Insurance against war risks

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Insurance cover against war, terrorism and
piracy
Oslo, 7 November 2013
Iris Østreng, Legal Advisor
Ingrid Mellingen, Security Analyst
Den Norske Krigsforsikring for Skib
Agenda
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About war risk insurance
DNK - The Norwegian War Club
Insurance Cover
– War perils
– The Nordic Marine Insurance Plan
– Special covers
Focus on Piracy
– Global threat picture
– Horn of Africa piracy
War risks insurance
The Nordic Association of Marine Insurers
Insurance against war risks - characteristics
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Catastrophe risk
◦ Low frequency, high severity
◦ Few statistics
◦ Traumatic experience for shipowners/crew
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Exclusion in traditional marine insurance
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Special covers
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Long latent claims
Number of incidents / claims handled by DNK
12
10
8
6
4
2
0
As the war risk underwriter –
what is your claims forecast for the next 30 years??
War risk insurance market
• Lloyd’s of London
• Mutual clubs
• Commercial marine
insurers
Conditional trading areas
Different systematic approaches to war risk
All risks
(Nordic Plan)
Marine Perils
War
perils
Named perils
(English system)
War
perils
Marine Perils
Perils and losses covered
Perils covered
Losses covered
• Hull & Machinery
War
perils
• P&I and occupational injury
• Loss of Hire
• Special covers
Marine
Perils
Which policy?
What can be recovered?
DNK – The Norwegian War Club
The Nordic Association of Marine Insurers
Den Norske Krigsforsikring for Skib
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Mutual insurance association (war club) owned
by Norwegian Shipowners
Established 30th October 1935
Insures interests attached to vessels, drilling rigs
and similar movable units against war risk based
on the Norwegian Marine Insurance Plan
Comprehensive war risk cover and contingency
support
Largest war risk insurance facility world wide,
ca.
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3000 vessels
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460 members
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USD 200 billion insured value
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Capacity USD 1,589 billion
Insurance Cover
The Nordic Association of Marine Insurers
The Nordic Marine Insurance Plan
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Comprehensive marine insurance
regime
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All risks principle
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Based on a formal agreement
between insurers represented by
Cefor and Shipowners represented
by the Nordic countries
shipowners' associations
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Used by all major Norwegian
shipping companies irrespective of
which market they are insured in
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Used widely by the international
shipping community
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Commentary to the Plan as integral
source
www.nordicplan.org
Insurance Conditions for war risk
• Policy conditions
– Extended / special covers
• Nordic Marine Insurance Plan
– War perils, § 2-9
– Chapter 15 on war risk insurance
– General conditions
Definition of War Risks - NMIP
§ 2-9. Perils covered by an insurance against war perils
An insurance against war perils covers:
(a) war or war-like conditions, including civil war or the use of arms or other implements of war
in the course of military exercises in peacetime or in guarding against infringements of neutrality,
(b) capture at sea, condemnation in prize, confiscation and other similar interventions by a
foreign State power. Foreign State power is understood to mean any State power other than
the State power in the ship’s State of registration or in the State where the major ownership
interests are located, as well as organisations and individuals who unlawfully purport to exercise
public or supranational authority. Requisition for ownership or use by a State power shall not be
regarded as an intervention,
(c) riots, sabotage, acts of terrorism or other social, religious or politically motivated use of
violence or threats of the use of violence, strikes and lockouts,
(d) piracy and mutiny,
(e) measures taken by a State power to avert or limit damage, provided that the risk of such
damage is caused by a peril referred to in letters (a) - (d).
