Shipping business worries over war insurance hikes

With the countdown for a war in Iraq speeding up, domestic deep-ocean going shipping companies are turning their attention to war risk insurance increases.

The Ministry of Maritime Affairs and Fisheries (MOMAF) and shipping companies expected March 11, 2003 that there would war insurance hikes more than a hundreds times the maximum for Middle East going vessels if a war breaks out. War insurance is classified into two parts, basic war insurance charged in ordinary situations and additional premiums (AP) charged for vessels operating in war risk areas and war areas. This additional premium was decided by JWC including Lloyd Insurance.

Shipping companies expected that the basic war insurance would not be too heavy for the industry as it rose to 0.04% of the vessel price after 9/11 from 0.01%. However, additional premium may hurt shipping lines or even force them to abandon Middle East services as it skyrocket several hundred times over the base depending on war intensity and duration.

The AP depends on the vessel type, loaded cargo, operating distance before entering the war (risk) area. Insurance periods are also divided into 7 days, 3 days, 48 hrs, and 24 hrs.

The Middle East, currently designated a war risk area, requires a 0.1 and 0.25% AP for 7 days in the area, which is between 2.5 and 6 times the base war insurance rate.

The Korea Shipowner's Association anticipates that an war in Iraq would immediately send the AP the 1% level, reminiscent of the Gulf War in 1991 when it hit 2.2%, more than 200 times the basic war insurance premium.

Newly built oil tankers usually cost about 60 million dollars, which would cost a shipping company an additional 600 thousand dollars if the AP rose to 1%.

One business owner predicted, "There is a limit to the burden of war insurance on shippers. The shipping companies will abandon Middle East services if a war is prolonged and the AP begins snowballing."