Rising tensions and recent attacks by Yemen-based Houthi militants in the Red Sea have put Indian insurers on alert, anticipating a possible rise in marine insurance costs. While the situation remains tense around the Bab-el-Mandeb Strait, a vital shipping lane connecting the Mediterranean Sea with the Indian Ocean through the Red Sea, insurers believe that the current crisis is manageable within the insurance and reinsurance industry.
Insurers observed a wait-and-see approach, emphasizing that claims related to the recent incidents are still being reported. Despite the perceived risk associated with the Red Sea region, insurers are wary of a possible increase in claims and costs. The tense geopolitical scenario has prompted insurers to review their risk perception, paying attention to the developments.
Increase in premiums
The crisis could lead to a significant increase in shipping costs, up to 60%, and insurance premiums by 20%. However, insurers feel that the marine insurance business, which accounted for 2% of the total business of general insurers in India, may not witness a major impact.
Insurers are already prepared for contingencies, and any impact on the marine insurance segment would depend on the worsening of the situation in the Red Sea. International trade, especially marine insurance, is considered intensive, with cargo and hull adequately covered.
While insurers do not anticipate immediate changes in insurance conditions or an upward revision of marine premiums, they acknowledge the potential for restrictions on the route of reinsurers if the situation worsens. However, they express hope that the current situation will not lead to such restrictive measures.
The London marine insurance market recently expanded the designated “high risk” area in the Red Sea due to increased attacks on merchant ships. The Red Sea scenario falls under the war risk category for marine insurance, with rates adjusted based on risk levels. War risk premiums have already seen an increase, and further adjustments may occur based on the evolving situation.
ETBFSI now has its WhatsApp channel. Subscribe for all the latest updates.