LISW 2019: Sanctions main cause for concern in maritime insurance market

AIS image of a ship. Credit: Windward HawkEye 360

The impact of international trade sanctions on shipping is a major concern to the maritime insurance and underwriting market, according to panelists at the London International Shipping Week (LISW) event.

The discussion, titled “Navigating Difficult Waters: How sanctions and wars are impacting the shipping world”, focused on the current situation in the Middle East, more specifically the Iran, UK, and US relationship.

Sanctions are currently the foreign policy tool of choice, explained Nick Busvine, partner at Herminius and panelist, given that the reluctance of governments to deploy military force or campaigns led to two publicly unpopular wars, Afghanistan and Iraq. With the international sanctions against Iran and North Korea since 2010, financial supply has been cut off to these countries without putting people’s lives at risk.

The panel said compliance with international sanctions is a major issue that underwriters currently face. This is due to the contradictory nature of certain sanctions. For example, if a vessel does not have insurance while sailing past Iran, the vessel is in breach of European sanctions, if it does it is in breach of US law.

Deputy-director of claims for North of England P&I Club, Mike Salthouse, explained the unrealistic expectations shipowners have on what insurers can do when it comes to AIS. The growing number of vessels ‘going dark’, turning off their AIS system, has been a cause of concern for governments automatically thinking that the vessel is carrying out illicit activities.

There has been a growing pressure for insurers to put a clause in policies to not allow ships to turn off their AIS. Although the act may be seen as a ‘red flag’, Richard Young, head of hull and machinery at Beazley, said ships turn off their AIS if being pursued by pirates, and the system is also prone to malfunction. Furthermore, ships automatically turn off their AIS if approaching Israel should they visit another port call in the Middle East.

Busvine noted that the robust approach to sanctions that the US government is undertaking means it will have to be able to back up its sanctions with military force should the infringing country call its bluff. Paraphrasing Jeremy Hunt when he was foreign minister, Busvine said, “However much we don’t want war, we have a chance of slipping into it.”