As the conflict in the Gulf escalates, maritime insurance premiums for war coverage are rising sharply, in some instances by over 1000%. This increase is significantly raising the cost of transporting energy through the important shipping route of the Strait of Hormuz, which is currently experiencing disrupted traffic due to strikes on Tehran. Iran has threatened to attack any vessels trying to pass through, and at least nine ships have been damaged since the conflict’s onset.
War risk insurance enables ship owners to receive compensation for damage to their ships or cargo caused by conflict or terrorism. These policies may cover annual periods or single trips through dangerous waters, such as war zones. The soaring insurance costs reflect how the ongoing conflict is increasing expenses for ship owners, traders, and energy companies, with analysts warning that prolonged conflict could contribute to inflation.
Stephen Rudman, head of marine Asia at Aon, noted that the increase in hull war market rates is responding quickly to the risk of significant losses if multiple vessels are attacked. The plea for higher premiums for vessels in high-risk areas is expected to continue fluctuating in the near future. Cargo war risk rates are also climbing, often being reassessed for each journey, particularly in energy and bulk trades.
Estimates by Jefferies suggest that damages from seven reported vessels could lead to industry losses of up to $1.75 billion. Tankers valued at $200 to $300 million could face new insurance rates of approximately 3%, translating to about $7.5 million in premiums, a significant rise from roughly $625,000 before the conflict.
Angus Blayney from Gallagher highlighted that insurance rates are changing daily, influenced by vessel type and circumstances, though he didn’t provide exact figures. Dylan Mortimer from Marsh indicated that rates are generally between 1% and 1.5% of a vessel’s value, varied by specific risk factors.
Around 20 million barrels of crude oil, condensate, and fuels passed through the Strait daily on average last year, accounting for roughly one-fifth of global oil consumption. Sheila Cameron from the Lloyd’s Market Association reported that there are about 1,000 vessels, mostly oil and gas tankers, with a total hull value exceeding $25 billion in the Persian/Arabian Gulf region. Most of these vessels are insured within the London market.
Currently, around 200 ships are anchored off the coast of Gulf producers. Reinsurers may respond to increased risks by adjusting the conditions under which their liability begins, potentially leaving main insurers with more risk and stress on their solvency levels.
The Trump administration is working on ways to lower oil prices by reactivating shipping routes. President Trump suggested the U. S. Navy could start escorting tankers through the Strait of Hormuz and has instructed the U. S. International Development Finance Corporation to offer political risk insurance and financial support for maritime trade in the Gulf. U. S. officials are in talks with Marsh and Lloyd’s to seek solutions. However, it remains uncertain how these plans will unfold or if they will be applicable to all nationalities. In the meantime, many ship owners may choose to accept higher insurance costs to maintain their coverage.
With information from Reuters
