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Marine insurance premiums surge amid instability in Mideast

The Yomiuri ShimbunConcerns are growing over a possible surge in marine transport costs after a tanker operated by a Japanese shipping company was attacked in waters off Oman near the Strait of Hormuz in June.

Higher insurance premiums for vessels that navigate through dangerous waters near the scenes of recent attacks and calls for pay hikes for crew members are among factors fueling fears of a significant cost surge. Prices of petroleum-related products in Japan would be affected if shipping costs drastically increase.

Shipping companies insure their vessels to cover damage in the event of maritime accidents. As well as standard insurance cover, companies also take out war insurance (see below) when navigating unsafe waters. Since the tanker attack in June, war insurance rates have increased tenfold.

Shipping companies generally take out war insurance every time their vessels navigate waters in and around the Strait of Hormuz. The insurance rates, which were 0.025 percent of the vessel’s value before the incident, have surged to about 0.25 percent.

For a large tanker valued at ¥10 billion, war insurance premiums are estimated to have increased from ¥2.5 million to ¥25 million. According to the Japanese Shipowners’ Association, as many as about 1,700 tankers and other vessels operated by members of the association navigate the strait per year. The soaring premiums have a huge impact on operators.

War insurance covers tankers and other large ships. When shipping companies claim for damages, insurance payouts can be several billions of yen.

In most cases, domestic non-life insurers usually take out reinsurance — in which overseas insurance companies cover part of payouts in the event of claims as payouts would be too heavy a burden for one domestic non-life insurer to bear.

“Insurance companies have no choice but to raise premiums to cope with increased risks,” said Yasuzo Kanasugi, chair of the General Insurance Association of Japan and president of Aioi Nissay Dowa Insurance Co.

The shipping industry is calling on shippers to shoulder part of the cost. “It is difficult for a shipping company to bear all the burden of rising insurance premiums,” said Tadaaki Naito, chair of the Japanese Shipowners’ Association.

Costs other than premiums may also increase. According to the association, a crew members’ union is calling for higher pay for crew when vessels navigate waters in and around the Strait of Hormuz. Since the incident, shipping companies have taken such measures as increasing the speed of vessels traveling in the area. However, such efforts are likely to worsen fuel efficiency and further increase operational costs.

■ War insurance

A type of insurance that covers damage to vessels and harm to crew members resulting from war, conflict or terrorism, which are not covered by conventional vessel insurance. Shipping companies usually take out war insurance when their vessels navigate waters in high-risk areas, such as the Middle East. War insurance premiums are calculated by each non-life insurer based on reference rates provided by Lloyd’s, a Britain-based insurance market.Speech

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