The US and Iran have agreed on a memorandum of understanding (MoU) aimed at ending the conflict that began in late February.
Industry executives cautioned that insurers are unlikely to reduce premiums immediately despite the positive development, since the response will now largely depend on whether the MoU leads to a sustained improvement in shipping conditions across the region.
Having said that, the expected easing comes after BMIP helped bring down war-risk insurance rates for exposed cargo by 60 to 80 per cent from levels seen at the height of the West Asia conflict.
Before BMIP was launched, reinsurers were charging war-risk premiums of as much as two to three per cent of cargo value for shipments passing the Persian Gulf, insurance brokers said.
“With the BMIP in place, the pool committee reviews war-risk rates weekly and issues guidance to participating insurers. Once the US-Iran deal is signed on June 19 and vessel movement through the Strait of Hormuz normalises, we expect war-risk rates to ease further both under BMIP and from international reinsurers,” said Gaurav Agarwal, vice president of marine specialities at Prudent Insurance Brokers. “Meanwhile, cargo rates excluding war-risk remain soft, continuing the broader market trend,” he added.
“While some marine insurers recognise that conditions in the Persian/Arabian Gulf region have improved over the weekend, the overall market response in the short term will largely depend on further de-escalation of hostilities or perceived breaches of the agreement,” said Marcus Baker, global head of marine, cargo and logistics at risk advisory firm Marsh.
During the four-month conflict, several international insurers and reinsurers either withdrew war-risk cover for vessels transiting high-risk zones or sharply increased premiums for marine hull and cargo policies.
The surge in insurance costs prompted the government to launch the $1.5-billion sovereign-backed BMIP earlier this month. Administered by state-owned reinsurer GIC Re and supported by domestic general insurers, the pool has an underwriting capacity of ₹935 crore and was designed to ensure the availability of war-risk cover for Indian shipping and trade amid geopolitical disruption.
“Although the reopening of the strait is a positive signal, insurance companies will first need to be comfortable that vessels can sail through the region without interruption before changing their assessment of the risk,” said Hari Radhakrishnan, expert at the Insurance Brokers Association of India (IBAI).
According to Radhakrishnan, insurers are likely to adopt a wait-and-watch approach over the next few weeks given the possibility of renewed tensions, operational disruptions or agreement breaches.
 "Bharat Maritime Insurance")