LONDON: Yemen’s Houthi have intensified their assaults on commercial vessels navigating the Red Sea, leading to a sharp increase in insurance premiums for maritime trade.
These attacks, occurring since November, pose a significant threat to global trade routes, with the Red Sea typically facilitating 12% of international trade.
The Houthis justify their actions as a show of solidarity with Palestinians during the Israel-Hamas conflict, targeting ships to achieve political objectives.
Amidst these escalating risks, the insurance landscape for commercial ships has witnessed a substantial shift. Frederic Denefle, head of Garex, a marine risk insurance firm, reports a significant rise in premiums following the Houthi attacks.
This surge is proportional to the perceived threat level, indicating the dynamic nature of the situation. Neil Roberts, from the Lloyd’s Market Association, underscores the atypical nature of the Red Sea threat, emphasizing the need for heightened awareness among insurers and ship operators.
The Joint War Committee, responsible for evaluating security risks to global shipping, plays a crucial role in determining insurance premiums. Marcus Baker, from Marsh, highlights the committee’s role in identifying high-risk areas and adjusting premiums accordingly. Claire Hamonic, of Ascoma International, notes a substantial multiplication in war insurance premiums for vessels traversing the Red Sea, ranging from five to ten times the usual rates.
Furthermore, vessel nationality influences insurance premiums, with vessels flagged to certain countries facing heightened risks. Munro Anderson, of Vessel Protect, points out the Houthis’ targeting of US and UK-connected vessels, leading to increased premiums for ships associated with these nations.
The diversion of ships around the Cape of Good Hope to avoid the Red Sea presents additional challenges, including piracy risks and increased operational costs.
The surge in insurance premiums for commercial ships navigating the Red Sea underscores the complex challenges posed by the Huthi attacks. As insurers, ship operators, and regulatory bodies navigate these risks, effective risk management strategies and heightened vigilance are essential to safeguarding maritime trade in the region.
