Cherie Gopie
When commercial vessels recently began diverting thousands of miles around the Cape of Good Hope to avoid attacks in the Red Sea, the world was reminded how fragile global shipping routes can be.
Each diversion added weeks to voyages and hundreds of thousands of dollars in fuel and operational costs.
Another cost was rising quietly in the background: war risk insurance premiums.
This specialised form of insurance rarely receives public attention, yet it plays a crucial role in determining whether ships continue to sail through volatile regions or whether trade routes become commercially unviable.
For a country like T&T, whose economy partially relies on maritime transport, developments such as these are more relevant than they may initially appear.
What is war risk insurance?
Standard marine insurance policies typically exclude losses caused by war, terrorism, or civil unrest. The potential scale and unpredictability of such events make them too risky for conventional insurance coverage. War risk insurance fills that gap.
It provides specialised cover for losses arising from hostile acts, including damage to vessels from missiles, mines, or military activity, seizure or detention of ships, piracy or politically motivated violence, acts of terrorism or sabotage, damage to cargo arising from such events. Without this type of coverage, shipowners and cargo interests would often be unwilling or unable to operate in areas exposed to geopolitical risk.
In practice, war risk insurance generally takes two principal forms. Hull war risk insurance protects the vessel itself against damage or loss caused by hostile acts or state action.
Cargo war risk insurance protects the goods being transported if they are damaged or lost as a result of conflict-related events. These policies operate alongside standard marine insurance but respond specifically to risks that conventional policies exclude.
Recent conflicts are reshaping maritime risk
The past two years have demonstrated how quickly maritime risk could escalate. Attacks on commercial vessels in the Red Sea, particularly those linked to the conflict in Gaza, have forced many shipping companies to avoid the Suez Canal route altogether.
Several vessels have been struck by missiles or drones, prompting insurers to dramatically increase war risk premiums for ships entering the region. Similarly, tensions in the Strait of Hormuz, through which a significant portion of the world’s oil supply passes, have repeatedly raised concerns about the safety of commercial shipping.
In previous incidents, vessels have been detained or seized, triggering complex insurance claims and diplomatic disputes.
These developments have real economic consequences.
When an area becomes unstable, insurers may designate it as a high-risk or “listed” area. Ships entering those regions must obtain additional cover and pay supplementary premiums.
Those premiums could rise sharply during periods of conflict, sometimes adding hundreds of thousands of dollars to the cost of a single voyage.
Ultimately, those costs do not remain confined to shipowners or insurers.
They move through the global supply chain and eventually affect freight rates, energy prices, and the cost of goods.
Why Caribbean businesses should care
At first glance, conflicts in the Middle East or Eastern Europe may seem remote from the Caribbean. Yet the reality is that T&T is deeply integrated into the global maritime economy by the reliance on shipping for exports of liquefied natural gas, petrochemicals and energy products, imports of food, machinery and consumer goods and regional container trade linking the Caribbean to North America, Europe and Asia. When war risk premiums increase internationally, shipping costs rise accordingly.
Those increases could influence freight rates, insurance costs, and ultimately the price of goods entering the Caribbean.
In other words, geopolitical tensions thousands of miles away can quietly affect the cost of doing business in T&T.
The legal dimension
From a legal perspective, war risk events also raise complex issues involving charterparties, cargo claims and maritime liability. Charterers and shipowners must consider contractual provisions dealing with war risks clauses, safe ports obligations and deviation rights. A shipowner may refuse to enter a dangerous area without additional compensation or insurance, while charterers may dispute whether a voyage order exposes the vessel to unacceptable risk.
In extreme situations, disputes arising from cargo loss, vessel detention, or contractual breaches may ultimately lead to admiralty proceedings in the courts.
Although T&T may not be located near modern conflict zones, its courts and maritime legal framework remain part of the wider global system that resolves such disputes.
The invisible infrastructure of global trade
It is important to recognise that war risk insurance does not change the underlying consequences of conflict at sea.
A vessel struck by a missile, detained by state authorities, or damaged during hostilities would still suffer the same operational and legal consequences. Insurance cannot prevent the loss or alter the outcome of such events. What it does is allocate the financial risk, allowing shipowners, cargo interests and insurers to absorb the economic impact of geopolitical instability while trade continues.
An important practical question is whether shipowners can simply choose not to purchase war risk insurance. In theory, the cover is not always legally mandatory.
However, in practice, vessels operating in or near conflict zones would almost always be required to obtain war risk cover by their lenders, charterers or cargo interests.
A shipowner who attempted to sail without such cover would assume enormous financial exposure if the vessel were damaged, seized or destroyed.
The cost of this insurance could be substantial. When insurers designate a region as a high-risk area, ships entering that zone must pay additional premiums calculated as a percentage of the vessel’s value. For large commercial vessels, these premiums could reach hundreds of thousands of dollars for a single voyage.
Not every operator can absorb such costs easily. Smaller shipping companies may find these premiums particularly burdensome, and in some cases operators may choose to reroute vessels or suspend voyages altogether rather than incur the additional expense.
Even when the insurance is purchased, the cost rarely remains with the shipowner. In international shipping, expenses such as insurance, fuel and security measures are typically incorporated into freight rates and ultimately passed down the supply chain.
For consumers and businesses in T&T, this means that geopolitical conflicts occurring thousands of miles away could still have a tangible impact. Higher war risk premiums contribute to increased shipping costs, which may in turn affect the price of imported goods, energy transportation and other traded commodities. War risk insurance therefore, illustrates a broader reality of the global economy, although conflict may occur far from our shores, its financial consequences could travel across oceans just as easily as the ships that carry global trade.
Cherie Gopie is a Partner at M. Hamel-Smith & Co.
She can be reached at mhs@trinidadlaw.com.
