Five powers give insurers clause for thought

Marine (re)insurers have been rocked by moves by some clients to remove a new clause which was designed to combat what the industry believes would be a threat to its very existence.

The newly introduced “five powers” insurance clause for cargo and war risks came into being this year but while insurers are keen to implement the clause it seems the clients do not share that sentiment and have pushed backed – with some success.

While the issue was not discussed openly in Edinburgh at the International Union of Marine Insurance’s annual conference, the topic was the talk of a number of external meetings between brokers, insurers and reinsurers.

The five powers war clause is a recent development as cargo and war risks with underwriters look to preclude the risks which would come from a major conflict.

In the US the five-power war wording states that the clause: “excludes loss, damage, liability, or expense arising from the outbreak of war (whether there be a declaration of war or not) between any of the following: United States of America, United Kingdom, France, the Russian Federation, the People’s Republic of China.”

It has been brought in to tackle what has been deemed to be a systemic risk to the insurance industry of any of the five named powers were to become involved in an armed conflict with any of the others. Their fear is the losses would be of a magnitude the industry would be unable to meet them.

One source told Emerging Risks that at the key Japanese renewals in June and July of this year clients were refusing to accept the five powers clause being inserted into their policies and after some significant and often tough negotiations there have been cases where the underwriters have removed the clause at the eleventh hour.

“Japanese clients were not happy with the five powers clause and made that unhappiness clear to the broker and the underwriters,” our source said. “It resulted in a very tough renewal process but there have been cases where the clause has been removed. We will have to wait and see what this does as we move towards 1 January and whether this will give other clients the determination to hold fast and demand the clause does not feature in their cover.”


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