Maritime insurers cancel war risk cover in Gulf as Iran conflict disrupts shipping | Shipping industry
Leading marine insurers have canceled war risk cover for ships operating in the Gulf as the escalating conflict in Iran disrupts shipping and causes some freight costs to rise.
At least 150 ships, including oil and liquefied natural gas tankers, anchored in the Strait of Hormuz and surrounding waters over the weekend, at least three tankers were damaged and one sailor died.
The vital shipping route, through which about 20 percent of the world’s oil supplies and 20 percent of seaborne gas tankers pass, was effectively closed after the United States and Israel launched intense air strikes on Iran on Saturday.
Several leading joint marine insurers, including Norway’s Gard and Skuld, Britain’s North Standard and London’s P&I Club and New York-based American Club, said they were canceling war risk cover for ships operating in the region.
This is likely to further deter shipowners from crossing the Gulf. War risk coverage, which generally covers shipowners’ expenses and losses resulting from war, terrorism and piracy, will be canceled in Iranian waters as well as in the Gulf and neighboring waters as of March 5, insurers said.
Peter Hulyer, UK head of protection and indemnity at insurance broker Marsh, said this relates to non-poolable war insurance for these co-insurers, which is provided for certain, often higher risk, exposures such as chartered ships. “In most cases clubs will offer to reactivate war cover on terms to be agreed. Mutual P&I cover offered by clubs will not be affected by the above.”
Marcus Baker, global head of marine at leading insurance broker Marsh, said many other insurance marketplaces, including Lloyd’s of London, had issued cancellation notices to give insurers time to review rising risks in the Middle East and assess their rates.
Insurance rates can increase from 50% to 100%, or even from 0.25% to 0.5% or 1% of the value of the insured asset, he said. This compares with a 5% rate for ships bound for Odessa after Russia invades Ukraine in 2022.
The cost of transporting goods has increased due to the change of shipping route and the sharp increase in oil prices.
The Container Freight Index tracked by the Trading Economics website rose 6.5% on Monday.
Freightos terminal container prices from Shanghai, the Middle East’s largest port, to Jebel Ali in Dubai rose from $1,800 for a 40-foot container on Saturday to nearly $3,700 on Monday, according to online shipping marketplace.
Dubai-based DP World suspended operations at Jebel Ali over the weekend after an aerial attack sparked a fire on Saturday night, but operations have since resumed.
Since only 2 to 3 percent of global container volumes pass through the Strait of Hormuz, the actual closure may not have much impact on the broader container market, Freightos said.
But given wider disruption across the region, including the Red Sea, he added: “For importers or exporters trying to move goods to the Middle East, services will be significantly disrupted and the costs of goods that can move will increase.”
John Wyn Evans, head of market analysis at UK asset management group Rathbones, said: “Any rate rises will be linked to a combination of rerouting and higher oil prices; rerouting involves being at sea longer, which reduces capacity, and if cargoes have to get there within a certain time, they have to sail faster, which consumes more fuel (and this is exponential, like driving faster in a car and watching MPG). [miles per gallon] come down).”
Iran-backed Houthi rebels in Yemen, who have paused attacks on Red Sea ships since October, also threatened to continue attacks.
In response, many major shipping companies, such as Denmark’s Maersk, Germany’s Hapag-Lloyd and France’s CMA CGM, have rerouted all their voyages away from the Red Sea and around Africa until further notice. Denmark Norden suspended all new work requiring passage through the Strait of Hormuz.
CMA CGM has imposed an emergency conflict surcharge of $2,000 (£1,491) to $4,000 per container on cargo passing through the area.
Shares in Beazley, a leading marine insurer operating on the Lloyd’s market, initially fell 2.8% as investors worried about the potential for massive underwriting losses from the Middle East and the risk of a takeover by larger rival Zurich. But the share price rebounded 1.8% after the two companies announced an £8.2bn deal had been agreed on Monday afternoon.
“The announcement could also be read as a signal to Beazley, and possibly the wider private insurance market, that loss risks are being kept under control,” analysts at Jefferies said.
Beazley wrote just over $500 million in premiums for marine insurance in 2024; This accounts for approximately 8% of its total book.
Matthew Wheatley, principal data analyst at energy analyst Wood Mackenzie, said: “Freight prices are volatile amid new instability in the Middle East, with most tankers now avoiding the Strait of Hormuz as attacks and insurance cancellations make the region increasingly unsafe.
“A significant number of tankers are currently stranded or diverted in the region, resulting in significant capacity being effectively taken off the market. If conflict continues and tanker availability remains constrained, global freight rates could rise further.”
