top of page

Fortunes Amid Conflict: The Business of War-Risk Insurance

Maggie Johnson

Maggie Johnson

January 7, 2025


Image Credit: Available at Pixabay. (01/07/2025).

In unassuming office buildings across London, a specialized corner of the insurance industry plays a critical role in keeping global trade flowing through some of the world's most hazardous waterways. As conflicts escalate in the Middle East and Ukraine, shipping essential goods like oil, coal, and grains has become increasingly perilous. The Red Sea and Black Sea are vital maritime corridors, but without insurance against war-related risks, much of this cargo would remain stranded in port.

Specialist insurers now dominate this niche market, offering protection against damages caused by drones, missiles, or drifting mines. Although maritime insurance has roots in London dating back to the 1680s, demand for war-risk coverage has surged to unprecedented levels. The combination of geopolitical instability and a rebound in global trade post-pandemic has created fertile ground for this sector, which industry experts estimate could generate up to $1 billion annually in premiums.

"Without the specialist war-risk insurance market, the impact on critical marine trade routes would have been far greater than what we've seen," says Chris Goddard, CEO of Vessel Protect, one of the largest providers in this space.

Founded four years ago during the Covid-19 lockdown, Vessel Protect has rapidly grown, at one point insuring nearly a third of the grain shipments leaving Ukraine. The firm is one of several managing general agents (MGAs) that have entered the market, competing with traditional players in the Lloyd's of London insurance market. MGAs offer coverage for dangerous voyages, charging premiums that can yield significant profits if the massive vessels complete their journeys unscathed.

In the first half of last year, insurance provided by firms like Vessel Protect facilitated the movement of an estimated $150 billion worth of cargo through the Red Sea and Black Sea—equivalent to over $830 million daily, according to analytics firm Kpler. Other notable players include Navium Marine Ltd., Ai Marine Risk Ltd., Clearwater UW Ltd., and K2 Rubicon Specialty, which have all launched operations in recent years. These companies not only provide war-risk coverage but also insure against threats such as piracy, ship value losses, cargo damage, and even crew kidnappings.

The leaders of these firms come from diverse backgrounds, including broking, underwriting, and military intelligence. Navium's CEO, Clive Washbourn, a Lloyd's veteran and self-proclaimed Emerson, Lake & Palmer fan, humorously names his meeting rooms after female pirates. While he declined an interview, others in the industry acknowledge the significant growth in the number of new marine insurance providers, particularly in the MGA segment.

Shipowners increasingly seek coverage for navigating perilous waters, including the Gulf of Guinea, the Persian Gulf, and Russia's extensive coastline. Unlike standard annual marine insurance policies, war-risk coverage typically applies to specific zones for a shorter duration, often just seven days but sometimes up to a year. The financial consequences can be severe for those opting to forgo this insurance due to its high costs.

"If they don't have insurance, they need to pay for the losses out of their own pocket," warns Christina Serebriakova, an agricultural commodities broker at Kyiv-based Atria Brokers.

Underwriters assess war-risk policies by evaluating factors such as the number of ships passing through high-risk areas and recent incidents. Yemen's Houthi rebels, for instance, have launched over 100 attacks in the Red Sea since 2023, resulting in damaged vessels, torched tankers, and at least four crew fatalities. One tanker struck by Iran-backed militants burned for more than four weeks before being towed by the European Union's naval forces. Another ship, the Tutor, valued at approximately $37 million, was sunk by a drone in June—highlighting the substantial liabilities insurers may face.

Despite the risks, MGAs are thriving by taking on coverage that traditional providers often avoid.

"They are offering cover for business that other people are reluctant to take," says Anders Hovelsrud, insurance director at the Norwegian Shipowners' Mutual War Risk Insurance Association. Some shipowners have switched to these newer players when established insurers declined coverage for specific regions.

The market is expanding not only with new entrants but also through growth initiatives by existing firms. NorthStandard Ltd., the world's second-largest marine insurer, plans to enhance its war-risk offerings as part of its broader strategy. Although there is no standardized measure of annual premiums, industry insiders estimate that London's war-risk insurance market generates about £500 million ($621 million), while global figures could approach $1 billion.

"Insurance is the facilitator of world trade; without it, things don't move," explains Neil Roberts, head of marine and aviation at the Lloyd's Market Association.

The war market performs a very useful social and financial function. As conflicts persist, the demand for these specialized policies is unlikely to wane, ensuring the continued flow of goods through some of the world's most dangerous shipping lanes.

3 views0 comments

Comments


bottom of page