Global law firm Kennedys said rising geopolitical tensions, ongoing trade disputes, climate-related hazards and post-Brexit regulatory challenges are creating a complex and unstable risk environment that is testing the resilience of the global marine insurance industry.
Kennedy partners Chris Chatfield and Shaan Burton highlighted the geopolitical landscape as a major factor shaping the current and future prospects of the marine insurance industry.
They noted that rising tensions related to Russia, including near Estonia and other countries, have severely disrupted logistics by imposing restrictions on the movement of goods and people.
“This ongoing instability has been exacerbated by volatility in major shipping bottlenecks in the Middle East, including attacks by Houthi rebels and tensions with Iran, both of which have caused significant disruption and significant losses for the marine insurance industry,” Chatfield and Burton added. “This has made the situation in key sea lanes such as the Red Sea, Arabian Sea and surrounding areas vulnerable and dangerous, which in turn has forced ships to bypass Cape Point in southern Africa, significantly lengthening supply chains.”
The ongoing trade dispute between China and the United States has further intensified pressure on the global ocean sector.
They said, “China’s first imposition of tariffs on U.S. ships signals a potential escalation of reciprocal actions that could directly disrupt supply chains, force companies to find alternative shipping channels and suppliers, and profoundly affect the U.S.-China trade relationship. This unrest has the potential to escalate significantly, as the EU proposes expanded powers to board Russian ships, which could lead to an increase in reciprocal seizures and boardings.”
Chatfield and Burton stressed that as sanctions tighten, insurers need to be more stringent when considering underwriting risks and any financial benefits offered to insureds involved in such disputes.
Climate change and extreme weather also remain ongoing, volatile threats. The Kennedy family’s partners note that the insurance market still relies heavily on historical claims data, which is ill-suited to predicting today’s climate-related risks.
Chatfield and Burton said: “The increasing frequency of climate events, such as recent flooding in the Middle East and unusually warm ocean temperatures, continues to drive significant claims from floods and hurricanes. Insurers must be careful not to be lulled into a false sense of security by the recent lull. We are already seeing significant hurricane activity in the Caribbean.”
Meanwhile, post-Brexit customs procedures have triggered a wave of claims against freight liability policies.
“Due to a significant increase in technical formalities and delays encountered at border controls, fines and penalties for incorrect customs declarations and delivery delays are starting to attract attention in the insurance market – approximately two years after the new regulations came into force.
Chatfield and Burton concluded: “The complex process, reminiscent of the old T-Forms, is a niche but important issue as HMRC imposes huge bills and fines on freight operators and importers of goods. The freight liability insurance market, long accustomed to a harmonized customs system, will have to reassess and tighten cover for customs-related risks, which have become increasingly common given the high volumes of trade with the EU.”