§ 2-9 (a) War or war-like conditions
• ”Classic” war risk
• Including Civil War (NMIP 2010)
• All measures that are undertaken by powers that are
attributable to war
• Also after the war where the implement was used has
ceased
§ 2-9 (b) Foreign State power interventions
• “Capture at sea, condemnation in prize, confiscation and other
similar interventions by a foreign State power”
• Prerequisites:
• The party carrying out the intervention must be a foreign
state power
• The event must be a “confiscation” or another “similar
intervention”
• The intervention must be founded in an overarching political
motive
• Act exceeds the measures necessary in order to enforce
police and customs legislation
§ 2-9 (c) Acts of terrorism
• Revised after 9/11 to include ”terrorism”
• Requires social, religious, or political motivation behind the
act or threat
• Distinction against ordinary criminal acts purely for the
purpose of gain
• Intended purpose of such acts is traditionally to influence
governments or its people or other powerful entities
• Clarification in 2010 version of the Plan
§ 2-9 (d) Piracy and mutiny
• Commentary : “illegal use of force by private individuals on
the open sea against a ship with crew, passengers and cargo”
• No motive requirements other than personal gain
• From criteria of “open sea” (2006) to “port limits” (2010)
• Crime can be dealt with by port State authorities
• En route between ports
• Distinguish from common criminal acts
• Marine or war peril
Case studies
1.
”Animal Liberation Front” activists sink whaling ship in
Northern Norway
2.
Reefer is attacked by armed militants at berth in Lagos,
Nigeria. Master is abducted and tortured
3.
Seismic ship is arrested off Vietnam by Chinese
coastguards for ”trespassing of territorial waters and
suspicion of smuggling”
4.
During Iran-Iraq war, an oil tanker is severely damaged
at Basrah terminal due to a sudden fire in the engine
room
Discuss:
- Does the event fall under the war risk insurance?
- Which war peril(s) could be relevant?
Perils and losses covered with DNK
Perils covered
Losses covered
• Hull & Machinery
War perils
§ 2-9 NMIP
• P&I and occupational injury
• Loss of Hire
• Special covers
.. under one policy
Loss of Hire
Standard Cover NMIP
Additional Cover DNK
Chapter 5, Section 6, and Chapter16
Paragraph 11 of DNK Insurance Conditions
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Physical damage
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Blocking and trapping
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Not triggered by piracy
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Open cover
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7 day deductible / 14 days
in conditional trading
areas
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180 days
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Non-physical damage (H&M
or P&I incident to vessel)
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Triggered by piracy
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Open cover
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Limits:
◦ 7 day deductible
◦ 10% self-insured retention
◦ 100,000 USD max. daily limit
◦ 30,000,000 USD per occurrence
and in all
◦ 180 days
DNK «Horn of Africa» Supplement (1.10.2010)
Costs related to Hijacking
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Reasonable costs, cf. §§
4-7 and 4-12 NMIP
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◦ Ransom
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◦ Related costs, e.g.
negotiator
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Loss of Hire
Not limited to vessel’s
proportion
No need to declare GA
Payment on account (cf.
§ 5-7 NMIP)
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No deductible
No self-insured retention
Other limits remain
◦ 100,000 USD max. daily
amount
◦ 30,000,000 USD per
occurrence and in all
◦ 180 days
War P&I and standard P&I cover
Amended provisions in Chapter 15 in the 2010 Plan
• Clause 15-20: War cover provided by Chapter 15 is
seamless in relation to the war exclusion clauses used by
International Group of P&I Clubs.
Reference to Gard’s P&I conditions
• Clause 15-22: Cover provided by P&I clubs is subsidiary to
the war cover provided by Chapter 15
• Piracy:
• War peril under the Plan
• Marine peril under the International P&I Club rules
DNK special covers, Chapter 15 NMIP
Major powers war
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Automatic Termination as basic rule (§ 15-5)
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extended but limited cover for DNK members
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30 days, maximum aggregate limit of USD 1 billion.
Radioactive and biochemical perils
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RACE exclusion as basic rule (§ 2-9 (2) (b))
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extended, but limited cover for DNK members
Requisition by own State
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no cover for requisition by own flag state as basic rule (§ 2-9 (1) (b))
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extended, but limited cover for DNK members
Case studies
1.
”Animal Liberation Front” activists sink whaling ship in
Northern Norway
2.
Reefer is attacked by armed militants at berth in Lagos,
Nigeria. Master is abducted and tortured
3.
Seismic ship is arrested off Vietnam by Chinese
coastguards for ”trespassing of territorial waters and
suspicion of smuggling”
4.
During Iran-Iraq war, an oil tanker is severely damaged
at Basrah terminal due to a sudden fire in the engine
room
Discuss:
- Which losses could be recoverable under the war risk
policy?
