Joint War Risk Committee Revises Indian Ocean Listed Area

Joint War Risk Committee Revises Indian Ocean Listed Area

Summary

Following close on the heels of the BMP4 High Risk Area reduction, the Joint War Committee made the decision to reduce the size of the Hull War, Piracy, Terrorism and Related Perils Listed Area for the Indian Ocean. Prior to the revision, the Listed Area had resembled the previous BMP4 High Risk Area, spanning an area that blanketed much of the Western Indian Ocean between the Bab al Mandeb Strait and Sri Lanka. The new listed area is defined in the overleaf of JWLA 022, published on December 10, 2015, which states:

“The waters enclosed by the following boundaries:

         a) On the north-west, by the Red Sea, south of Latitude 15° N

         b) on the west of the Gulf of Oman by Longitude 58° E

         c) on the east, Longitude 65° E

         d) and on the south, Latitude 12° S

Excepting coastal waters of adjoining territories up to 12 nautical miles offshore unless otherwise provided.”

This change is the first revision to the JWC Listed Area for the Indian Ocean since December, 2010, when JWLA 016 was published. Its definition, which stood for five years, was as follows:

“The waters enclosed by the following boundaries:

         a) On the north-west, by the Red Sea, south of Latitude 15°

         b) on the west of the Gulf of Oman by Longitude 58°E

         c) on the east, Longitude 78°E

         d) on the south, Latitude 12°S

Excepting coastal waters of adjoining territories up to 12 nautical miles offshore unless otherwise provided.  Djibouti excluding transit (removed March 2012).  Eritrea, but only south of 15°N.”

 

These changes will have a significant effect on Hull War Risk insurance. Most commercial ship operators acquire annual Hull War Risk insurance, which insures the physical vessel itself against damage or loss due to acts of war, invasion, insurrection and other interventions by a foreign state power, or piracy. However, this type of policy typically excludes from coverage several especially hazardous regions known as “War Risk Areas” (WRAs).  These areas are clearly demarcated within each policy, the majority of which refer to those defined by the Joint War Committee (JWC) as “listed areas,” though there is no single global authority. In order to maintain coverage while transiting a WRA, a ship operator must inform the insurer in advance of the vessel’s passage, and must pay an additional “breach premium” (or premiums) or “War Risk Added Premium” (WRAP).  

The reduction in the size of the Listed Area for the Indian Ocean will result in a significant decrease in the number of vessels that will need to purchase additional WRAPs. In particular, vessels transiting from the Persian Gulf to the western coast of India or East Asia will no longer transit through the listed area. This will disproportionately benefit tankers, which make up a significant amount of the traffic along those routes.

Every year, Oceans Beyond Piracy calculates the additional insurance costs paid out by the industry as a result of piracy in our annual State of Piracy Report. The total costs to owners, charterers, and vessel managers of piracy-related maritime insurance products remains difficult to assess due to the multiple rebates and discounts on offer, the lack of publicly available market data, and the fact that what data is available does not sort WRAPs by individual WRA. However, OBP was able to generate an estimate for the total cost of additional WRAP premiums payed in 2014attributable to Somali piracy. This estimate represented a 30% reduction in WRAPs between 2013 and 2014, resulting in an estimated total cost of $76.3 million in 2014. As we embark on calculating the economic cost of piracy in 2015, we anticipate that insurance costs related to additional WRAP premiums for the Indian Ocean Listed Area will be lower still. Now that the Listed Area itself has been revised, the drop in WRAP premium costs for 2016 are likely to be significant.

 

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