According to four market participants, underwriters are charging as much as 10% of the value of a ship's hull — essentially the vessel's worth as an asset — for what is known as additional war-risk premium. Some are simply quoting to cover at prices they know will be turned down. Prior to the war, there was almost no cost.
This means that the cost of insurance is now likely to exceed the cost of hiring the vessel itself. A $50 million, five-year-old tanker transporting a standard 1 million-barrel Russian cargo would require $5 million in insurance premiums alone — roughly $1.5 million more than the cost of hiring the carrier.
Insurers' primary concern is vessel damage, which could be caused by a missile attack or a mine. At least five ships were blown up when war broke out. A month later, a mine was discovered near Turkey's Bosphorus strait, which serves as a vital maritime corridor for any carrier entering or leaving the Black Sea.
According to one of the sources, the pool of insurers still quoting has significantly shrunk, implying that those who remain are demanding higher prices.
The charges are typically borne by the companies that hire the ships, rather than the vessel owners. The Black Sea is normally a hub for crop, oil, fuel, and raw material exports, but this has been hampered by Russia's invasion of Ukraine. According to one of the insurers, current prices are essentially unsustainable for customers.
The increase in insurance premiums is just another cost for any company shipping anything to or from the region's ports. The cost of hiring a vessel is also exorbitant.
According to industry data compiled by Bloomberg, it costs about $3.5 million to hire a tanker to transport a million-barrel cargo to Italy from the Russian Black Sea port of Novorossiysk, up from less than $700,000 earlier this year.
Other risks exist in addition to the threat of vessel damage. Both the Russian and Ukrainian navies have the ability to seize vessels for national security purposes. If the carriers were held for at least six months — one source said one year — for political reasons, the ship would be declared a total loss, allowing the owner to recover the full value of the hull, according to the sources.
In theory, owners could enter the premises without insurance. However, due to the way insurance works, this would have a knock-on effect, putting them on the hook for the risk of pollution, wreck removal, cargo liability, and any crew liability and repatriation.
The Lloyd's Market Association's Joint War Committee has added Russia's waters to its list of riskiest areas as the war continues. This almost certainly means that insurers will charge higher premiums for more Russian ports in the coming weeks.