War Risk Insurance Demand Drops as Hormuz Premiums Rise
As tensions between the United States and Iran escalate again, shipowners are reassessing transits through the Strait of Hormuz. Demand for war risk insurance has declined, while premiums have climbed to as much as 6% of a vessel's value.
London marine insurers have been seeing fewer requests for insurance quotes for voyages transiting the Strait of Hormuz, while the cost of cover has remained at elevated levels. The trend signals growing caution among shipowners following the renewed escalation between the United States and Iran.
Marine war insurance brokers and underwriters said requests for quotes have declined since the Middle East ceasefire largely broke down this week. Although the evidence remains anecdotal for now, it points to increasing caution across the industry.
On Thursday, observable shipping traffic through the Strait of Hormuz had virtually come to a standstill. Some shipowners that recently transited the waterway said they were reconsidering making another passage, while another owner canceled a planned voyage.
The actual number of transits remains unclear, however, as some vessels have been crossing the waterway with their transponders switched off.
Despite the decline in insurance inquiries, some shipowners are still seeking war risk cover for voyages through the Strait of Hormuz.
Industry representatives said marine war risk insurance premiums, which had been below 1% of a vessel's value before the conflict, have now risen to between 2% and 6%. At the upper end of that range, insuring a $100 million oil tanker for a transit through the Strait of Hormuz would cost about $6 million. However, many shipowners ultimately pay lower premiums after no-claims discounts are applied.
At the height of the conflict, some vessels were charged war risk premiums of as much as 10% of their value for a single transit. Before the latest attacks, however, those rates had begun to ease back below 2%.
Industry representatives expect uncertainty and volatility in the marine insurance market to persist until a genuine and lasting ceasefire is achieved in the region.
