Q and A: Black Sea insurance deal

Fri 25 Aug 2023
Posted by: IOE&IT content team
Trade News

Freight ship carrying goods into the sunset

Earlier this week, the FT reported that the Ukrainian government was on the verge of reaching a deal with insurers that would provide coverage for up to 30 vessels operating in the Black Sea.

Since the collapse of the Black Sea Grain Initiative in July, various governments have explored the option of getting grain out of Ukrainian ports, either via alternative routes or by resuscitating the deal.

The IOE&IT Daily Update’s Phil Adnett spoke to Angela Irvine, sales director at The Bletchley Group, to understand more about the potential impact of any agreement on insurance coverage.

PA: How important would any deal be?

AI: “In terms of the shipping then the ‘insurance deal’ facilitates the continued trade of food products from the Ukraine. Without the deal, shippers would simply deploy vessels to work on other trade routes.

The ‘insurance deal’ is hugely important for global food security, specifically for commercial food and fertilizer exports from the three key Ukrainian ports in the Black Sea – Odessa, Choromorsk and Yuzhny/Pivdennyi.

Lloyd’s of London has always sought on moral grounds to insure difficult risks. Without insurance cover, shipping companies would not have been able to trade within the Black Sea.”

PA: What kind of sticking points usually arise in these kinds of talks?

AI: “That’s a difficult one to answer. Competing interests and sticking points can vary dramatically depending on the individual agendas at play and who is involved in the negotiations. There’s obviously a lot at stake in these kinds of talks, and it’s a very complicated process.

Common sticking points tend to arise from the actual operation of the initiative, rather than the agreement itself.”

PA: If a deal is reached, what impact would it have on the wider market?

“Increased war premiums are a certainty if the deal is resurrected. A war premium is a specialist type of insurance that covers things like acts of war, piracy or the seizure of vessels that would otherwise not be included in normal insurance clauses, like hull cover.

But this will generally only impact upon the affected goods – like grain, wheat or other foodstuffs – as this naturally results in increased costs which are then passed down the supply chain.”

PA: Do you see any future roadblocks and how would the market react to a major incident or escalation of conflict?

AI: “We have witnessed an escalation of the conflict since the grain initiative collapsed last month.

There are constant roadblocks as individual agendas change and it should be noted that 44 grain facilities have been affected by military strikes.

The insurance market would either increase ‘War Risk premiums’; exclude war, strikes, riots and civil commotion risks from any future coverage; or simply decide that such risks are now outside of appetite and not offer quotes or terms for such risks.”

PA: There’s been a lot of talk about Ukraine reconstruction. If a deal is reached, could it help insurance and development on future rebuilding projects?

AI: “Insurance can support such projects, since insurance and managing risk are integral parts to any major project with expensive assets.

But it’s unclear whether there will be much in the way of significant reconstruction whilst the conflict is ongoing. The market will have little appetite at this stage.”