London Insurers Extend Red Sea High-Risk Zone in Response to Threa

On December 18, London's marine insurance market expanded its designation of high-risk areas in the Red Sea following a notable increase in attacks on commercial ships.

The statement released on Monday highlighted the Joint War Committee's (JWC) guidance as a significant factor. The JWC comprises syndicate members from the Lloyd's Market Association (LMA) and representatives from the London insurance company market, which plays a crucial role in shaping underwriters' decisions regarding insurance premiums.

As mentioned in the statement, the JWC expanded the high-risk area in the Red Sea from 15 degrees north to 18 degrees north.

According to Neil Roberts, the head of marine and aviation at the Lloyd's Market Association (LMA), representing the interests of all underwriting businesses in Lloyd’s, “In many ways, it’s to reflect the missile range more than anything,”

He also informed Reuters: “But it’s an alert for insurers rather than owners who are very aware of the risks as demonstrated by the re-routing of ships in numbers,”

In response to Israel's military campaign in Gaza, Iran-backed Houthi militants in Yemen have intensified their attacks on vessels in the Red Sea, expressing solidarity with the Palestinian Islamist group Hamas.

In addition to attempting to seize vessels, the Houthis have launched missiles at ships navigating near the Yemen coast en route to the crucial Bab al-Mandab gateway. This has led some shipping companies to reroute their vessels via the Cape of Good Hope.

Ships transiting through these areas are required to inform their insurers and pay an additional premium, typically covering a seven-day period, due to the heightened risks involved.

ESCALATING EXPENSES

The expense associated with shipping goods through the Red Sea has witnessed a surge in recent days.

According to market estimates on Monday, war risk premiums have escalated to approximately 0.5%-0.7% of the value of a ship, up from 0.07% in early December.

Even after considering potential discounts, this rise results in multiple tens of thousands of dollars in additional expenses for a seven-day trip.

Munro Anderson, the head of operations at Vessel Protect, a marine war risk and insurance specialist under Pen Underwriting, expressed that the extension of waters categorized as high risk is a "welcome addition." Anderson added, "Commercial operators are now afforded a degree of comfort in knowing that there is a consistency of cover throughout the risk area."

The statement also revealed a slight adjustment by the JWC in the high-risk zone near Eritrea, extending it to 18 degrees north from the previous 15 degrees north.

"Potential challenges from missile threats could emerge. The situation is dynamic and unpredictable, and it's prudent to maintain awareness," commented Roberts from the LMA, specifically in reference to the waters near Eritrea.

Concerns also arose about Somali gangs potentially disrupting shipping, especially after European naval officials suggested that the commercial ship Ruen might have been hijacked last week.

"Prior to the MV Ruen incident, insurers were inclined to tighten regulations in the Indian Ocean area closer to the Somali coast," Roberts explained. "Recent events emphasize the ongoing need for insurer vigilance and clarity for the assured. Consequently, the area remains unchanged to the south and east."

The Joint War Committee (JWC), which typically convenes quarterly to assess regions deemed high risk for merchant vessels susceptible to war, strikes, terrorism, and related perils, continues to monitor the situation.

(Reporting by Jonathan Saul; Editing by Alison Williams and Timothy Heritage)