Marine insurers monitoring Israel-Iran war, may have to up coverage rates

In case the war escalates, insurers can cancel war risk coverage, and increase marine insurance rates

Marine insurers are monitoring the situation in the Persian Gulf, fearing that if the conflict between Israel and Iran escalates they may have to issue notices of cancellation for war risk coverage or revise insurance rates.

 

US President Donald Trump accused Israel and Iran of violating a ceasefire he announced on Tuesday and demanded both sides stick to the agreement. Iran’s parliament last week approved the closure of Strait of Hormuz, the sole maritime passage connecting the Persian Gulf to the open ocean and through which vast quantities of oil and liquefied natural gas are transported.

 

West Asia is already facing higher marine insurance rates due to disruptions in the Red Sea, a shipping lane that connects the Mediterranean Sea (via the Suez Canal) to the Indian Ocean. 

 

R Balasundaram, secretary general of Insurance Brokers Association of India, said underwriters will not grant fresh war cover for these areas. “So, now with signs of a ceasefire in the Israel-Iran conflict, maybe cancellations will not kick in soon. However, getting fresh cover could be increasingly difficult. Cancellations, too, will depend on what the London market decides. The rest will follow suit,” he said.

 

“…prices could go up if the war between Iran and Israel escalates further, as the situation is in a region where it can have an impact,” N Ramaswamy, chairman and managing director of GIC Re, told ‘Business Standard’ earlier this week.

 

Experts said that in a war, an insurer’s first line of defence is to issue a cancellation notice — usually in 48 or 72 hours. The notice effectively halts automatic coverage and requires individual approvals for each transit. It may also be followed by potential rate increases.

 

“Currently, the conflict has not seen any major impact on marine insurance pricing or operations, as insurers and reinsurers have not issued any formal directives to halt or restrict insurance coverage for transits through high-risk zones like the Strait of Hormuz,” said Niraj Naik, joint president & chief underwriting officer, HDFC ERGO General Insurance. 

 

“However, the situation is being closely monitored. Unlike the Red Sea crisis involving Houthi attacks, Iran-Israel tensions have not yet targeted cargo vessels directly, which is a key reason for the muted response from insurers so far,” he said.

 

Experts said that in case of conflicts, like that between Russia and Ukraine in the Black Sea, marine insurers can cancel war risk coverage. Most marine insurance policies are annual, so only those up for renewal in recent weeks may have seen marginal rate increases, particularly for SRCC (strikes, riots, and civil commotion) coverage, which increased by around 5-10 per cent.

 

“From an insurance perspective, the potential closure of Strait of Hormuz would have little or no impact except for perhaps a reduction in the overall war risk premium to the market. No transits equal no war premium,” said Marcus Baker, global head of marine, cargo and logistics at Marsh McLennan, UK.

 

“Additional premiums for rates in the Arabian Gulf have moved up from around 0.125 per cent on insured value to around 0.2 per cent prior to the US activity at the weekend. Post this, we have seen rates move to 0.3 per cent for transits,” he said. 

• Eye on the sea
• West Asia is already facing higher marine insurance rates due to disruptions in the Red Sea
• In a war, an insurer’s first line of defence is to issue a cancellation notice — usually in 48 or 72 hours, say experts
• The notice effectively halts automatic coverage and requires individual approvals for each transit