Incidents and calamities change in nature and scope. Insurers have knowledge, procedures and tools to act after a calamity, disaster or terrorist attack. They can eliminate financial risks and arrange damage repairs.
Terrorism, minor acts of violence (such as riots) and major acts of violence such as (domestic) riots and riots are closely related. In the event of damage, the difference is sometimes difficult to determine. What started as minor molestation can lead to major molestation. That is why it is not always immediately possible to make statements about this for every situation.
Violence is large-scale violent calamities caused by human activity. War and other large-scale calamities are often excluded from coverage because of the cumulative risk and the possible collapse of insurers (financial stability). Some forms of this are therefore regulated by law.
For example, a non-life insurer with its registered office in the Netherlands may not insure damage caused by or arising from armed conflict, civil war, insurrection, internal disturbance, riot or mutiny that occur in the Netherlands. In maritime, transport, aviation and travel insurance, it is permitted to insure the risks of molestation in the generally customary molestation clauses as long as the Dutch Central Bank has not raised any objections to this.
Incidentally, the ban only applies to insurers under Dutch supervision. Branches of foreign parties can provide cover against forms of molestation for Dutch customers.
There are also forms of petty molestation: terrorism, sabotage, requisition, strike, lock-out, occupation of factories, model action, riots, riots or riots. Insuringis not prohibited by law. The policy of each insurer may differ slightly, within the applicable supervisoryframeworks of DNB. This also applies to damage caused by natural disasters.
There is a legal exception for mutual insurers, but the prohibition described above does not apply to them. Specifically, it concerns mutual insurance companies with registered office in the Netherlands and companies on a mutual basis with registered office outside the Netherlands that only take out non-life insurance for damage that can be caused by, or arise from, armed conflict, civil war, insurrection, internal disturbances, riots and mutinies.
Also in marine, transport, aviation and travel insurance, it is allowed to insure molestation risks with the generally customary molestation clauses. This is allowed as long as the Dutch Central Bank (DNB) has not raised any objections.
Although most attacks are committed by individuals or small groups, the extent of the damage after a terrorist attack could be so great that an insurer cannot bear it alone. That is why insurers set up the Dutch Reinsurance Company for Terrorism (NHT) in 2003, in which one billion euros is made available every year. Insurers who pay out damage as a result of a disaster can invoke this. In this way, the risk of terrorism remains insurable.
For more information, check out our Q&A on terrorism and insurance.
Everydisaster is different. Thismakes unambiguity about coverage issues complex. But it is important to have clarity about the insurability of (large-scale) calamities and also about decision-making and communication about coverage and claims settlement. Insurers have therefore developed two step-by-step plans to communicate and take action as quickly and adequately as possible in the event of emergencies:
Commercial shipping is regularly attacked by Houthi forces in the Red Sea and the Strait of Hormuz. This leads to significant disruptions in freight traffic through the Suez Canal. Shipowners are faced with the choice of taking a risky route and taking extra (and often costly) safety measures.
In the first place, the attacks pose additional risks to the crew, because it is not always certain that a death is covered. But of course, ship and cargo also run additional risks. An alternative is to sail past the Cape of Good Hope, with an extra sailing time of ten to fourteen days and ditto costs.
The UN trade agency UNCTAD reported at the end of January that the amount of cargo transported through the Red Sea fell by 45 percent in two months. The number of ship movements in the region has decreased by 39 percent. The UN argues that this increases the likelihood of higher inflation, more uncertainty about food supplies and an increase in greenhouse gas emissions.
Below we outline the risks and the insurability of transport (ships, crew, cargo) in the areas threatened by violence in the Red Sea and the Strait of Hormuz, among others. These can include piracy, terrorism and acts of war, such as hijackings, shelling, rocket attacks and sea mines.
When it comes to the question of whether or not there is coverage on a policy, it depends on what conditions have been set. And whether it is clear what the situation is (is there war, is it piracy, is it terrorism, was it still unforeseen?), what can be affected (the ship, the crew, the cargo and the interests of third parties due to, for example, delay, damage or pollution?) and which law applies (Dutch or English?).
In addition, each policy may be different. An insurer sets its own policy and sets its own conditions. It is therefore important to contact your own insurer or insurance broker if you have any questions about the coverage.
In the case of damage risks of cargo, the delivery conditions are particularly important: does the risk lie contractually with the supplier, the shipper, or the buyer/receiver?
Through the co-insurance exchange in particular, active transport insurers in the Netherlands offer cover for damage to seagoing vessels and the cargo transported.
At so-called P&I Clubs , ship owners can take out Protection & Indemnity insurance. It provides coverage for liability for various damages, such as death or bodily injury to crew members and third parties, collision with another ship or an obstacle, environmental pollution and liability for damage to the cargo being carried. There are twelve of these clubs active worldwide, which operate not-for-profit .
