Hormuz war sends marine insurance costs soaring as insurers face mounting vessel claims

The war around the Strait of Hormuz has created one of the most severe marine insurance shocks in years, with war-risk premiums rising from a fraction of vessel value to as much as 7.5%-10%, insurers cancelling parts of their cover, and new underwriting capacity being created specifically for ships willing to enter the conflict zone.

The change has already altered the economics of Hormuz shipping. Before the conflict began on February 28, additional war-risk premiums for Gulf voyages were around 0.25% of a vessel's hull value. By July 22, Marsh reported rates of 7.5%-10%, although the exact premium varies by vessel, voyage and risk profile.

For a $100 million vessel, the difference is substantial: a 0.25% war-risk premium would be about $250,000, compared with $7.5 million-$10 million at the July rates. For a $250 million tanker, the equivalent exposure would be $625,000 before the war versus as much as $25 million at a 10% rate.

Insurers pulled back as attacks began

The insurance market's first major response came in early March, after commercial vessels were attacked and traffic through Hormuz approached a standstill.

Major marine insurers and P&I providers including Gard, Skuld, NorthStandard, London P&I Club and American Club issued notices cancelling certain war-risk coverage in Iranian waters, the Gulf and adjacent waters from March 5. Japan's MS&AD Insurance Group also suspended underwriting of a range of war-risk policies covering waters around Iran, Israel and neighbouring countries.

The cancellations were particularly significant because the International Group of P&I Clubs, whose 12 members collectively cover about 90% of the world's ocean-going tonnage, provides the backbone of maritime liability insurance.

The cancellations did not mean normal P&I insurance disappeared. The affected provisions largely concerned non-poolable war risks, with clubs offering to reinstate cover under revised terms.

That distinction is important: shipowners still needed insurance, but the cost and conditions for accepting war exposure changed dramatically.

Actual attacks are now generating major claims

The insurance industry's exposure is no longer theoretical.

Allianz Commercial said in June that it had already received marine claims arising from the conflict and warned that some damaged vessels could potentially become total losses. The insurer did not disclose the value of those claims. The affected vessels included container ships, bulk carriers and oil tankers hit by missiles and drones, as well as associated cargo damage.

One of the most serious recent incidents involved the Qatari LNG carrier Al Rekayyat. On July 7, the vessel was hit by a projectile while transiting the Strait of Hormuz. A fire broke out in the engine room and the vessel was subsequently left awaiting salvage off Oman. All crew members were safely evacuated and the LNG cargo remained intact.

The incident illustrates why LNG carriers represent an especially significant insurance exposure: the insurer is not only assessing hull damage, but also cargo, salvage, environmental liabilities, business interruption and potentially very large downstream claims if an incident escalates.

Earlier in the conflict, the US-linked tanker Safesea Vishnu was attacked near Iraq's Khor Al Zubair port while carrying about 53,000 tonnes of naphtha. The vessel was struck by explosive-laden unmanned boats, forcing the 28-member crew to abandon ship; one crew member died.

The US-flagged Stena Imperative was also struck by two projectiles at Bahrain's port, causing a fire. These incidents demonstrate that the insurance exposure extends beyond the narrow confines of the Strait itself.

$125 billion of insured assets was trapped in the Gulf

The scale of the exposure became clearer in Allianz Commercial's June assessment.

As of June 15, around 1,150 cargo-carrying vessels, representing approximately $125 billion in combined vessel and cargo value, were waiting in the Persian Gulf. The ships represented about 29 million gross tonnes and carried as many as 20,000 seafarers.

Allianz said marine insurance remained available during the crisis, but at increased hull and cargo premiums. It also warned that restoring normal traffic would require credible guarantees of safe passage, even if political agreements reopened the waterway.

The $125 billion figure should not be interpreted as an insurance claim or an amount lost by insurers. It represents the estimated value of vessels and cargo exposed and awaiting passage.

