Easing the Burden
MARAD’s vessel insurance program
sheds light on complex war risk requirements
By DAISY R. KHALIFA, Special Correspondent
Risks of War
In the context of a commercial
vessel that is being chartered by
MSC, Fitzgerald said a shipowner
might only pay a total yearly war
risk premium of $10,000 on a vessel under normal circumstances.
But if the shipowner asks to transit into an excluded zone, the underwriter might ask for $20,000,
$50,000 or even $100,000 more,
depending on the perceived risk,
This is where MARAD can help
ease the financial burden.
Since 1990, when a presidential
order signed by then-President
George H.W. Bush authorized activation of the
Department of Defense (DoD) indemnified program in
the run-up to the 1991 Persian Gulf war, MARAD has
acted, in effect, as an underwriter of war risk insurance
for U.S.-flag and foreign vessels employed under charter
to MSC. Under the Title XII Marine War Risk Program,
it can insure, at the request of the secretary of defense,
commercial vessels used by MSC.
The program has been made available to commercial
shipowners, but has been used on a more regular basis
by MSC with its commercially chartered vessels.
“This program has an effect on the commercial war
risk underwriters; it had an effect during Desert Storm,”
said Fitzgerald. “With MARAD just having the authority
to write this war risk insurance coverage, underwriters
know it and it helps the shipowners.”
The Title XII war risk insurance, Fitzgerald said, has
a moderating effect on commercial war risk rates and
how commercial underwriters price their premiums.
A large percentage of the ships MSC operates are
commercial vessels under time or voyage charter to
MSC. These vessels are insured commercially, so the
cost of the charter hire to MSC includes the cost of
insurance premiums paid by the ship-operating com-
There are two major types of insurance coverage nearly all ships
and fleets purchase: marine risk and war risk.
■ Marine risk insurance has two subgroups: marine hull insurance
and marine protections and indemnity (P&I).
■ Within war risk insurance, the two subgroups are war risk hull
and war risk P&I.
■ Commercial shipowners often pay additional war risk insurance
premiums for transiting “excluded zones,” which are high-risk
areas listed by Lloyds’ Joint War Committee.
As piracy, terrorism and other hazards make the world’s oceans more dangerous for shipping, the U.S. Maritime Administration (MARAD) is
playing a role in helping commercial shipowners and
federal agencies like Military Sealift Command (MSC)
navigate through the complexities and potential high
costs of war risk insurance.
“Normally, war risk premiums are very low, or relatively low. Right now, with vessels that are transiting
these high-risk areas [notably around the Horn of
Africa, which has seen a dramatic increase in piracy
activity in recent years] — they can’t go into those
areas unless their underwriter approves it, and they
pay an additional premium,” said Edmond J.
Fitzgerald, director of MARAD’s Office of Financial
Approvals and Marine Insurance.
“What has been happening, as there are more and
more attacks in the [excluded zones], the war risk underwriters have been playing a much bigger role,” he said.
War risk insurance covers damage due to acts of
war, including invasion, insurrection, rebellion and
hijacking. Some policies also cover damage due to
weapons of mass destruction. It is most commonly
used in the shipping and aviation industries.