Businesses in Bangladesh feel the heat of big-power conflicts in the Red Sea area as reinsurers worldwide start charging a hefty additional 250-percent premium for coverage of war risks on trade.
The usual war-coverage premium is 0.05 per cent which now the re-insurers jacked up by an additional rate of 0.175%, totalling 0.225 per cent, Sadharan Bima Corporation (SBC) informed the local insurers recently.
The new rate is applicable to the ships which ply Red Sea, Gulf of Aden and Indian Ocean boundaries or the Persian/Arabian Gulf of Oman.
"We have received a direction from our R/I (re-insurance) broker Tysers, London, about the additional premium which is fixed at 0.175% for war and strikes, but subject to weekly review," the SBC authority said in a letter to all non-life insurance companies.
Meanwhile, risks for shipping through the global trade's arterial channel that extends up to the Suez Canal heightened with the conflicts now pivoting on US-Houthi missile attacks.
Contacted Friday, SBC general manager (re-insurance department) Bibekananda Saha told the FE: "The ships now need to travel additional distances to avoid war zone and thus risks have also gone up. The reinsurers thus are now charging extra.
"The oceangoing vessels who ply through Red Sea area need the additional risk coverage."
Mr Saha says the rise in insurance cost means transportation costs which ultimately put pressure on end-users. "This is a matter of worries as to how long the situation will prevail."
Syed Shahriyar Ahsan, Chief Executive Officer, Pioneer Insurance Company Ltd, says despite the ongoing war situation, many vessels are bound for Red Sea and adjacent area to carry food-grain and coal, and in that case they are paying special war premium.
"As insurance coverage has gone up, the import cost has also increased," he told the FE about the impending cascading effect of the conflicts on trade, production and market.
Mr Ahsan fears that high import cost may lead to the opening of lower numbers of letter of credit that ultimately will also affect business of insurance companies.
Mohammad Monirul Islam, Additional Managing Director, Nitol Insurance Company Ltd, told the FE the local insurers received a notice few days back from London market through SBC not to provide risk coverage to vessels plying the war zone.
And subsequently another notice has come on providing war-risk coverage in exchange for additional premium subject to review on a weekly basis, he said.
"Firstly, our business has fallen down due to lower number of LC opening because of dollar dearth. Moreover, due to war risks, we are feeling discouraged from providing coverage to our clients because the mentioned sea areas are now war-prone zone no doubt," he said.
"Insurers are now in a shaky position on both sides."
Shahidullah Azim, vice president, Bangladesh Garment Manufacturers and Exporters Association (BGMEA), says the higher insurance premium ultimately will make the businesses looser.
In the case of garment export, the buyers themselves pay the shipping costs. "But when they need to pay additional insurance premium due to war risks, they will ask us to lower apparel prices."
Mr Azim says buyers are not interested to bear the additional costs and ask the manufacturers to shoulder them.
syful-islam@outlook.com