War risk insurers becoming shipowners

With the upcoming anniversary of the Russian-Ukraine war (February 24th) the ships that are stuck in Ukrainian became the center of attention for war risk insurance payouts.

Not less than 100 ships got blocked in ports and up rivers!

Many of these ships are covered for war risks by both mutual and commercial war risk insurers.

Under the terms of war risk insurance, a ship is generally considered as a constructive total loss if they are blocked or trapped for more than 12 months.

This obviously did not come as a surprise to insurers. Is the situation that dire?

No, it is not.

Firstly, insurers could recover part of the upcoming losses by charging higher war risk rates for ships trading in the area.

Secondly, are the ships only declared as a constructive total loss under the war risk policies. There is per se nothing wrong with the asset and it still has a substantial value.

If war risks insurers however pay the ship owner under the policy, this means that they are subrogated in the rights of the owner, making them ship owners. This comes with many possible liabilities and we believe insurers are not very interested in the prospect of being shipowners themselves.

It is to be seen how this will work out, we believe owners and insurers will negotiate buybacks of the assets leaving "owners to be owners" and "insurers to be insurers".

The same will apply to the cargo on board of these ships, more to come..

Any thoughts?

The Orbis Risk Partners team