The ongoing crisis in Ukraine, and escalating sanctions imposed by the EU, US and other national governments, including restrictions relating to energy, defence and financial markets, mean that sanctions are now front page news. Huge penalties imposed on banks such as BNP Paribas and Bank of America mean that sanctions are on the business pages as well. But away from the headlines, what should marine insurers actually be doing in order to ensure compliance?
Stage 1 is to understand the risk. As ever, this comes down to understanding who you are insuring, for what risks and where in the world.
The sanctions position is constantly changing and insurers need to ensure that they are up to speed with the latest developments. By way of example, recent EU and US sanctions against Russia have targeted the ability of certain Russian enterprises to access EU and US debt and capital markets, and measures have also been introduced which restrict the supply of certain oil and gas equipment to Russian businesses and/or for use in Russia. In addition, further individuals and entities have been added to the EU sanctions list by 12 September 2014.
At the same time that additional restrictions are imposed under one sanctions programme, restrictions are being relaxed under another programme, with the limited suspension of certain sanctions against Iran being extended until November 2014, meaning that insurers may be asked to consider insuring certain voyages that were previously completely forbidden.
Insurers need to educate the brokers, local agents and anyone else who brings business through the door, so that they can ask the right questions and not expose insurers. Once you have carried out your due diligence, you need to make sure that you keep a paper trail to show the checks you carried out and why you decided it was safe to proceed.
Stage 2 is to write the policy on the correct terms. This will include warranties from the assured, as well as a robust sanctions exclusion clause. The market sanctions clause is a useful starting point, but you should also consider specifically excluding any particular risks which you know cannot be written without violating the sanctions. You need to think about whether the policy should terminate in the event that the sanctions position changes, or merely be suspended. Likewise, you need to consider what will happen if the insurance is not affected by a change in sanctions, but the policy of reinsurance is affected (for example because the reinsurer is a US company).
Stage 3 is to deal with claims. You need to find out as much information as you can before you provide security or pay any claims. Again, this boils down to the who, what, where and when of the claim. The beneficiary may be a third party you were not previously aware of, or a subrogated insurer, and they need to be checked. You also need to work closely with your bank to check that you can make the necessary payments, put up security, etc.
Given all of the focus on them, sanctions are clearly here to stay, at least for the short term, and insurers need to ensure that they have in place a process to ensure compliance.