As the war in the Middle East continues for a second week, the U.S. International Development Finance Corp.'s plan to offer $20 billion in maritime reinsurance in the Persian Gulf region may be a welcomed federal backstop as the conflict's impact on insurance coverage deepens.

DFC said Wednesday that Chubb will serve as the lead partner on the reinsurance initiative intended to help spur the resumption of commercial shipping in the Gulf region. The agency and Chubb said they jointly identified several American carriers to provide reinsurance policies "behind Chubb and alongside DFC to expand market capacity," but so far, they have yet to release which carriers will join Chubb in underwriting this plan or the criteria vessels must meet to be eligible for coverage.
...

Should the conflict in the Middle East end sooner rather than later, it would mean DFC's involvement would be short-lived and insurers may not have the opportunity to enter the market because business would resume as typical, Jason Kosek, a shareholder at Anderson Kill PC, told Law360. The uncertainty surrounding the details of the plan also begs the question of whether $20 billion is enough money to make a significant impact on potential losses.

"It's unclear as to how the DFC will know if it should offer more," Kosek said. "If a lot of claims start coming in, they start paying, what are the odds the DFC is going to continue reinsuring the policies and paying the claims?"

As a policyholder attorney, Kosek is hopeful DFC's initiative will mean that more claims related to the conflict will be covered because insurers "can pass the buck along to somebody else." But it's too soon to tell how the claims-handling process will play out, he said.

...

To read this full article, click here (subscription required.)