure of ships around the Strait of Hormuz remained high while there are other potential war risk hot spots around the world which could emerge.
Matching the risk
The war risk market has historically always performed on claims but premiums need to match the risk, he suggested.
Commenting on the recent attacks on shipping around the Strait of Hormuz, he said: “The war risks market will respond to these losses as it always has done. All valid claims will be paid. However, for the war risks market to take on the billions of dollars of global shipping exposures it needs to take adequate consideration for the risks.”
