News / Cost of insurance a major factor in carriers returning to Red Sea transits

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Discussion around a return to mass transits of the Suez Canal and Red Sea region has gained traction since phase one of the truce agreement between Israel and Hamas on 10 October, and the subsequent Houthi militia indication of ceasing attacks on merchant vessels.

However, despite much speculation, mainline container carriers have said  returning to the ‘danger-zone’ also depended on being able to obtain viable insurance for vessel, crew and cargo.

But Patrizia Kern-Ferretti, chief insurance officer at Breeze, told The Loadstar insurers and underwriters were hesitant to lower prices any time soon.

“When we price the risk, fundamentally we are driven mainly by claims of the past, and very clearly, we have paid very high claims here. Insurance price is not guessing. It’s made on the probability of the claim happening, and the probability of the claim happening in this case is very high,” she explained.

The largest insurance cost for carriers is covering damage to the ship. Ms Kern-Ferretti said: “We have even seen rates of 1% applied on the value of the ship. So, imagine you have a $100m ship, and only for one transit you are paying 1%; that’s a lot of money – but the risk is also very high.”

She estimated that if there were no incidents over the next 60-90 days, the underwriters would “definitely re-consider” the situation.

“The geopolitical situation is so unstable and a claim in this space can cost us a lot of money, but also a lot of a company’s reputation if we underestimate the risk completely. We need hard evidence before anyone will soften their pricing.

“I would guess the market would need at least 60-90 days where really nothing happens and things are back to normal.”

However, she explained, “lots of factors” determined pricing insurance, which may see some carriers able to navigate the area sooner than others.

“There are different routes and different flagged vessels, so the trades will normalise at different speeds. There were targeted attacks to certain ships and certain flags. So, [insurers] would probably differentiate in this.”

Ms Kern-Ferretti also said that, for example, CMA CGM’s vessels being escorted by the French Navy on their transits through danger-zones would “definitely” lower the risk.

“It would factor, because this is a diminishment of the risk,” she explained, but added that a back-haul versus head-haul transit would make no difference to hull insurance cost.

And even when insurance costs are reduced, they will “probably never go back to the 2023 baseline”, according to Ms Kern- Ferretti.

“The geopolitical situation is so unstable that nobody can say with confidence this is the end, because every morning when you open the newspaper there is something new going on,” she said.

“If [insurance costs] are slightly cheaper, this is a positive assumption, there will still be a war load premium for a while, because of the uncertainty that the marine underwriters need to price in.”