Changing high-risk areas and the impact of the Insurance Act 2015

17 December 2015

Marine insurance buyers should pay close attention to changing assessments of high-risk areas (HRA) and the impact of the Insurance Act 2015.

Market conditions in the marine insurance sector are relatively unchanged, but two noteworthy issues will unfold in coming months.

Piracy

Piracy continues to be a hot topic in the marine sector. With effect from 1 December 2015, the Round Table of International Shipping Associations has agreed to scale back the HRA in the Indian Ocean. However, the move will not immediately translate into reduced insurance costs because insurers have yet to follow suit. The London market Joint War Committee (JWC) – which lists areas deemed at high risk based on independent advice from security analysts met in December and amended the eastern boundary in the Indian Ocean from 78° to 65° longitude. The new joint war listed ares (JWLA) areas are dated 10 December 2015. Vessels entering areas deemed high risk by the JWC should continue to report their movements as defined by the JWLA definition or as per specific policy trading provisions.

Insurance Act 2015

On 12 August 2016 the new Insurance Act 2015 will come into effect, which will include the introduction of new laws on placement and presentation of risk, new proportionate remedies where a breach occurs and a change in the law on warranties. The Act incorporates pre-placement considerations, including the duty to make a ‘fair presentation’ of the risk, which will place greater weight on the insurers’ role in the process of disclosure. The Act also allows insurers to contract out of certain terms, and eight P&I Clubs have already taken the opportunity to do so. The Act has also clarified some ambiguous areas in relation to fraudulent claims. Tip for buyers Shipowners need to be alive to the charter party implications of changes to high-risk areas in the Indian Ocean. Keep abreast of the changes and look closely at charter party agreements in relation to which area is specified in respect of war risk additional premiums. 

Underwriters are showing more appetite to fix coverage for the longer term, but owners should ensure that any extension provisions are included at ‘owners option’ to continue to benefit from prevailing market conditions at that time.

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For more information, contact Sean Woollerson, Partner in the Marine Division on +44 (0)20 7558 3864

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