Marine Insurers Respond to Rising Threats in Strait of Hormuz
The cost of insuring vessels navigating the Strait of Hormuz has significantly increased, as underwriters reassess the risks associated with one of the world’s most critical maritime corridors. Marine insurers have raised rates for hull and machinery cover by more than 60% in recent days, according to figures from Marsh McLenan, a global insurance broking giant. This increase takes typical premiums from 0.125% to approximately 0.2% of vessel value, meaning insurance for a $100 million ship now costs around $200,000 for a single passage through the Gulf region.
The reassessment follows the escalation in hostilities between Israel and Iran, whose consequences are reverberating beyond the immediate battlefield. While direct missile strikes on commercial vessels have not yet occurred in the Arabian Gulf, market participants are factoring in a broader spectrum of risks, including misdirected munitions, cyber disruptions, and opportunistic attacks by proxy forces. “The rating shift reflects more than just physical peril,” said Marcus Baker, global head of marine and cargo at Marsh, in an interview with the Financial Times. “It’s about the uncertainty premium – the price of not knowing when, or how, the next escalation may unfold.”
The Strait of Hormuz, situated between Iran and Oman, channels nearly a fifth of the world’s petroleum supply daily, making it a critical maritime chokepoint. Recent developments have highlighted the region’s fragility, such as the collision between two tankers, the Adalynn and Front Eagle, just east of Khor Fakkan. Although all crew members were rescued and initial reports suggest no hostile involvement, the incident underscores the vulnerabilities faced by commercial shipping in tense geopolitical environments. Authorities are investigating whether navigational interference contributed to the collision, with one ship reportedly transmitting anomalous positioning data before the incident.
Insurers are recalibrating their risk appetite in response to these developments. War risk policies are inherently polarized instruments that can yield significant profits when conflicts are contained but expose underwriters to substantial losses when control is lost. “There are always carriers who will exit and others who step into the breach,” Baker noted. “Some view it as a tactical window to underwrite with discipline, others as a signal to reduce aggregate exposures.”
The increase in hull cover rates is expected to be followed by similar adjustments in cargo rates, particularly for oil shipments, although at a slower pace. The nature and frequency of future incidents will significantly influence these developments. With global reinsurers already facing climate-related losses and tighter capital conditions, capacity deployment into Gulf war risks may become increasingly selective. London and Lloyd’s syndicates, long the backbone of marine war risk insurance, are closely monitoring the situation, especially as reinsurance renewals approach.
The uptick in regional volatility coincides with the United States repositioning naval assets, including the USS Nimitz carrier group, in the Arabian Sea. This military presence aims to deter Iranian aggression and reassure allies but also signals growing concern about the vulnerability of strategic energy flows. Defence think tanks have issued warnings about the potential threat of a formal closure of the Strait of Hormuz, which could trigger a far-reaching energy crisis. For now, shipping continues cautiously through the strait, but the accumulation of military pressure points, navigation anomalies, and tactical uncertainty is testing the market’s resilience.
