Wednesday, December 22, 2010

Marine Insurance - Joint War Committee and what are Listed areas ???

When it comes to International commerce, you cannot do without marine – yes all trade is due to global marine, transported by sea or by air and to a small extent by road.  The maritime trade has increased manifold over the years and all associated industries are striking it big.

As the price of onion soared, there are attempts of bringing in tonnes from neighbouring Pakistan – the freight charges would be a high component.  The sea trade is largely in the hands of a few Nations.  Greece, Japan, Norway, China, USA, Germany, Hongkong, UK are some of the important players.  

In a different perspective, piracy is lucrative and those in trade appear to be enjoying the ill-gotten gains presently.  Going by news reports, huge amounts of ransom were paid for securing crew and vessel.  Those recipient could do much with them at puntland – their investment is in rotten old trawlers, diesel, lowly paid not so.  Once they earn, they would indulge money in sleazy ways… 

Nearer Somalia, there is another country made up of 42 different ethnic tribes and known for its wildlife reserves and bit of cricket – Kenya – a East African country bordered by Somalia, Ethiopia, Sudan, Uganda and Tanzania.    Somalia is equated with lawlessness and terror but much of Horn of Africa is ailing with chaos, poverty, hunger, corruption and lawlessness making it a region haven for pirates, arms smugglers and religious insurgents.   The Western World perceives these six countries — Somalia, Sudan, Ethiopia, Eritrea, Kenya and Djibouti to spearhead terrorism in future.   U.S. has stationed  huge no. of  troops in Djibouti to keep terror networks in the Horn of Africa in check.  This is because this is a strategic point where  Red sea opens into Indian Ocean. 

Now the Zone is seemingly opening up further.  Kenya’s high seas have been declared a war zone by association of Global Insurers, who underwrite War risks.  This move will increase the costs of freight and marine premiums further and would impact the cost of cargo also.   The declaration was brought about by the rising incidents of piracy in Kenyan waters – occurring within the exclusive economic zone of 360 km from the coastline.  

In some markets, Insurers have  introduced a piracy surcharge of 0.05 per cent of the value of the cargo.  The increase  in freight costs as a natural corollary would push the prices and drive more inflation.   The already ravaged economy of Kenya would further be affected by inflation.  There are reports that shippers  are paying an additional of Sh7,600 for every 20-foot container and an extra Sh1,200 for every tonne of oil and bulk grain cargo imported through the port of Mombasa.  Cargo owners are also required to pay additional fuel charges incurred when the vessels take longer routes to avoid the pirates.

It has its impact on India as well as vessels  headed for Mumbai from Mombasa are now taking 18 days up from an average of 12 days it took to make the same journey three years ago, while those coming from Dubai are taking 12 days up from seven, sailing away from pirate infested waters.

There recently has been a declaration of Joint War Committee which has reviewed the list areas incorporating some new changes.  For the uninformed, Joint War Committee is a joint forum of IUA and LMA.  IUA is -  International Underwriting Association of London -  the world's largest representative organisation for international and wholesale insurance and reinsurance companies.  LMA is   Lloyd's Market Association  which provides professional and  technical support to the Lloyd’s underwriting community and represents their interests.

IUA was created in Dec 1998 with merger of London International Insurance and Reinsurance Market Association (LIRMA) and the Institute of London Underwriters (ILU). This union brought together the representative bodies for the marine and non-marine sectors of the London company insurance market.  There are various committees coming under this, some of which are - Marine Technical Committee, Joint Cargo Committee, Joint Excess of Loss Committee, Joint Hull Committee,  Joint Liability Committee, Joint Marine Claims Committee, War Risks Rating Committee (cargo).  

By a circular dated 16th Dec 2010, Joint War Committee  has listed out some amendments and additions of Listed areas.  The addition which impact us are : Indian Ocean / Arabian Sea / Gulf of Aden / Gulf of Oman, Southern Red Sea.  

Most Indian Insures do not follow the JWC for cargo coverage but for Hull they do.  Again application of the list on individual contracts would be subject to specific negotiation.    The listed areas include certain Countries.  The interpretation is that when the Countries are so named, the coverage impact would include their coastal waters extending upto 12 nautical miles and wherever Ports are named – it would include all facilities / terminals within the areas controlled by the Port.  

The exclusion pertaining to : Indian Ocean / Arabian Sea / Gulf of Aden / Gulf of Oman, Southern Red Sea is further defined as 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 78° E
d) and on the south, Latitude 12° S
excepting coastal waters of adjoining territories up to 12 nautical miles offshore unless otherwise provided.

For people like us, it is not easy to read and understand the sea maps by latitudes and longitudes.  To go back to basics (I was never a good student of Geography) – Latitude and Longitude are basically imaginary lines drawn over the maps that locate accurately a place and its time zone.   Latitudes run parallel to equator and measure north south direction; longitudes or meridians are the vertical lines running perpendicular measuring east – west direction.  

Within the country, different Cities would have differential Latitude/ Longitude going by its positioning.   Thus Chennai is located on : 13.026°N  / 80.3101°E  ;  Cochin is -            9° 58' N/76° 17 E;  Ernakulam which is practically the twin city is : 10° 00' N/76° 15 E
The Indian Capital of New Delhi lies 28.38°N (lat) and 77.12°E (long). The 28th parallel North is a circle of latitude that is 28 degrees north of Earth’s equatorial plane and crosses Africa, Asia, Pacific Ocean, North America and Atlantic.  The meridian 77° east of Greenwich is a line of longitude that extends from the North Pole across the Arctic Ocean, Asia, the Indian Ocean, the Southern Ocean, and Antarctica to the South Pole. 
the 78E longitude

Arising out of Piracy of Puntland, the Indian market’s response has not been uniform – some Insurers have hiked their rates, some have imposed additional conditions – some practical and some impractical – whilst some have remained mute spectators to the occurrences.  How these changes further impact the brittle Indian marine market remains to be seen in the long run.

Hope this interested you and do share your feedback either by a post here or e mail me at : samvijib17@gmail.com

Regards – Srinivasan Sampathkumar.

21 comments:

  1. Very interesting. Lot to debate for Indian insuring community. Is there any good forum for discussing these - CS Shaw

    ReplyDelete
  2. Sir, Are you part of India Insurance Forum in Linked in. Request you to post this article there also - Thiagarajan

    ReplyDelete
  3. Very intresting indeed. Lot to debate for the indian insuring public and their Insurers. But is there any real platform where such issues are discussed ? - CS Shaw

    ReplyDelete
  4. confusing, bemusing, threatening - insurance is very difficult to understand - Vijay

    ReplyDelete
  5. when this is the position, still most Indian Insurers are charging 0.00..% Is is that they have mastered UW and know of all market forces or have all just resigned to fate - KUmaran

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