Israel-Hamas War Could Impact Hike In Insurance Premiums And Shipping Costs (image: pixabay)
The continuing conflict between Israel and Hamas, if escalated, could turn expensive for insurance premium and shipping costs. As per the think tank, Global Trade Research Initiative (GTRI), the Israel-Hamas war could settle in the risk of higher insurance premium and shipping costs for Indian exporters, reported moneycontrol. This, the GTRI said, will not impact the trade volumes if the war does not escalate. Only the escalation of the current situation would warrant higher premium and shipping cost.
In the FY 2023, the trade between India and Israel stood at $12 billion, with Indian exports at $8.4 billion and Israel’s imports at $2.3 billion.
“For merchandise exports of India, the war may lead to higher insurance premiums and shipping costs. India’s ECGC may charge higher risk premiums from Indian firms exporting to Israel,” the GTRI said. Ajay Srivastava, founder of GTRI, said that at a later stage, if the conflicting groups target ports, then the premium would increase.
Israel’s three large ports – the Haifa, Ashdod, and Eilat, currently handles shipments in agricultural products, chemicals, electronics, machinery and vehicles. If the operations of these ports are targeted and disrupted, then trade could be impacted extremely.
A Senior Executive of Adani Ports & SEZ said, “shipping companies have already started charging a premium for cargo meant for Turkey, Greece, Egypt and Libya. They have indicated that shipping costs may rise further if the conflict continues and they are forced to use alternative shipping routes around the African continent through Cape Town.” The Adani Group has operations at the Haifa port along with a local operator.
In the matter of insurance premiums, the companies could use the option of later payments but it would not be able to last long with that option. A senior executive from Tata AIG General Insurance, on condition of anonymity said that, “we are already four days into the war. I assess the insurance premiums to rise in the next five days, by mid-October, or a maximum of the first week of November, after which the premiums can rise by 10 percent every month,” reported moneycontrol.
Senior vice president and co-group head at ICRA, Prashant Vasisht said, “the time to wait is not expendable. Shipments can only be delayed for a few days or a week. But after that, shipments will have to go with additional costs.”
In the matter to premium costs, as per marine insurance officials, it is a standard practice to raise premiums. Co-founder and CEO of Container xChange, Christian Roeloffs says, “the reason behind this is the heightened risk associated with shipping goods to regions experiencing geopolitical unrest. India”s Export Credit Guarantee Corporation (ECGC) may consider charging higher risk premiums from Indian firms involved in exports to Israel. This is a standard practice when dealing with regions facing increased instability and risk.” Premiums, says Roeloffs, are to guard the Indian businesses from losses which could occur because of such uncertain geopolitical issues.
There could be situations where the companies which are sending shipments could encounter non-availability of coverage. Sajja Praveen Chowdary at Policy bazar spoke on this, saying, “as seen from the past, whenever a war situation develops, insurers change underwriting guidelines and re-insurers also act on it. Sometimes, the risk is so huge that companies stop providing insurance cover altogether. A premium increase may not be able to justify the huge amount of risk in such a situation, leading to re-insurers and insurers not willing to accept the risk.”
The militant group, Hamas, which rules the Gaza Strip had launched an attack against Israel by air, land and sea on the morning of October 7th. On this, Israel had retaliated.
India and Israel are on the negotiation path for a free trade agreement. The major Indian exports to Israel include diesel, cut and unpolished diamonds, and electronics and telecom components. India’s trade with Israel is mainly routed through the Eilat port. Some Indian companies which have a presence in Israel are, Sun Pharmaceutical Industries, Tata Consultancy Services, Wipro, Tech Mahindra, State Bank of India, Larsen & Toubro, and Infosys.
