Maritime Insurance Companies Reassess Risks in the Middle East
Maritime insurance companies are preparing to cancel or renegotiate contract rates for ships operating in the Middle East following American and Israeli strikes against targets in Iran. Insurers are reevaluating their exposure in what is now widely considered a war zone, with additional premiums for certain voyages expected to increase significantly.
Shipowners Evaluate Route Changes to Avoid the Strait of Hormuz
For their part, shipowners are assessing whether to reroute their vessels to avoid the Strait of Hormuz in order to reduce risks to crews and cargo, even if it means facing increased costs and delays on already strained global trade routes. Approximately 20% of the world's oil supply passes through the Strait of Hormuz, as well as a significant portion of global liquefied natural gas (LNG) exports. Any prolonged disruption to traffic in this waterway would have direct implications for energy markets, marine insurance and reinsurance, and supply chains in general.
Short-Term Rate Increases for Hull Insurance in the Gulf
Short-term rate increases for Hull insurance in the Gulf could range from 25% to 50%, even in the absence of a direct attack on merchant shipping. This would have major implications for war risk insurance rates.
War Risks Excluded from Standard Hull Policies
War risks are generally excluded from standard Hull policies, which means that shipowners must purchase separate coverage for war and strike/terrorism risks. In the face of rising rates and increased operational risk, some shipowners are now considering alternative, longer routes to avoid the Strait of Hormuz, although circumnavigating the Gulf adds days or weeks to voyages and may not be commercially viable for all types of trade.
Recent Developments Follow Previous Security Incidents
These latest military developments come as major shipping companies had already rerouted their vessels away from the Red Sea and the Suez Canal due to previous security incidents, instead taking the Cape of Good Hope route. This detour has increased travel times, fuel consumption, and chartering costs, and has already tightened the effective supply of ships.