Lloyd's and Chubb bring new capacity

As the market struggled to balance demand with risk appetite, new capacity entered the market.

On June 19, Lloyd's announced a dedicated marine war-risk consortium led by Chubb, supported by participating Lloyd's syndicates and specialist market partners.

The facility provides up to $200 million of capacity for hull and P&I risks, plus another $200 million for cargo, giving the consortium up to $400 million of stated capacity across the two categories.

Chubb had already become involved earlier in the crisis, announcing war-risk coverage for vessels transiting Hormuz and serving as lead partner on a US government-backed maritime insurance initiative.

The significance is broader than the dollar amount. The market is attempting to create fresh capacity specifically for a trade route that conventional underwriting has become reluctant to support.

Marsh and Aon are increasingly important to the market

Insurance brokers are also playing a larger role as shipowners try to secure cover.

Marsh has been one of the most visible brokers in the crisis. Its global head of marine, cargo and logistics, Marcus Baker, said in July that underwriters were becoming increasingly reluctant to provide spot coverage even though global marine hull capacity remained substantial. Marsh estimated global hull capacity at roughly $2.5 billion-$3 billion.

Aon has also been involved in discussions with the US government over potential insurance arrangements for tankers operating through Hormuz.

This highlights an unusual feature of the current market: the problem is not simply a shortage of theoretical insurance capital. It is the willingness of individual underwriters to deploy that capital against a rapidly changing war risk.

Insurance is now influencing whether ships sail

The effect is already visible in vessel movements.

By July 21, S&P Global data showed only 10 transits through the Strait of Hormuz, compared with more than 130 daily transits before the war. On July 8, 36% of vessels crossing the strait were sailing without transmitting normal tracking signals.

The economics are particularly difficult for smaller product tankers. BRS estimated war-risk premiums at around 10% of hull value, while European tanker sources cited by S&P Global placed rates at approximately 7%-9% for clean tankers and 5%-5.75% for crude tankers. Strong crude-tanker freight earnings can absorb some of the additional insurance cost, but smaller product tankers have less room to do so.

Some war-risk insurers even advised shipowners to pause Hormuz voyages following renewed attacks in July.

The Red Sea is adding another insurance shock

The insurance problem is no longer confined to Hormuz.

Following renewed Houthi attacks on commercial shipping, London's Joint War Committee expanded the designated high-risk area in the Red Sea on July 29 to cover additional waters along Saudi Arabia's Red Sea coast.

War-risk premiums at ports including Jeddah and Yanbu reportedly rose from around 0.25% to 1%, while southern Red Sea voyage premiums moved to approximately 1%-2% of vessel value, from about 0.3%.

For shipowners, this creates a difficult situation in which two of the world's major maritime chokepoints are simultaneously generating elevated war-risk costs.

The real insurance bill remains unknown

Despite the sharp increase in premiums, it would be misleading to say that Lloyd's, Chubb, Allianz or other individual insurers have already "lost" a specific amount on the damaged vessels.

The insurers have not publicly disclosed the final dollar value of most individual Hormuz claims. Some cases are still being assessed, salvaged or investigated, and several vessels may ultimately generate claims across multiple insurance layers.

What is already clear is the scale of the exposure: billions of dollars in additional premiums, hundreds of millions of dollars in newly created war-risk capacity, at least $125 billion of vessel and cargo value exposed in the Gulf, and a growing number of actual vessel casualties.

For maritime insurers, the central challenge is therefore not simply pricing a higher premium. It is deciding how much risk can be written, how quickly that risk can change, and whether a single escalation could turn a profitable war-risk book into a cluster of major hull, cargo, salvage and liability claims.

For shipowners, the calculation is becoming equally stark: a vessel may be technically able to transit Hormuz, but the insurance cost and security risk can make the voyage commercially unattractive.

That makes marine insurance more than a financial consequence of the Hormuz war. It has become one of the mechanisms determining how much of the world's energy trade can move through the Strait at all.