War risk insurance is being cancelled for ships in the Gulf, with premiums expected to soar tenfold as conflict disrupts a key global oil route.
PARIS: The outbreak of war in the Middle East has triggered a swift cancellation of maritime insurance coverage, leaving shipping companies in a precarious position. Many insurers are now refusing to offer war risk policies for the vital Gulf region as the conflict between Iran and the United States and Israel continues.
“We have been receiving coverage cancellations from certain insurers since yesterday morning,” said Gilles Legue, head of maritime insurer in France for broker Marsh. The risks were underscored by three attacks on commercial vessels in the strategic Strait of Hormuz on Sunday.
Global shipping giants have ordered their vessels to seek safety. The Swiss-Italian firm MSC, French rival CMA CGM, and Chinese giant Cosco have all instructed ships in the area to avoid the zone.
Insurers argue the cancellations are justified as the policies covered a contingency that no longer exists. “These cancellations are happening very quickly,” noted Claire Jaunaux, head of the marine and transport division at broker Eyssautier-Verlingue.
Coverage ceases after notice periods ranging from 48 hours to seven days. Brokers anticipate that when insurers reassess the situation, war risk coverage will return at a much higher price.
Premiums are expected to be ten times higher than before the US and Israel launched attacks on Iran. “The insurance costs are so high that no vessel can afford or wants to risk going through the Strait at this time,” said Amena Bakr, an oil specialist at Kpler.
Insurers may also delay offering any new coverage immediately. Frederic Denefle, managing director of conflict-risk specialist Garex, warned the Gulf will likely remain dangerous for some time.
“Even if there is a ceasefire tomorrow… there will be questions about the scope of the ceasefire,” Denefle said. He added that the risk of mines persists.
Specialists are now scrutinising contracts for ships stuck in the Gulf. Some policies provide compensation for vessels immobilised by conflict, especially those carrying perishable cargo.
The insurance industry is monitoring the potential spread of conflict to other maritime zones. Claire Jaunaux pointed to the Red Sea, where Iran-backed Houthis attacked ships last year.
The eastern Mediterranean is also a concern after an Iranian drone crashed on a British base in Cyprus. Greece responded by sending two frigates and F-16 fighter jets to the EU member state.
