Amid ongoing disruptions in the Red Sea region, some Indian general insurers have cancelled their policy covers whereas others have hiked premiums for voyages involving Red Sea shipments and are looking at more such increases if the attacks continue to persist.

Insurers such as TATA AIG Insurance have sent notices of cancellation for war, terrorism, piracy and strike covers. Others such as ICICI Lombard and Bajaj Allianz General said that while they haven’t pulled out, they are seeing an increase in premiums is specific policies and covers.

Deepak Prinjha, Chief Technical Officer, Commercial – Underwriting, Royal Sundaram General said that a few insurers have started charging an additional premium for bulk cargo transiting through this route.

“Our company and the reinsurance industry, have adopted a ‘wait and watch’ strategy. If the attacks continue, each insurer may charge a higher marine premium for all cargos, including bulk cargo,” he added.

The Red Sea is one of the busiest sea routes, especially for Indian logistics. The region has been seeing attacks on commercial ships by armed individuals. If the situation persists, insurers might eventually refrain from providing marine cover for this route, or there may be restrictions imposed by reinsurers and then insurers which will impact the overall marine business, industry players said. 

Israeli and other allied merchant ships travelling through the Suez Canal and areas such as the Indian Ocean, Gulf of Aden, Southern Red Sea, and Cabo Delgado are facing attacks by Yemen-based Houthis and Somalian pirates, acting in solidarity with Gaza amid the ongoing Israeli-Palestine war. The route is usually used by Indian ships going to or coming from Europe and the US East Coast, and some of these ships are now being forced to go around southern Africa or take alternative routes, increasing both travel risks and time for shipments.

“Several insurers have already raised their war insurance premiums by 10X, and some are refusing coverage for shipments passing through the Red Sea corridor. However, for existing policies such as the STOP Policy and others, insurers are required to provide notice to policyholders with at least a 7-day timeframe to withdraw coverage,” said Amit Agarwal, CEO, Howden India, adding that if the attacks persist, premiums could rise by 30-40 per cent.

However, this does not apply to insured shipments that are already in transit in the area or simply passing through, insurers said adding that measures taken by world government, such as deploying warships, could help the situation. The Indian government, earlier this month, sensitised banks and insurance companies to continue providing trade finance and insurance support to exporters trading via the Red Sea.

“We may witness a stabilisation of price hikes as normalcy returns. However, the attacks will undoubtedly have a long-term impact on pricing,” Agarwal said.

Global insurers have increased premiums by as much as 1 per cent, and are now underwriting these covers at about 0.10-0.15 per cent of the value of the ship or cargo as against the earlier average of 0.015-0.020 per cent.

The highest impact is being felt in bulk segments such as crude oil, which are controlled by reinsurers, industry players said. Even so, shipping line trade passing through the region has dropped tremendously with ships opting for alternative routes, owing to which insurers’ exposure to the region has also dipped and the impact has been controlled, they said, adding that they don’t expect a ‘knee jerk’ reaction from reinsurers.

“Currently we are evaluating the situation and are in constant discussion with our reinsurers and shall take appropriate action based on their advice,” said TA Ramalingam, Chief Technical Officer, Bajaj Allianz General Insurance.

A senior official at GIC Re said reinsurers are closely monitoring developments and exposures and responding as required, including charging prevalent higher rates due to the war like developments. In December 2023, SwissRe too had said that while there are disruptions, the impact has been so far manageable through charging higher premiums.