Part 1
Opinion: can Hong Kong break London’s maritime insurance grip?
An alternative system is needed to end Washington and London’s ability to weaponise maritime insurance for their geopolitical ends
The once-mighty Royal Navy is now but a shadow of its former self, plagued by years of
and management scandals. It has shrunk to its smallest size since the Napoleonic Wars. Lord Nelson must be turning in his grave. Yet despite the sorry state of its fleet, Britain remains the lord of the seven seas, albeit in a different fashion. Together, the Anglo-Saxons on either side of the Atlantic control the oceans and global shipping without needing to deploy a single vessel – a phenomenon unprecedented in history.
Today, the real control of the oceans is concentrated within a few square blocks of the City of London. There, black-tie lawyers, average adjusters, marine surveyors, brokers and underwriters sit side by side. They wield more practical power than most admirals as they underwrite global
.
A commercial ship cannot enter a major port, secure financing or legally transit critical waterways like the Suez or Panama canals without insurance. While this operational reality has existed for the past century, the US government only realised its true potency about 20 years ago, as documented by Henry Farrell and
in their book
Underground Empire: How America Weaponised the World Economy.
Washington has gradually transformed the global maritime insurance system into a highly effective tool of economic statecraft; controlling access to it allows the US to project financial power across the world’s oceans. If a marine insurer covers a vessel
, Washington can block those financial flows, effectively freezing the insurer out of the global banking system. However, unilateral financial coercion is reserved as a last resort. For routine enforcement, Washington can rely on London and its massive cluster of insurers. London remains the undisputed
. Even when a policy is not issued directly in the City, the deal is almost always reinsured through the London market.
Maritime insurance largely covers two distinct areas: physical damage to the ship and third-party liabilities, such as
. Roughly 90 per cent of the world’s third-party liabilities are handled by the mutual insurance associations that comprise the International Group of P&I Clubs (IG). The IG’s secretariat and core management infrastructure are headquartered entirely in London. When Washington coordinates a sanctions push, London-based insurers swiftly write “sanctions limitation and exclusion” clauses into their policies. These clauses state that coverage is invalidated if a voyage violates US, UK or EU sanctions law. This mechanism is how the West maintains its chokehold on global commerce.
When the US-led West decided to sanction Moscow over its invasion of Ukraine, it did not need to send a single warship to intercept Russian oil tankers. All it did was refuse to underwrite maritime insurance for Russian vessels. Operating a “
” of tankers carrying Russian crude oil has imposed massive, compounding financial penalties on Moscow. However, the Russian trade is largely built on a single commodity, which allows Moscow to relatively easily mitigate and
. China, already the world’s largest trading nation and its greatest producer of goods, faces a far more severe risk of exposure should push come to shove.
China ranks first globally by sheer vessel count and just behind Greece in deadweight tonnage. Its commercial fleet operates in a more extensive, diverse and interconnected environment. Chinese dependence on the Western-dominated maritime insurance system is significantly higher.
Beijing’s best bet to develop an alternative maritime insurance centre to London
. The city is already a premier global hub for ship registration, thanks to our low-tax environment and robust legal framework. Hong Kong currently boasts the fifth-largest ship registry in the world by capacity, trailing only Liberia, Panama, the Marshall Islands and Singapore, none of which are global financial centres.
However, any attempt to
remains next to impossible for the foreseeable future. A rival would have to replicate a centuries-old ecosystem built on three pillars that cannot be easily duplicated. First, IG members work together by sharing risk. For massive liabilities, the clubs pool their risk and purchase a massive collective reinsurance policy. The only market with the sheer capital depth and risk appetite to underwrite a multibillion-dollar maritime disaster policy is London. A competitor cannot simply launch a new P&I club; they would lack the reinsurance backbone needed to cover a catastrophic claim.
Second, the global maritime industry runs on English common law. Almost every standard shipping contract and marine insurance policy stipulates that disputes will be settled under English common law and arbitrated in London courts, drawing on centuries of predictable legal precedent. Shipowners and insurers prefer this predictability over any other legal system.
