Ufuk Teker, General Manager of Turkish P&I Insurance, said, “When analyzed from the perspective of maritime and marine insurance, the conflict between Russia and Ukraine reveals a very complex situation. The embargo announcements for Russia, which were announced one after another by all the countries of the world, directly affect the insurance companies during the issuance of guarantees. Due to the risk of war, shipowners and ship captains may avoid entering the region, and in international law, Ukrainian ports are currently considered “legally unsafe”. Similarly, Russia has closed the entrance to the Kerch Strait, just as Ukraine has practices that prevent access to ports.”
Turkish P&I Insurance General Manager Ufuk Teker, who wrote an article in the Insurance Newspaper, stated the following in his article, The winds of war are blowing in the Black Sea. Unfortunately, the long-standing tension between the two countries, which have a coast on the Black Sea and with which we have intense and versatile relations, has turned into hot conflicts. As it is known, the already high tension in the region has turned into a state of war, as stated by the international media and world leaders, with the effective military intervention of Russia on the territory of Ukraine on February 23-24, 2022. This situation has started to have serious effects on all interacting environments, especially the Ukrainian people living in the region. I would like to examine not the humanitarian and geopolitical aspects of this process but from the perspective of maritime and especially marine insurance.
When analyzed from the perspective of maritime and marine insurance, the conflict between Russia and Ukraine reveals a very complex situation. I will try to simplify as much as possible.
Embargoes affect insurers
Shipowners and ship operators carrying cargo and passengers at sea make a carriage contract with the parties who want to carry their cargo at the beginning of their voyages. These carriage contracts are usually in certain forms. After the war situation started, many ships are on their way to Ukrainian ports or are about to leave. There is a phrase “force majeure”, which is usually found in transport contracts, which invalidates the contract. In general, the concept of “force majeure” can be explained as unpredictable situations that occur after the conclusion of the contract and affect performance.
Within the scope of the Russia-Ukraine war, the inability to load from Ukrainian ports is considered within this scope. Due to the risk of war, shipowners and ship captains may avoid entering this region, and in international law, Ukrainian ports are currently considered “legally unsafe”. Similarly, Russia has closed the entrance to the Kerch Strait, just as Ukraine has practices that prevent access to ports.
Another issue directly affects the shipowner/ship operator and marine insurers carrying cargo at sea, during this process. The embargo announcements for Russia, which have been announced one after another by all the countries of the world, have a very direct effect on insurance companies during the issuance of guarantees. The main attention should be paid to ensure that the guarantees to be given are not to the parties on the United States, European Union, and United Nations embargo lists.
How will Marine Insurances be affected?
As it is known, Iran, Syria, Venezuela, the Democratic Republic of Korea, Crimea, Cuba, and Belarus are the countries that are sanctioned in maritime trade.
We have entered a process in which our neighbors with whom we have intense commercial relations will be subjected to serious sanctions within the scope of the embargo, which will directly affect us. Expanding the scope of the embargo on Russia will affect us very intensely as Turkey.
Marine insurers will question the following situations while evaluating the current process. Ships that went to Ukrainian ports before the war and ships that will go to these ports after the war may be subject to different evaluations. Because, from the point of view of evaluating the situation of the ships that went to these ports in the voyage area before the process, the voyages to be made after the start of the conflicts will not be subject to the same evaluation.
Who will pay for the cargo damage?
If we look at the subject in terms of P&I insurance, the main responsibilities of the ship’s P&I insurer are the responsibilities to the cargo, the responsibilities to the personnel, the responsibilities to the environment, and the 3rd party responsibilities. As a result of a possible bombing, the ship operator cannot be held legally responsible for responsibilities to the cargo and the environment.
For example, if we assume that the cargo on the ship is damaged as a result of a bomb attack on the ship, the ship will not be responsible in this context. The damage to occur on the cargo can be paid under the war risks clause of the cargo insurer. Even if the owner/ship operator is not at fault, the War P&I coverage in the P&I insurances can be activated in the death and injury of the ship’s personnel.
War and strike insurance coverage will come into effect
Without going into technical details, if the subject is evaluated in terms of Hull Insurance, a ship should have a “Boat Machinery Insurance Coverage” and “War Strike Risks” cover. These insurances are not compulsory insurance coverages like P&I insurances. These are the types of insurance made according to the wishes of the shipowners. In this process, War and Strike Insurance coverage will be activated.
An institution called the Joint War Committee, located in London, of the classical war and strike insurance expedition fields, evaluates the political risks in the world and declares the regions unsuitable in terms of war risks to the insurers and all relevant institutions, according to the situations that arise. During the Russian-Ukrainian tension, it was announced that “The Black Sea and Azov Sea ports belonging to the States of Russia and Ukraine” were added to the list called risky areas with the circular numbered JWLA-028 dated February 15, 2022. If coverage is to be given to this additional risky area, the issue of how much premium will be given has now led to an intense market assessment among insurers and reinsurers.
7 ship was hit so far
Insurers provide 7-day coverage for voyages to risky areas. Over the agreed premium amount, the ship is covered by war and strike risks for 7 days. The premium subject to the guarantee is calculated over the shipping price. As a result of the warming of the waters in the last Black Sea, the premium of this 7-day guarantee increased to very high rates, such as 5 percent of the ship’s price, and difficulties were experienced in finding collateral. It is fact that the ships continue to be hit by the parties causes the premiums to be high. So far, 4 ships, one of which is Turkish-owned, have been hit.
I hope this tragic war between our neighbors due to the Black Sea coast will end as soon as possible and people will not suffer as a result of the war.
