Conflicts in the Middle East have driven up vessel operating costs and forced changes to shipping routes, causing significant disruption to the global shipping industry. Industry insiders believe Hong Kong can leverage its strengths to help the sector navigate the turbulence by providing critical financial solutions, such as risk mitigation and specialized insurance.

“We have a very vibrant shipping ecosystem in Hong Kong,” said Richard Hext, chairman of the Hong Kong Shipowners Association. He added that one response has been an insurance risk pool set up last year in the city that now covers about 800 vessels.

This figure is up from around 10 vessels prior to the outbreak of the conflict, according to Ocean Chiu Wai-yeung, associate director of general business at the Insurance Authority.

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Launched in November with the support of five Hong Kong insurers, the Marine Specialty Risks Insurance Pool provides up to HK$1 billion ($128 million) in specialized coverage to bolster underwriting capacity for local and Chinese mainland shipowners facing war, piracy, and other geopolitical risks.

“The underwriting capacity is now about $200 million, well beyond what was reported at its launch, so we think the Hong Kong marine risk insurance pool is well on its way,” Hext added.

He said demand for the Hong Kong risk pool has accelerated since the outbreak of hostilities, even as global insurance premiums for the Middle East region continue to climb. “If you have a tanker worth $100 million, which is a new Suezmax ship of about 160,000 metric tons, you would expect to pay total premiums of around $1 million. That is more than double the annual insurance cost before the war,” said Hext.

To counter these soaring costs, vessels are increasingly flocking to the Hong Kong risk pool. The robust underwriting capacity and reputation of insurers in Hong Kong and the mainland, backed by the large Chinese insurance market, have enabled Chinese-flagged vessels to be classified as “lower risk” profiles. Besides, the pool’s trilingual support in Cantonese, Mandarin, and English facilitates seamless communication. “They can provide a customized service to the shipowners to reflect the needs of that owner,” said Hext.

Crucially, shipowners can access the pool directly. “For the London market, for example, Hong Kong shipowners will always need to go through a broker; now they can directly go to the pool and get the insurance covered. So, one big layer is sort of cut out and saves them cost,” added Nittin Handa, director of regulatory affairs of the Hong Kong Shipowners Association.

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As a capital-intensive industry, marine insurance requires substantial financial backing to absorb risks. Hext said Hong Kong’s solid capital base provides the necessary resilience for such a demanding market.

“There’s a big future for Hong Kong. China’s shipowners own about 17,000 ships in total, and we are also close to Japan, Singapore and India, so there’s a big market for Hong Kong to serve,” he added.

Contact the writers at akirawang@chinadailyhk.com