In a world where more than 80% of global merchandise trade is transported by sea, insurance is not merely a financial service; it is the backbone of international commerce.
According to the United Nations Conference on Trade and Development (UNCTAD), maritime transport carries over 80% of the volume of global trade and more than 70% of its value, making stable insurance markets essential for global economic activity.
Yet today, those insurance markets are being shaken by geopolitical instability, including the crisis in the Middle East that was triggered by the US and Israel strikes on Iran. Recent maritime insurance disruptions show how quickly risk pricing can spiral. War-risk insurance for ships in conflict zones has surged from roughly 0.25% to as high as 3% of a vessel’s value, meaning a ship worth US$250 million could face over US$7 million in insurance costs for a single voyage.
Paul Chinedu, a financial writer and business analyst, noted: “Container shipments now carry additional charges reaching US$500–US$4,000 per container, depending on origin and type.”
Across Africa’s busy ports and fragile trade corridors, insurers are dramatically increasing the price of risk on the back of intensifying geopolitical conflicts around key maritime routes.
Lloyd’s of London estimated in a November 2024 report that the global economy could be exposed to losses of US$14.5 trillion over a five-year period from the threat of a hypothetical geopolitical conflict causing widespread disruption to global trade patterns and supply chains.
Lloyd’s report highlighted the growing financial risks posed by escalating geopolitical tensions and underscores the potential economic shockwaves that large-scale international conflicts could inflict on the global economy. The result is an emerging economic burden that analysts describe as a “hidden war tax” on global trade, one that African economies are particularly vulnerable to.
War risk: volatile frontier
Marine insurers categorise conflict-prone waters as “war-risk areas”, where additional insurance premiums are required to protect ships and cargo against damage caused by war, terrorism, piracy, or military action.
The classification is overseen by the Joint War Committee of the Lloyd’s Market Association, which designates certain maritime zones as requiring additional war-risk coverage.
These zones currently include strategic waters around the Red Sea, parts of the Middle East, and the Gulf of Guinea regions critical to African trade routes.
Fikru Tsegaye, acting CEO at Ethiopian Reinsurance Share Company, warns that risk pricing in these areas has become increasingly volatile. According to the International Union of Marine Insurance (IUMI), geopolitical instability and maritime attacks have significantly increased insurers’ exposure to catastrophic losses.
In its 2023 annual report, IUMI stated that geopolitical conflicts and attacks on commercial vessels are among the most significant emerging risks facing marine insurers today. As a result, insurers have begun dramatically raising premiums or tightening coverage for ships passing through conflict-affected corridors.
Red Sea crisis and Africa’s economic exposure
Few regions demonstrate the economic ripple effects of these insurance shocks more clearly than the Red Sea corridor. The waterway connects Europe and Asia through the Suez Canal and serves as a vital shipping route for East African imports and exports. Disruptions to this route therefore reverberate across the continent.
According to the International Monetary Fund, shipping disruptions and conflict-related security risks in the Red Sea have forced many vessels to reroute around the Cape of Good Hope, increasing shipping times and transport costs.
Longer voyages mean higher fuel consumption, higher freight charges, and critically, higher insurance costs.
The IMF notes in a 2024 report that such disruptions can significantly raise global trade costs and contribute to inflation in import-dependent economies. For African states that rely heavily on maritime imports of fuel, machinery and food commodities, the economic impact can be particularly severe.
Paradox of rising risks and high protection gap
Despite the growing geopolitical risks, Africa remains the least insured region in the world. Data from the African Development Bank shows that insurance penetration in Africa averages around 2-3% of GDP, far below the global average of about 7%.
This gap leaves businesses and governments exposed when geopolitical shocks disrupt supply chains or destroy infrastructure. Experts at the African Insurance Organisation warn that low insurance coverage amplifies the economic consequences of conflict. In its industry outlook report, the organisation notes that limited risk-transfer mechanisms in African markets increase financial vulnerability to political instability and external shocks.
In practical terms, this means that conflict drives up insurance premiums to levels that many African businesses simply cannot afford.
Gulf of Guinea: piracy and the price of protection
While the Red Sea crisis illustrates how global conflicts affect Africa indirectly, the Gulf of Guinea demonstrates how local security threats can directly shape insurance markets. Stretching from Senegal to Angola, the region has been identified as one of the world’s most dangerous maritime zones due to piracy, armed robbery and militant attacks on vessels.
According to the International Maritime Organisation, the Gulf of Guinea accounted for a large share of global maritime kidnappings and piracy incidents during recent years. Such risks have profound consequences for insurance pricing.
When piracy incidents rise, insurers respond by imposing additional war-risk premiums on vessels entering the region. These premiums can significantly increase the cost of transporting crude oil, agricultural exports, and manufactured goods.
Given that Nigeria alone accounts for a substantial share of Africa’s oil exports, higher insurance costs in the Gulf of Guinea can ripple through global energy markets.
Geopolitical conflict as systemic economic risk
Beyond regional instability, insurers are increasingly concerned about the broader systemic effects of geopolitical conflict, especially bearing in mind Lloyd’s risk analysis scenario that a large-scale geopolitical conflict disrupting global trade networks could cause up to $14.5 trillion in global economic losses over five years.
The report emphasises that modern conflicts affect physical infrastructure as well as financial systems, supply chains and insurance markets. As the report explains: “Geopolitical tensions and conflict can have far-reaching economic consequences through disruptions to global trade networks and supply chains.”
For African economies integrated into these global networks, such disruptions can translate into higher transport costs, rising commodity prices and reduced economic growth.
Insurance markets as the new frontline of geopolitics
For decades, wars were measured in destroyed cities and displaced populations. Today, they are also measured in risk premiums, insurance contracts and supply chain disruptions.
The insurance industry has become one of the first sectors to react when geopolitical tensions escalate. By adjusting risk models and raising premiums, insurers effectively signal when parts of the world are becoming economically unstable.
In many cases, these financial signals appear long before the full economic consequences of conflict become visible.
Africa is positioned at the crossroads of several strategic maritime corridors. The implication is that rising insurance costs not only affect shipping companies but also shape the price of food, fuel, and consumer goods across the continent.
In this sense, the economic effects of war travel silently from the battlefields across oceans and get embedded in freight charges and insurance premiums at the docks of African ports and the markets of African cities.
COMMENTS