Ship Insurers Primed to Raise Rates after Red Sea Attacks

In November 2020, Saudi Arabia claimed that an explosive-laden boat struck a tanker anchored in Jeddah port in what it labeled as a terrorist attack. This followed a separate incident in which a tanker was damaged by an explosion at another Saudi terminal on the Red Sea.

Thus, following a series of attacks involving vessels in Saudi Arabian waters, insurers are planning on increasing the cost of providing coverage for merchant ships transiting the Red Sea. Here is what experts have to say on the issue.

More Attacks are Imminent

The likelihood of attacks on commercial ships transporting essential commodities such as oil across the waterways is increasing. Back in January of this year, the Trump administration branded Yemen’s Houthi movement as a terrorist organization, worsening the situation.

According to Mike Ingham, Divisional Director at Gallagher, “We are seeing increased rates for vessels making port calls in the Red Sea due to concerns over the risk of attack by militia groups, whereas previously this was of an issue of more concern in the Arabian Gulf. This will be impacting vessels traveling to Red Sea ports such as Jeddah.”

Every ship requires different types of insurance, with some of the most common being:

• A yearly war-risk cover
• A breach premium when navigating high-risk regions

Breach fees have risen from 0.012% of insurance costs in late December 2020 to roughly 0.015% in January, equating to around tens of thousands of dollars for just a seven-day voyage.

One war underwriter believes, “the real debate is on the Red Sea side after the incidents involving explosive devices. Everyone is watching what happens next.”

The US Maritime Administration also issued a warning to seafarers that “heightened military activity and increased political tensions in this region continue to pose serious threats to commercial vessels.”

With thousands of transits per year through the Bab al-Mandab waterway at its southern tip, the Red Sea remains one of the world’s most active shipping lanes leading up to the Suez Canal. However, tensions are only increasing in the region, especially after Iran seized a South Korean tanker in the Strait of Hormuz.

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