Posted on January 6, 2025
By Alex Longley
Jan 6, 2025 (Bloomberg) –Inside faceless office buildings scattered around London, a niche corner of the insurance market is keeping hundreds of billions of dollars in commodity trade moving through some of the world’s most dangerous waters.
As conflicts rage in the Middle East and Ukraine, shipping goods is becoming increasingly perilous, with the oceans pocked by the highest number of risky areas in at least two decades. The Red Sea and Black Sea are vital passageways for oil, coal and grains, and some of those essentials would be stuck in port without insurance against acts of war.
A bigger-than-ever chunk of that protection is being written by specialist providers, who pay out if ships or their cargoes are damaged by drones, missiles or drifting mines. Shipping insurance has been offered in London since the 1680s, yet the business of selling war cover is reaching new heights as the post-pandemic rebound in trade sails into a gauntlet of flaring geopolitical tensions and persistent piracy. Industry officials estimate that premiums may generate as much as $1 billion a year.
“Without the specialist war risk insurance market, the impact upon vital marine trade routes would have been far greater than we’ve seen,” said Chris Goddard, founder and chief executive officer of Vessel Protect, one of the largest providers.
His company is one of at least five businesses known as managing general agents, or MGAs, that have opened city offices to rival stalwarts in the Lloyd’s of London market. They offer coverage for dangerous voyages at premiums that can earn them millions of dollars if the massive, 900-foot-long vessels make it to their destinations safely.
“Our own growth and attainment of market share since launch has exceeded our expectations,” Goddard said of the firm he started four years ago in his living room during the Covid-19 lockdown.
At one point, Vessel Protect insured almost a third of the grain ships sailing from Ukraine, he said.
Such cover helped maintain the flow of what analytics firm Kpler estimated was about $150 billion worth of cargo moving through the Red Sea and Black Sea in the first half of last year. That’s equivalent to more than $830 million a day.
Navium Marine Ltd., Ai Marine Risk Ltd., Clearwater UW Ltd. and K2 Rubicon Specialty have all started up in recent years. As well as providing protection against acts of war, those entities also offer insurance for other parts of the voyage, whether it’s the value of the ship itself, the cargo or more esoteric threats such as kidnappings of crew members.
Their leaders include a mix of characters whose backgrounds range from broking to underwriting and military intelligence.
Navium’s chief executive officer is Lloyd’s veteran — and Emerson, Lake & Palmer fan — Clive Washbourn, who told The Voice of Insurance podcast he holds meetings in rooms named after female pirates. He declined an interview request.
“There has been significant growth in the number of new providers of marine insurance cover in recent years, particularly in the MGA space,” said Louise Nevill, UK chief executive officer of the marine, cargo and logistics business at Marsh & McLennan Co., the world’s largest insurance broker.
Shipowners are seeking coverage to sail in a host of waters deemed perilous, including the Gulf of Guinea, the Persian Gulf and more than 20,000 miles of Russian coastline.
Most marine insurance works the same way as coverage for a house or car, with the policy renewing annually. But standard protection is suspended inside war zones, so shipowners buy a separate risk policy. That’s usually in effect for seven days but can also last a year.
Those vessel owners deciding to forego such insurance because of the extra cost may wind up paying more for uninsured losses, said Christina Serebriakova, an agricultural commodities broker at Kyiv-based Atria Brokers, which often works with traders shipping grains from Ukraine.
“If they don’t have insurance, they need to pay for the losses out of their own pocket,” she said.
Underwriters are effectively making bets on how likely it is that a vessel becomes a casualty of war, often using a simple calculation: How many ships are sailing through that area, and how many have suffered damage recently?
There have been more than 100 incidents since Yemen’s Houthi rebels began their Red Sea attacks in 2023. At least four crew members have been killed, and vessels have been punctured and torched by missiles.
One tanker struck by the Iran-backed militants burned for more than four weeks before getting towed by the European Union’s naval force.
Another ship, the Tutor, was sunk by a drone in June. It had an estimated value of about $37 million, according to Clarkson Research Services Ltd., underscoring the sums insurers can find themselves on the hook for.
Tankers are typically more expensive than bulk carriers.
The handful of vessel losses are threatening what has been a golden era for war insurers. That risk could be heightened for MGAs, who are stepping in as more-established rivals opt out.
“They are offering cover for business that other people are reluctant to take,” said Anders Hovelsrud, insurance director for the Norwegian Shipowners? Mutual War Risk Insurance Association. Some of his clients moved to new providers when they couldn’t get protection for certain regions.
The market’s expansion isn’t just confined to new players, though. NorthStandard Ltd. — the world’s second-largest provider of insurance against calamities such as oil spills — said it plans to grow several business lines, including war cover.
There’s no industry-standard measure that tracks the premiums written each year, but people involved in the market say the numbers have ballooned in the past three years.
Marsh & McLennan estimates that war-risk premiums in London total about £500 million ($621 million). The global total may be closer to $1 billion (£805 million), said two insurance officials who declined to be identified because they weren’t authorized to speak publicly.
“Insurance is the facilitator of world trade; without it, things don’t move,” said Neil Roberts, head of marine and aviation at the Lloyd’s Market Association and chair of the committee that sets listed areas for underwriters. “The war market performs a very useful social and financial function.”