Focus on piracy
Reported Piracy Incidents – 2013 (Cut off date: 24th Oct)
Piracy - Common ”success” factors
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Security situation on land/Capabilities of local
navies
Corruption
Weather
Target
Surprise
Speed
Violence
Piracy in East Africa
Observations and Trends – 1/2
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Hijacking of ship and crew
Skiffs & Mother vessels
Long-term captivity/hostage situation for crew
Opportunistic crime
Team members recruited in clan environment
Local and international investors
Economic gain
Not politically or religiously motivated (Al Shabaab)
Potential involvement of international organized crime
Piracy in East Africa
Observations and Trends – 2/2
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Open sea. Huge geographic area - Gulf of Aden – IRTC, Arabian
Sea and Gulf of Oman, Indian Ocean
Any type of vessel. Focus on softest targets in Gulf of Aden.
Random targets in Indian Ocean.
No vessel is safe; even RoRo vessel has been hijacked
Somalia a failed state.
Presence of international forces -AMISOM and Kenya.
Law enforcement challenges
State building initiatives to decrease the threat of pirates
Piracy in Gulf of Guinea
Observations and Trends – 1/2
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Expanding area of operation; Nigeria (2010), Benin (2011), Togo (2012),
Cote d’Ivoire (2012), Ghana, Liberia (?) Gabon (2013)
Pirates expand their range westwards and off the coast– use of mother
vessels
Corruption key to pirates’ capability to attack vessels. Pirates buy
information on vessels, cargo and crew
Three types of attacks; Hijacks, armed robberies and kidnappings.
Hijack vessels to steal cargo - hijacks last only for a few days
Vessel released after cargo is stolen. No ransom to release crew or
vessel
Well equipped (speedboats)
Armed, high violence
Usually short term captivity of individuals
Structured and organized
Mostly economic gain
Piracy in Gulf of Guinea
Observations and Trends – 2/2
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Crew are still kidnapped. MEND not as powerful as before
Lack of adequate naval and coastguard capability in the
region in order to act as deterrent against pirates
Use of armed guards not legal. Naval/coastguard to escort
vessels
Crew kidnapped off vessel that used armed naval escort
(Jascon 33 – august 2012)
Oil production in the Gulf of Guinea – increase in number
of vessels calling ports may lead to an increase in pirate
attacks
Important to implement relevant BMP (Interim Guidelines)
against pirates in the region
Scenario 1 - Attack on tanker in Gulf of Guinea
• Tanker «Iris» was approached by skiffs outside Lome, Togo
last week.
• Pirates managed to take over the vessel and switch the AIS off.
The shipowner was not able to get in touch with the vessel.
• Vessel was released five days later. No ransom demand. Two
foreigners were taken off the vessel. These have been taken
onshore. Ransom demands are expected.
• Theft of cargo (gas oil).
War risk cover?
Scenario 2 - Attack on container vessel in Arabian Sea
• Container vessel «Ingrid» was attacked by skiffs at 14°56N –
63°05E.
• Crew in citadel.
• Pirates disregarded the show of weapons and flares by embarked
armed guards. Guards initiated warning shots. After a short
exchange of fire the pirates broke off. The incident lasted 30
minutes.
• No damage to the vessel. Crew is ok.
• One container was damaged by an RPG.
• War risk cover?
Scenario 3 - Attack on bulk carrier by the Suez Canal
• Container vessel «Marianne» was attacked by a skiff prior to
entering the Suez Canal from the Red Sea last night.
• The vessel was approached by a small skiff laden with
explosives.
• The skiff drove straight into the hull of «Marianne». The
explosion ripped through the hull causing the vessel to take
in water.
• One crew member is unaccounted for.
• Terrorist group from Sinai have claimed responsiblity.
War risk cover?
Piracy affects many insured interests
Hull &
Machinery
Loss
Of
Hire
P&I
Cargo
Ransom
transport
??
Piracy cover challenges for Insurers
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Piracy or terrorism
Legality of ransom
payments
Armed guards
Cover
◦ Kidnap & Ransom
◦ Loss of Hire
◦ P&I
Cargo interests and GA
The Nordic Association of Marine Insurers
Long term development
Q&A
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