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Tuesday, June 19, 2018

INTERTANKO & ICS MEET LONDON UNDERWRITERS REGARDING WAR RISKS COVER

A meeting was held on 13 November between representatives from INTERTANKO and ICS (“the Associations”) including the chairmen of the Associations’ insurance committees and representatives from London underwriters and the chairman of the London Marine Brokers Committee. This was the second such meeting following that which took place on 25 September 2001, some two weeks after the terrorist attacks on the World Trade Center in New York.

Prior to the meeting the Associations had circulated a joint position statement which was to form the basis of the discussion with underwriters (see below). The main purpose of this meeting was to encourage Underwriters to reassess the stance which they were adopting on war risks insurance bearing in mind the representations conveyed by INTERTANKO and ICS at the 25 September meeting and the clearer picture that had emerged during the intervening 8-week period. In response to the request made at that time that underwriters should differentiate more visibly between the various areas where they perceived an increased risk by 'fine tuning' rates to reflect the actual degree of risk, underwriters had given the Associations assurances that they were constantly monitoring the situation and rates would certainly be assessed according to risk. We therefore wished to take this renewed opportunity to have underwriters clarify how they now perceived the risk to shipping in order to justify the rates currently being charged.

Underwriters were advised that the members of the Associations felt very strongly that all sectors of shipping were being penalised with excessive APs for stays in areas where there was no apparent increase in risk post 11 September. Whilst it could be accepted that the broad geographical exclusions introduced by Underwriters was a mechanism which allowed them to react swiftly to changed circumstances, this should not mean that all areas within those exclusions should automatically attract an additional premium as appears to be the case at the moment.

The shipowners' representatives stressed that the underlying philosophy of the relationship between the owner and underwriter must be viewed in the longer term. It would be counter-productive in the long term and contrary to this aim if the London market was perceived as taking undue advantage of the overall situation where the risk to shipping was in fact minimal. Owners' increasing frustration at the slow response of underwriters to adapt to the changed circumstances was also underlined.

Underwriters were appreciative of the dialogue and stressed that they were constantly monitoring the situation and seeking to evaluate the true risk posed to shipping. Lloyd's, we were told, did operate as a free and open market and consequently what was on offer in terms of rates varied from underwriter to underwriter. They stressed that brokers should be instructed by their principals to press for the best deals achievable and represent the risk in as full a detail as possible in order to convince the underwriter that a lower rate was justified. Underwriters thought that in the medium term, at least, there would be no reduction in the geographical spread of the AP areas. It could, however, be possible in certain situations to persuade the underwriters to agree to nil APs for specific port calls where the circumstances or frequency of uneventful calls appeared to justify this. It was also accepted that some underwriters were prepared to give rebates or "no claims bonuses" where a vessel's stay in an AP area had not resulted in any loss. Much would depend on individual circumstances.

Amongst the various issues discussed in general, certain specific points were identified for further consideration by underwriters:

Appreciation was expressed to underwriters for having re-established Fujairah and Khor Fakkan as 'waiting areas' free of AP. Underwriters were asked to accord similar status to Salalah in Oman, which they agreed to consider further..

Underwriters' attention was drawn to the practical situation that owners faced when calling at Iranian ports where vessels regularly stayed for periods of up to 14 days. Underwriters were asked to consider extending any rate applied to cover a full 14-day period rather than the usual 7-day period.

It was pointed out to underwriters that a general perception was beginning to emerge that the true threat to merchant shipping was barely higher post 11 September than it had been prior to that date. Underwriters stressed that it was the fact that war risks cover also included cover for acts of terrorism that had caused the risk to change fundamentally: and in their view, the increased risk of such attacks still persisted. They also warned that future reinsurance contracts might exclude the risks of terrorism, which would add further pressure to the market.

Owners emphasised that in the 7 or so weeks since the extended AP areas had been introduced already a very substantial volume of additional premium income had been generated. Taking this into account, it was felt that it would seem appropriate and timely, in the absence of any shipping incident, to proceed with a review of rates with a view to implementing reductions across the board. Underwriters' response was that the market had suffered a catastrophic loss which had compounded the difficulties caused by a number of years of operating at unacceptable levels of premium: consequently there was a real need for rates to remain at more sensible levels.

In summary, underwriters gave assurances that they were continuously reassessing rates and analysing the risk to shipping. They urged owners to continue to press through their brokers for the most competitive rates and re-iterated that, provided that brokers properly presented the risk for which cover was being sought, it could be possible in certain situations to obtain reduced and possibly even nil APs for certain areas and extensions of cover in AP areas beyond the normal period of 7 days and even no claim bonuses under certain circumstances.

The underwriters' representatives expressed their appreciation for the exchange of views and asked that a further meeting be scheduled in some 6 weeks' time. In the meantime, we would urge members to continue to exert pressure upon their brokers and war risks underwriters to achieve the most competitive rates and to continue to report their experiences to us.

16.11.2001
Mr Geoff Woodford, Chairman INTERTANKO's Insurance Committee
Mr Matheos Los, Chairman ICS Insurance Committee

Please contact either Svein Ringbakken or John Fawcett-Ellis to discuss any aspect of this issue.

For the joint INTERTANKO/ICS Position Statement on War Risks which was circulated to underwriters, link to http://www.intertanko.com/pdf/weeklynews/warriskpremiums.pdf