The maritime industry, particularly shipments destined for Nigeria, has witnessed a substantial surge in war risk insurance (WRI) premiums in recent years. This escalating cost stems from a combination of factors, including geopolitical instability, piracy, and terrorism, particularly in the Gulf of Guinea, where Nigeria’s ports serve as vital hubs for international trade. The upward trend in WRI premiums significantly impacts stakeholders across the supply chain, from shippers and insurers to importers, forcing them to grapple with the causes, consequences, and implications of these rising costs. WRI is a specialized insurance policy that safeguards vessels and cargo against losses or damages resulting from acts of war, terrorism, or piracy while in transit. Given the volatile nature of these risks, particularly in regions rife with geopolitical tensions or known for piracy, obtaining WRI is a crucial protective measure for shipping companies.
Piracy off the coast of Nigeria and its surrounding waters, as reported by the International Maritime Bureau, poses a considerable threat to global shipping, directly contributing to the inflated insurance premiums. Since 2018, piracy incidents in the Gulf of Guinea have become a major driver of increased insurance costs, compelling insurers to classify these regions as “high-risk” and impose additional premium charges. WRI premiums for Nigerian-bound cargoes have seen a dramatic escalation over the past decade. Reports indicate a 20-30% surge in 2020 alone, largely attributed to escalating piracy and threats from armed groups operating along the Nigerian coast. This upward trajectory continued into 2021-2023, with some shipping companies reporting increases as high as 35% for high-risk zones, particularly along the Nigerian coast. By 2023, premiums could reach staggering amounts of $50,000 to $100,000 per voyage, contingent on the cargo size and the specific route taken.
The soaring WRI premiums place a significant burden on international shipping lines and Nigerian importers alike. Nigeria, a major oil exporter and one of Africa’s largest economies, plays a crucial role in global maritime trade. However, the rising insurance costs impact key sectors, particularly the oil and gas industry, which heavily relies on maritime shipping for equipment imports and crude oil exports. Reports indicate that this industry spends millions of dollars annually on WRI premiums due to piracy concerns, leading to increased costs for goods and services that are ultimately passed on to consumers. The World Bank notes that increased insurance premiums have a ripple effect on Nigeria’s overall shipping costs, contributing to inflationary pressures on the economy. Shipping costs to Nigerian ports have seen a significant rise, averaging 15% from 2020 to 2023.
A primary driver of these inflated premiums is the high rate of piracy and armed robbery in the region. The Gulf of Guinea, with Nigeria as its epicenter, is consistently flagged as one of the world’s most dangerous shipping zones by the International Maritime Bureau’s Piracy Reporting Centre. This region accounted for over 40% of global piracy incidents between 2018 and 2021. Nigeria’s ranking as the third most dangerous country for piracy globally, following Somalia and Indonesia, underscores the severity of the problem. Incidents of hijacking, crew kidnapping, and attacks on vessels remain significant. The link between these attacks and insurance premiums is undeniable. Insurers base their risk assessments on the frequency and severity of such incidents, leading to higher premiums as attacks increase. Beyond piracy, intermittent militant activities in the Niger Delta, including attacks on oil infrastructure by groups like the Niger Delta Avengers, further amplify the risks and contribute to higher insurance costs.
To mitigate the escalating WRI costs, Nigerian importers, exporters, and shipping companies have adopted various strategies. These include collaborating with private security firms to deploy armed personnel on vessels, opting for longer, less risky routes, forming syndicates to spread the risk of high premiums, and investing in enhanced security measures at ports. International institutions like the International Maritime Organisation (IMO) and the United Nations, along with the Nigerian government, have implemented initiatives to address piracy and maritime insecurity in the Gulf of Guinea. These efforts include international cooperation, the Deep Blue Project in Nigeria, and increased naval patrols. However, piracy persists, and challenges remain despite these interventions.
The Nigerian Maritime Administration and Safety Agency (NIMASA) reports that Nigeria has paid over $1.5 billion in WRI premiums to international insurers in the past three years. This substantial financial burden, initially stemming from Niger Delta militancy and piracy, has a staggering impact on the Nigerian economy. The cost for a single voyage for a large crude carrier can reach approximately $445,000, while new container vessels face costs of up to $525,000. NIMASA, recognizing the economic implications, has launched a campaign to eliminate WRI on Nigerian-bound cargo, emphasizing that the security concerns that initially justified these premiums no longer exist. Despite Nigeria’s removal from piracy-prone lists by the IMB and IBF, and over 30 months without piracy incidents, international shipping companies continue to impose WRI premiums. NIMASA has actively engaged with international stakeholders, including Chatham House, BIMCO, ICS, and INTERCARGO, urging the removal of these premiums, highlighting Nigeria’s improved security status and substantial investments in maritime security.
Experts and stakeholders within the industry have voiced concerns about the WRI premiums. They argue that the premiums inflate freight rates for Nigerian-bound cargoes, impacting the Nigerian economy negatively. They also raise concerns about the justification for these premiums, given Nigeria’s improved security status and the lack of piracy incidents in recent years. The question remains why these premiums are still being imposed despite significant improvements in maritime security in Nigerian waters, including the successful Deep Blue Project, which has effectively eliminated piracy for over 30 consecutive months. The outlook for WRI premiums remains uncertain despite improvements in security. Underlying risks, including political instability, economic challenges, and militant activities, persist. Insurers and shipping companies are expected to closely monitor the situation, adjusting premiums based on regional security developments. The adoption of digital risk management tools may provide more accurate risk assessments, potentially offering some relief in premium pricing. The situation highlights the complex challenges faced by the global maritime industry in navigating unstable regions, and the need for adaptable solutions to mitigate risks and safeguard operations in critical trading hubs like Nigeria.
