Quills and conflict: How protection in the Strait of Hormuz is bought and sold

Marine Insurance Markets React to Hormuz Tensions

Quills and conflict – Within a sleek, modern edifice situated in central London, centuries of maritime history are preserved in leather-bound volumes. These “Loss Books” document vessels that have met their fate at sea, with entries still penned by hand using quill pens by employees referred to as “waiters.” One notable record captures the sinking of the Titanic during April 1912. Lloyd’s of London provided coverage for the legendary vessel at £1 million, which translates to approximately £101.6 million in contemporary currency. For over three hundred years, this institution has stood as the unofficial center of worldwide insurance operations, particularly within maritime sectors.

When Tehran imposed a blockade on the Strait of Hormuz on February 28 in response to coordinated American and Israeli military actions, the Lloyd’s insurance market responded with remarkable speed. Overnight, the dangers associated with navigating through this critical waterway escalated dramatically, forcing insurance rates to adjust accordingly. War coverage policies were temporarily suspended and then reissued at substantially elevated costs.

Rapidly Shifting Risk Calculations

David Smith, who leads the marine division at London-based McGill and Partners, explained that underwriters are carefully reassessing pricing models alongside “individual risk factors” as fresh strikes sweep across the Middle East region. “Following a period of relative stability and recovering transit volumes, recent events in the Strait of Hormuz have once again shifted the risk landscape,” he informed CNN.

Marcus Baker, Marsh’s global head of marine and cargo operations, reported that shipping rates immediately following the American-Israeli offensive climbed to as much as 10 percent of a vessel’s total worth, compared to the previous range of 0.25 to 0.5 percent. For an oil tanker valued at $100 million, “that’s a $10 million voyage,” he emphasized. Hull war rates, which protect a ship’s physical framework against conflict-related damage, have subsequently decreased to between 1 and 3 percent of vessel value. Additionally, certain underwriters have introduced “no-claims bonuses,” refunding half the premium to ship owners whose vessels navigate the strait without incident, Baker explained to CNN.

Real-Time Policy Adjustments

The Hormuz situation represents a particularly high-stakes scenario for insurance providers. War insurance premiums will “track exactly what is happening geopolitically… almost on an hourly basis,” Smith of McGill and Partners stated. Underwriters covering ships intending to pass through Hormuz now aim to set policy prices just six hours before departure, a significant reduction from the standard 24 to 48-hour window, according to Smith. Once issued, these policies remain effective for only three to seven days before requiring renewal.

Smith told CNN that a ship owner rang him one morning seeking coverage for a possible strait transit later that same day, under the guidance of the US Navy. Smith quoted him a price and waited. The ship owner called back that afternoon to confirm the voyage and “bind cover,” or activate his insurance policy. The catch? The ship was due to enter the strait within six minutes of the call. “It took myself and three brokers… screaming at underwriters on the phone,” Smith recalled. Within 10 minutes the certificate of insurance was placed in the command deck of the vessel.

The crew demanded to review the policy documentation personally, wanting assurance that their families would receive compensation if tragedy struck during the dangerous passage through the strait. Although that particular ship navigated safely, numerous others have suffered worse fates. The International Maritime Organization reports that at least 14 seafarers have lost their lives since hostilities commenced.

Ongoing Challenges and Future Outlook

So far, no ships documented in this year’s Loss Book have been completely destroyed during the Persian Gulf conflict. Nevertheless, more than 50 vessels have experienced attacks in the waterway since fighting began, with many insured through the London market, according to Neil Roberts, who heads marine and aviation operations at the Lloyd’s Market Association, an industry trade organization.

While insurance coverage has remained accessible throughout the crisis, most ship owners have chosen to avoid transiting the strait due to attack threats. Lloyd’s does not anticipate catastrophic losses for insurers given their current regional exposure. However, significant dangers persist, including underwater mines, continued American-Iranian military exchanges, and complications navigating newly established and occasionally constricted routes entering and exiting the strait.

Insurance giant Allianz reported last month that approximately 1,150 cargo-carrying ships carrying an estimated combined vessel and cargo value of $125 billion remain anchored in the Persian Gulf. Should the conflict extend for additional months with vessels continuing to wait, a substantial portion could become “to”