LONDON, 7 August 2006 – London market cargo underwriters have, in some cases, trebled their additional premium (AP) rate for shipments into Israel, ironically, whilst local insurers appear not to be charging the levy as views clearly differ on the extent of the threat to shipments.

As the port of Haifa has more or less closed and cargo has been diverted to Ashdod, to a certain extent, Israeli insurers have a valid point in that conflict is only taking place in the north which is miles away from this alternative route. However, lack of precision bombing from Hezbollah and continued conflict means that underwriters are erring on the side of caution.

Whereas London sees Israel as an enhanced risk, AP war risks rates are nevertheless inconsistent which is good for the cargo owner who can shop around for the most competitive rate for the required coverage. An AP has the option to cover both war risks and strikes, the latter of which includes terrorist activity and thus ensures protection for the cargo owner regardless of whether this conflict is deemed war or a terrorist activity by the underwriter.

The standard AP for a ‘less enhanced’ country such as Venezuela sits at a rate of about 0.05% of the cargo’s value whereas Israel is deemed an elevated risk and cargo owners can expect their premiums to fetch up to 0.15%.

Stephen Garrard of Aon Marine's cargo team comments: “As Haifa is closed, there’s double the traffic trying to sail via Ashdod leading to congestion and some vessels being diverted to Cyprus, for example. Even though cargo may not suffer a direct hit from the rockets, owners should recognise that these delays are in turn leading to increased exposure whilst goods are in temporary storage waiting to travel via the port.

“As still in transit, cargo will be covered under the standard policy but owners need to be aware of maximum limits they can claim on.  Owners could face a potential shortfall if suddenly two or three of their shipments are exposed at the same storage location increasing the potential amount of their claim for a one off incident.”

Advice to cargo owners

1. Cargo owners who have taken a block annual war policy will not obviously be subject to AP but those looking for one off covers or needing to pick up insurance part way through a journey will need to be prepared for the increased ‘knee jerk’ rates.
2. Be prepared for delays, the possibility of your cargo going into storage and maximum limits you can claim on your policy if your goods were lost or damaged.
3. Try to ensure that vessel owners do not terminate your contract before the final destination. The ship owner may decide to discharge your cargo at an alternative port, such as Cyprus, saying they have travelled as far as they can without becoming entangled in the conflict or the congestion at Ashdod. The cargo owner may immediately find themselves without any cover and an AP may have to be paid to follow the cargo through to its final destination on the new vessel.
4. Business interruption cover is vital for project cargo involved in construction works but Israeli exporters of goods such as kiwis or avocados need to consider the implications of over ripe fruit arriving in Europe due to port delays.
5. Needless to say, it is crucial for goods owners to take out cargo insurance as freight forwarders cannot be held liable for loss or damage to cargo as the circumstances of conflict are beyond their control.

Notes to editor:

About Aon

Aon Corporation is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 46,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

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