Ukrainian and Russian waters in the Black Sea and the Sea of Azov” as one of the listed territories for cancellation of war risk covers by GIC Re
GIC Re has a small portfolio of Russian aviation risks for which Notice of Cancellation (NOC) of cover has been issued,
The impact of the cancellation of cover would be insignificant on GIC’s Marine & Aviation business, said GIC Re officials
Mumbai/Hong Kong:
The ongoing Russian –Ukraine war has now directly hit the India Inc’s insurance cover in a few segments as GIC Re has issued Notice of Cancellation(NoC) of cover to the domestic market for Cargo War/SRCC(Strikes, Riots and Civil Commotion Clause (SRCC) in the affected region.
Ukrainian and Russian waters in the Black Sea and the Sea of Azov” as one of the listed territories for cancellation of war risk covers by GIC Re.
Besides, GIC Re has also issued NOC of cover under the GIC War Risk Scheme for domestic Marine Hull.
Further, GIC Re has a small portfolio of Russian aviation risks including Aeroflot, for which NOC of cover has been issued, confirmed GIC officials.
However, the impact of the cancellation of cover would be insignificant on GIC’s Marine & Aviation business, said officials.
Though, there is a provision to re-issue those policies after charging higher premium in proportion to the escalating risks, GIC Re has decided not to reissue the policy.
“During normal times, war risk covers as part of marine insurance are given to at a low premium but at the outbreak of a war, the prices rise manifold along with the risks. Normally re/insurers cancel the prevailing war risk covers and depending upon the capacity, reissue them with much higher premium. It helps the vessels which are already in the international waters to complete its journey,” said industry observers.
New India Assurance(NIA), the largest general insurer in the country, confirmed that it has received NOC from GIC Re and has informed its affected customers.
“Yes, we have issued NOC to our clients. A lot of vessels with cargo are currently sailing around affected zone,’’ said NIA officials adding that the number may not be many.
“GIC Re is keeping a watch on the evolving situation and our global reinsurers are also in discussion with us on this issue,” said officials.
Industry observers pointed out that since the business volume for GIC Re from the vessels and aircrafts operating in the war zone is not that much and any “pooling of risks” with higher premiums may not be viable.
Insurance premiums have soared by over 100% for voyages to the region since the war started. Insurers are watching closely for more claims that will ultimately increase costs further.
Projectiles have already hit five vessels in recent days with one sunk in the Russian-Ukraine war affected territories.
State-owned Bangladesh Shipping Corp. has sought $22.4 million from its insurer for a cargo ship hit by a missile in March in the first major marine insurance claim from the conflict in Ukraine.
Joint Hull Committee (JHC) Circular 15 February, 2022
Most of the world’s insurers and reinsurers are guided by the advisory issued by London based JHC.
JHC by their Circular dated 15 February, 2022 has added “Ukrainian and Russian waters in the Black Sea and the Sea of Azov” as one of the listed territories. War Risk cover stands suspended while shipment is in or passes through the listed territories.
Subsequently, Hong Kong based Premier Insurance Brokers in its advisory to some Indian insurance companies has said,“ please check all your current shipments and the shipments in the near future passing through Black Sea and Sea of Azove. If the shipment is already in the territory, please enquire and seek confirmation whether you have a war cover for your exposure.”
As per the Clause, the War Risk can be cancelled by the insurer/ reinsurer by giving 7 days’ Notice of Cancellation. Some have started giving the NOC and others will follow suit, explained Premier’s advisory.
Waterborne Agreement
An understanding in the British Marine Insurance Market agreed in the 1930s and now followed by all insurers/ reinsurers whereby insurers and reinsurers will cover goods against War Risks while they are on board the vessel.
This Clause/provision will be important if the cargo has landed in any of the ports affected by war.
The general insurers globally have been advised to ascertain the following:
➢ Whether their trading partner or business partners are amongst the sanctioned entities or belong to the sanctioned country!
➢ Speak to your Banks or Financial Institutions through whom you make the payments for the sale and purchase of goods.
➢ Assess your exposure and seek confirmation from your broker/ insurer on the availability of the cover.
“You must ensure you have War cover, and if you do not have because of the recent development and the Sanction Clause, you will at least be aware of your uninsured exposure and put your contingent plan into action,’’ said the advisory by Premier.
As per this Clause, War cover will cease if sanctions are imposed by the following entities/countries including UN, European Union(EU), UK, and USA.
Importing Russian Oil
Indian Oil Corporation (IOC), the nation’s top oil firm, has bought as much as 3 million barrels of crude oil that Russia had offered at steep discount to prevailing international rates, sources said.
The purchase, made through a trader, is the first since Russia’s February 24 invasion of Ukraine that brought international pressure for isolating Putin administration.
IOC made the purchase on modified terms that require the seller to deliver it to the Indian coast so as to avoid any complications that sanctions may lead to in arranging shipping and insurance
Further, Union Minister for Petroleum and Natural Gas Hardeep Singh Puri said in the Rajya Sabha recently that the Indian government was evaluating the Russian offer of crude oil import at discounted rates.
Apart from the payment mechanism, there are several other issues that need to be worked out. It includes insurance and freight.
“Discussions are currently underway. Several issues are required to be gone into, like how much oil is available either in Russia or in new markets or with new suppliers that may be coming into the market. Also, there are issues relating to insurance, freight, and a host of other issues, including the payment arrangements,” the minister had said.