UK blacklisting of Russian insurer Ingosstrakh could backfire, industry warns

The UK blacklisting of Russian insurer Ingosstrakh will have limited impact on the size of the shadow fleet but could block payments in the event of an oil spill in Europe, a senior sanctions specialist has warned.

Ingosstrakh has been the beneficiary of an exodus of hundreds of tankers from G7-linked protection and indemnity providers but became the most high-profile target on Thursday of a new round of UK sanctions.

UK blacklists Russian insurer Ingosstrakh and first shadow fleet vessels

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The blacklisting of Ingosstrakh is part of a G7 strategy to target service providers and raise costs for the shadow fleet of hundreds of tankers hauling Russian oil.

However, senior insurance players said that the tactic could backfire.

Concerns over the adequacy of insurance coverage for the dedicated Russian “shadow” fleet — said to number about 435 vessels, according to Ukraine’s KSE Institute — has raised questions about who would pick up the tab in the event of a spill from an elderly or badly maintained vessel.

But a payout by Ingosstrakh in the event of a spill from one of its covered vessels is now unlikely following the UK designation, according to Malin Hogberg, director of corporate legal at the Swedish Club and chair of the International Group of P&I Clubs’ sanctions committee.

“I’m wondering whether the objectives will be achieved by going after the insurer,” she said.

Limited impact

“We know that [the designation] is likely to have very limited impact on the choice to do this trade,” she told TradeWinds at a Swedish Club event in Gothenburg, Sweden.

“But if we look at the environmental consequences, there are already concerns about whether many of these ships have known insurers or solid insurers.

“I’m not sure this is a consequence that has been entirely thought through if the concern is for the environment.”

Ingosstrakh was blacklisted by the UK on 13 June because its business in the financial sector was of “strategic significance” to the Russian government.

The move prohibits the use of funds owned, held or controlled by Ingosstrakh. Special cases can be made for humanitarian issues or emergencies.

Licences that would allow payouts would be granted on a “case-by-case” basis and decided by the UK sanctions regulator, the Office of Financial Sanctions Implementation, according to government guidance.

The International Group committee has lobbied regulators to ensure that the International Oil Pollution Compensation Funds could continue its work unhindered in the event of a spill from a sanctioned vessel.

The 121-nation body picks up the tab for clean-up operations after a shipowner and its insurers have fulfilled their liabilities. Its director, Gaute Sivertsen, has previously said that a growing number of vessels hauling sanctioned oil without adequate insurance had effectively turned his organisation into the “underwriter for the dark fleet”.

Ingosstrakh did not immediately respond to a request for comment. But it has previously said an oil spill involving a sanctioned vessel could still lead to a payout to innocent third parties if the insurer secured a licence from the relevant country.

G7-linked P&I clubs are barred from insuring vessels that haul Russian crude sold above $60 a barrel. Those operators had to seek alternative cover, with Ingosstrakh being one of the providers that stepped in to fill the gap.

Strategic significance

The Russian insurer was a significant player in the marine insurance market before the invasion of Ukraine but the sanctions could limit its ability to pay out on claims.

But complex sanctions programmes have a history of preventing financial settlements going the other way between the UK and a country it has targeted.

Sanctions were cited as the reason the UK failed for years to settle a £400m ($509m) debt to Iran over a cancelled pre-1979 tanks and arms deal.

The eventual payment in 2022 was seen as a key concession by the British government that coincided with the release of two Britons held by the Iranian government on trumped-up espionage charges.

The focus now turns to how India and China will respond to the move. India earlier this year extended a licence for Ingrosstrakh to operate until March 2029.

“It will be more interesting to see how, for example, India and China react to this and if they will maintain their approval of Ingosstrakh,” Hogberg said.

“So I think that’s the space to watch rather than to expect ships to no longer insure with them.”