Hull insurers offer coverage for collision damage up to a maximum of the insured sum. In addition, additional cover can be purchased for war risks, cyber risks, hostage-taking (Kidnap & Ransom) and political risks ('CEND cover'). These insurances are often provided through the London market Lloyds.
1. Damage to a ship (Hull). Outside the mentioned risk area, there is simply coverage in accordance with the conditions.
2. Damage to the cargo (Cargo). This is covered under a goods policy. On most policies, the risk of war (including armed conflict) is insured as standard. As long as the insurer has not cancelled the war risk, there is coverage, both inside and outside the mentioned risk areas. In the case of cargo, it is also important under which conditions the transport is concluded. Deliveries from China are often covered by the supplier or product. If, given the situation, they withdraw the coverage, the risk of damage or delay of delivery lies with the buyers (in the Netherlands). This may then be covered under the so-called Buyers Interest coverage of a policy.
3. Injured or hostage crew. This is only covered under a P&I policy or on a separate Kidnap & Ransom policy. There may also be coverage under the so-called WAR P&I of a Hull policy for death and/or bodily injury. In any case, contact the insurance broker for advice.
4. Delay (in delivery of the cargo) due to extra sailing time or waiting. Damage due to delay is usually not covered. Some policies do provide cover if damage to the cargo occurs due to delay (especially in the case of perishable cargo). The extra costs of detours for safety reasons can also be covered, but then the need to make a detour must be unforeseen, as was the case two years ago due to the stranding of the EverGiven in the Suez Canal. There now seems to be no question of unforeseen in the regions mentioned.
For (goods) policies taken out under Dutch law, the war risk can be terminated prematurely with a notice period of seven days. A period of two months applies to the risk of strikers (for the description of what falls under the risk of war and strikers, see clause M3 of the VNAB and BW 7:940).
For (goods) policies taken out under English law, both the war risk and the striker risk can be terminated prematurely with seven days' notice. This is regulated by clauses.
Insurers in the Netherlands assess the risks and decide individually whether to cancel the coverage in this region, or impose additional conditions. After cancelling the coverage, according to most contracts, a period of 7 days applies, after which no more damages will be compensated. They do this on the basis of the clauses of the LMA Joint War Committee: the JWLA32 and the JW2022-007a for Hull and Hull risks.
The JVLA clauses describe the areas, the so-called high risk areas, for which exclusions apply for war and terrorism risks. Insurers often refer to these clauses in their policies.
The Red Sea region is currently subject to JWLA32 Guyana. If a ship wants to enter those areas seven days after cancelling the policy, the ship owner can request new coverage (a 'quote'). This may be able to restore coverage, provided that the additional requirements and conditions are met. For example, extra premium, a higher deductible, or issuing warranties. The so-called BMP5 measures are often required, such as extra measures to recognise the risk and carry out risk analysis, to take physical measures (armed security guards, barbed wire or water cannons), to inform and train the crew, to report and, where possible, to cooperate with other ships and soldiers. Insurers will not always want to provide that extra coverage.
The JW2022-007a means that if one of the five major countries (United Kingdom, United States, France, the Russian Federation and the People's Republic of China) goes to war, the coverage can be terminated by 72 hours, instead of the regular 7 days from the JWLA.
The Association of Dutch Insurance Exchanges VNAB has published a model clause for war and striker risk (the M3) especially for cargo insurance, which is used by Dutch insurers.
If coverage is cancelled, it will only apply to the affected region or regions. Elsewhere, the coverage will remain in place in accordance with the terms and conditions.
The Netherlands vulnerable to fragmentation of international trading system (dnb.nl)
The Netherlands is one of the most open economies in the world. A scenario analysis by DNB shows that the Netherlands, as a small open economy, is strongly integrated into the global financial system. And is therefore particularly sensitive to the global increase in geo-economic fragmentation. In the event of disruption of global value chains, for example as a result of the situation in the Red Sea and the Strait of Hormuz, the Dutch economy will be strongly affected. As a result, inflation in the Netherlands is rising faster than in other countries, imports and exports are falling more sharply and the Gross National Product is recovering more slowly.
Evofenedex launches investigation into the impact of the Red Sea crisis on shippers | evofenedex
Same Deep Ship, Different Day (rabobank.com) Outlines developments in the Red Sea region and reduced cargo transit through the Suez Canal, making it more difficult to keep inflation low.
Agreement on Peace and Humanitarian Operations for Dutch military personnel deployed on peacekeeping or humanitarian missions. A special arrangement is in place for them.
The situation in Ukraine and its impact is still difficult to predict at the moment. But Ukraine's risk profile has clearly changed. And even if new sanctions are issued, this could have an effect on policyholders and on how insurers have to deal with laws and regulations.