Why passage of ships via Strait of Hormuz has come to a halt, despite insurance availability

Insurance underwriters are professionals who evaluate risk and decide whether an insurer should provide coverage, and on what terms.

After the conflict intensified in early March, war-risk insurance premiums in some cases climbed to around 1-1.5 % of a vessel’s value, depending on the ship type and its exposure to risk.

This means a tanker worth $100 million could face premiums of $1-1.5 million per voyage in extreme situations.

The safety aspect came to the forefront after Iran on Wednesday claimed responsibility for an attack on two oil tankers anchored in Iraqi territorial waters, as conflicts in the region continue to escalate and strikes on commercial shipping spread beyond the Strait of Hormuz. Iraq’s State Organization for Marketing of Oil identified the two vessels as the 73,976 dwt crude oil tanker Safesea Vishnu and the 50,155 dwt combined chemical and oil tanker Zefyros.

According to Lloyd’s List Intelligence data, Safesea Vishnu is beneficially owned by US-based Safesea Group, while Zefyros is beneficially owned by Greece’s George & Vassilis Michael family of companies. Insurers are willing to provide coverage for ships operating in the region, albeit with heightened risk assessments and potentially higher premiums which have soared multiple times. However, the escalating threat environment has led many shipowners and charterers to delay voyages or seek alternative routes.

According to Jones, with the situation rapidly evolving, it is important that in-depth, real time security advice is available. “The London Market’s joint marine committees are working with expert consultants to provide underwriters with the latest information. We welcome any initiative to improve the security situation,” he said. “Elsewhere the London company market is also providing aviation cover to support flights transporting people away from the affected areas — both via existing flight routes and new repatriation operations. With airspace opening and closing, based on the assessment of aviation authorities, insurers are working with brokers, clients and third-party experts to closely monitor changes in risk,” Jones said.

Prior to the commencement of the current hostilities Iran and the wider West Asia was already an area of relative enhanced risk and insurance coverage in place will reflect this. IUA members are, however, continuing to provide cover for clients affected by the current hostilities in Iran across a number of lines of business, IUA said.

According to Lloyd’s List, while the US has repeatedly refused requests from the shipping industry to provide naval escorts since the Iranian conflict began on February 28, both US and EU naval operations are being assessed. “Neither the US nor EU plans are yet at the stage of committing to a deployment of assets, but, a basic naval escort operation would need between eight to 10 destroyers to protect convoys of 5 to 10  commercial vessels in each transit,” it said.