Iran Sanctions and the Insurance Industry

Since December 2006 four sets of UN Security Council sanctions have been imposed on Iran over its nuclear programme, with Tehran still yet to satisfy the international community that its intentions are solely peaceful. UN sanctions have been augmented by a series of unilateral sanctions regimes notably in the US and the EU. The various regimes target multiple economic sectors. However, while sanctions appear to be widely perceived as constituting a valuable tool for the international community to apply pressure on Iran to negotiate over its nuclear programme, the wide range and scope of the various regimes, and in many cases a lack of detailed guidance on implementation, mean that uncertainty can exist within industry regarding their implementation.

Much attention has been focused on the banking sector in recent years as policy-makers have adapted tools initially designed to target the assets and money-laundering capabilities of terrorist organisations to meet the needs of non-proliferation sanctions. This focus on the banking sector has forced banks and financial institutions to enhance greatly their compliance capabilities and procedures. However, other financial service sectors have not been subject to similar attention and, consequently, have not developed similarly sophisticated compliance capabilities.

The obligation to comply with sanctions extends to a range of insurance products and activities, especially where these relate to commerce. Implementation can be costly and complex and it can be difficult to determine whether compliance policies and procedures meet the challenges. In terms of reinsurance, for example, ensuring compliance on broad-based, multi-activity coverage has become an important challenge for insurers. The shipping industry has been dramatically affected due to the implications of the sanctions on protection and indemnity insurance coverage. Unusual measures have in some cases been adopted, for example by the government of Japan, which has extended sovereign insurance coverage to Japanese tankers affected by the EU oil embargo on Iran.

In this context, the Centre for Science and Security Studies (CSSS) at King's College London proposes to host a two-day themed workshop on Iran sanctions and the insurance industry. This workshop will bring together practitioners from major global insurance and reinsurance providers and brokers (compliance officers, etc), representatives from industries covered by relevant insurance policies (carriers, freight forwarders etc), policy-makers (UK, EU and US) and academia, for a frank discussion under the Chatham House rule.

The workshop will have three principal aims:
1. to inform policy-makers on the challenges associated with the implementation of sanctions in the insurance industry;

2. to inform insurance industry participants on how to better implement insurance-related sanctions in practice; and

3. to explore the relationship between the challenges associated with the effective implementation of sanctions in the insurance industry and broader perspectives regarding the effectiveness of sanctions as a viable alternative to military force in addressing Iran's continued failure to comply with UN Security Council demands to suspend sensitive nuclear activities and to fully cooperate with international investigations.

The focus on the insurance industry will be of great value in providing participants with an industry-specific, pan-regional perspective on the issues, ideally leading to enhanced understanding by industry of requirements and compliance mechanisms, and by policy makers of the practicalities of implementation. The workshop will also help to inform future policy-making in terms of the challenges and obstacles to the successful implementation of sanctions in the insurance industry.

Since 2006, various sets of sanctions, both unilateral and multilateral, have been imposed on Iran over its nuclear programme. These regimes, notably US, UN and EU, target multiple economic sectors. However, while sanctions constitute a valuable tool for the international community to apply pressure on Iran to negotiate over its nuclear programme, the range and scope of the various regimes, and in many cases a lack of detailed guidance on implementation, mean that there can be uncertainty within industry with regard to their implementation. The obligation to comply with sanctions extends to a range of insurance products and activities, especially where these relate to commerce. Implementation can be costly and complex and it can be difficult to determine whether compliance policies and procedures meet the challenges. In terms of reinsurance, for example, ensuring compliance on broad-based, multi-activity coverage has become an important challenge for insurers. In this context, the shipping industry has been dramatically affected due to the implications of the sanctions on protection and indemnity insurance coverage. Unusual measures have in some cases been adopted; the government of Japan, for example, has extended sovereign insurance coverage to Japanese tankers affected by the EU oil embargo on Iran.

The consequences of being found in non-compliance with sanctions are far-reaching and can have an important impact on the commercial activities of affected firms. Firms thus have a strong interest in fully understanding and keeping pace with intricate and rapidly-evolving sanctions regimes. The proposed workshop will further industry knowledge and understanding with regard to the challenges and demands of sanctions and their effective implementation. Industry experts will have the opportunity to discuss their concerns with policy-makers, seek clarification on matters of compliance and implementation, and will gain a better understanding of the challenges faced by policy-makers in developing sanctions legislation.

The workshop will also benefit policy-makers. Sanctions are as much a political tool as an economic one and the political symbolism associated with implementing sanctions means that policy-makers are often required to develop and legislate on sanctions regimes without having enough time to fully consider the challenges that these regimes will pose to commercial stakeholders. The workshop facilitate a frank exchange with key industry actors and, consequently, afford policy-makers an opportunity to better understand and thus mitigate the challenges posed by sanctions to industry. On a larger scale, a better understanding of the challenges posed by sanctions to the insurance industry will inform the contribution of policy-makers to state-level efforts to strengthen sanctions regimes at the international level.

Moreover, the challenges of sanctions vary from industry to industry and while there are a number of regional initiatives aimed at understanding sanctions, there is a distinct lack of industry-specific initiatives. In this sense, this UK-led initiative will serve as an international model that could be applied to different sectors in different countries.

Finally, much academic attention has been devoted to exploring the value and effectiveness of sanctions in redirecting the domestic and/or foreign policies of states. However, of this debate has been largely theoretical and focused on the macro-level of the state and international relations. Little academic scholarship has been devoted to exploring the micro-level, that is to say, the practical challenges faced by practitioners and policy-makers attempting to manage the implementation of unilateral and multilateral sanctions in a fluid and rapidly-changing context. An understanding of these challenges and how they can be mitigated or overcome will shed new light on the effectiveness of sanctions from the bottom up.