Insurers and shipping companies are closely monitoring developments as they navigate the complexities of providing coverage in an increasingly uncertain environment.
Merchant ships navigating the Black Sea region have encountered significant delays as a result of a recent incident involving a Russian warship, according to a report by Reuters. Ports in the area have been grappling with backlogs, causing unease among both insurers and shipping companies.
The incident in question involved a Russian patrol ship, Vasily Bykov, which fired warning shots at the cargo vessel Sukru Okan, flying the Palau flag.
Russian authorities asserted that the incident occurred after the captain of the Sukru Okan failed to respond to a request to halt for an inspection. Following the inspection, the cargo vessel continued its journey toward the Ukrainian port of Izmail along the Danube River.
One tangible repercussion of the situation is the notable increase in the cost of the Black Sea war risk premium. Traditionally renewed every seven days, this premium is an additional expense on top of annual insurance costs for ships navigating the region. Current estimates place the cost of this premium at tens of thousands of dollars ($USD) per ship for each voyage.
Mark Costin, the Commercial Director at London-based insurtech platform Insurwave, said: “As the situation in the Black Sea continues to deteriorate, the ability to procure war insurance will be impacted. Only a finite number of insurers will continue to see the value and opportunity in providing insurance.
What will develop is less a competitive market and more an aggregation of capacity necessary to provide risk transfer. Aggregation of values and exposures become the key metrics. Insurers must determine what capacity they are comfortable providing and at what price. The ability to dynamically track the changing aggregation exposure informs almost every decision thereafter.”
According to tracking data provided by the analytics company MarineTraffic, approximately 30 merchant ships have dropped anchor around Musura Bay in the Black Sea. This area leads into a channel that connects with the port of Izmail further along the waterway.
A notable development in the situation is the alteration in security guarantees outlined by the Black Sea Guarantors Initiative (BSGI). These guarantees, initially provided by both parties, are no longer considered effective. This has led to a situation in which Ukrainian Black Sea ports are effectively blockaded and rendered inaccessible for commercial vessels. Gard, a Norwegian ship insurer, stated in a recent advisory note that sea ports in the northwestern area of Ukraine are no longer considered “safe” ports contractually.