Lawyers predict ‘draconian’ conditions from insurers in response to Middle East crisis

Recent tensions in the Middle East will lead to insurers and reinsurers imposing “draconian conditions” in policies and raising rates “exponentially” in the coming months, according to specialist law firm DWF.

That all UK flagged ships in the Strait of Hormuz are being escorted by UK navy vessels has done little to restore the status quo in the region, or confidence among politicians or businesses with assets there.

Head of marine and trade at the firm, Jonathan Moss said: "Insurers and reinsurers have been looking for a marked correction to the downward pressure on rates. The recent tensions, however, will lead to insurers and reinsurers imposing draconian conditions in policies, significantly increasing the costs of specialist insurance and pulling out of underwriting certain lines of business. Insurance rates are set to increase exponentially in the coming months.

"The latest chapter of turbulence in the Middle East will undoubtedly lead to insurers and reinsurers particularly in lines such as hull, war, piracy, terrorism, cargo and construction raising premiums, renegotiating terms of cover and introducing riders and endorsements to policies to reflect the increased risks of trading in the region.

“Ships will have to navigate longer routes to avoid dangerous areas, Ships' crew wages will rise owing to the heightened risks of attacks to Vessels in the Strait of Hormuz adding costs to end consumers for commodities transported globally, hampering trade."

Moss said the attacks have transformed the region for insurers. "Following the 12 May attacks on two Saudi tankers, a Norwegian and a UAE flagged vessel, the Joint War Committee made up of representatives from the Lloyd's and company markets added the Gulf to its list of high-risk waters. Insureds were instructed to notify underwriters before vessels entered the region and additional premiums started to be levied," he explained.

"Insurers have not withdrawn completely from writing risks but each international insurer is taking a close interest in how events unfold. Underwriters are used to factoring in geopolitical instability into pricing, but the events of last year created a perfect storm for companies trading in the region, increasing insurance premiums by an average of 10% in six to seven months.”

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