Insurers Hike Rates, Mull Policy Cancellations for Ships Transiting Hormuz Strait

Insurance firms are warning ship owners that they may cancel policies or significantly raise coverage costs for vessels passing through the Strait of Hormuz, following recent tensions in the region.

The increased premiums and potential cancellations come as some ship owners are already avoiding the Strait of Hormuz, a vital waterway for global oil supplies. At least three ships on Saturday opted to avoid the strait, after owners assessed the risk of attack in the narrow passage.

According to brokers cited by the Financial Times, war risk insurers issued cancellation notices on Saturday for policies covering ships transiting the critical oil chokepoint of the Strait of Hormuz. Further price increases of up to 50% are expected in the coming days, they said.

Insurers are particularly concerned about the potential for Iran to close the Strait of Hormuz, a chokepoint for approximately one-fifth of the world's crude oil. They are also factoring in the possibility of Iranian agents attempting to board and seize vessels, according to Dylan Mortimer, head of marine war risks at brokerage Marsh UK.

Another broker reported that war risk insurers covering goods transported on oil tankers, such as grains and oil, indicated they were preparing to cancel policies.

Following the cancellations, insurers are expected to renegotiate coverage at higher rates rather than refusing to cover ships heading to the region, brokers said.

The unusual move to issue notices ahead of the resumption of trading on Monday underscores the rapid escalation of tensions, according to the Financial Times.

Insurance costs for ships calling at Israeli ports, previously around 0.1% of the ship's value before recent events, could rise by up to 50% as insurers brace for a potential Iranian response, Mortimer added.

Prior to the current situation, insurance rates for ships transiting the Gulf were approximately 0.25% of the ship's replacement cost. This figure could now increase by as much as half, Mortimer told the Financial Times. For a $100 million vessel, this translates to an increase from $250,000 to $375,000 per voyage.

Consultancy firm EOS Risk reported that some vessels received what appeared to be a radio warning from the Iranian Revolutionary Guard, stating that the strait was closed to navigation.

"If Israel and the U.S. continue to strike Iran, it is likely that Iran will start trying to exert its influence by manipulating shipping in the region," Mortimer said.