Lloyds Market Association (LMA) clarified in a recent statement that the reduction in ship traffic in the Strait of Hormuz is not due to the availability of insurance, but rather due to security concerns.
The LMA said: “Three weeks since hostilities in the Middle East began, we are still seeing reports of insurance being canceled or unaffordable, which is why ships are not passing through the Strait of Hormuz.
“That’s not accurate.”
The LMA highlights that war insurance is currently available to cover insureds perils of war and is currently still available on the Lloyd’s and London Companies markets for ships wishing to transit the Strait of Hormuz.
It noted that liability insurance through the P&I Club is non-cancelable and remains reinsurable in the London market. The small amount of fixed-premium P&I cover offered to lessees was canceled and much of it repriced.
In the maritime war insurance market (including hull insurance, cargo insurance and liability insurance), shipowners’ contracts include notice of cancellation.
This mechanism allows war risk premiums, which are often very low, to be renegotiated when increased risks such as war in Ukraine or conflict in the Red Sea affect ship trading in high-risk areas.
“The hull war risk market has a well-known notice mechanism agreed between shipowners and insurers in war contracts, which keeps peacetime war premiums at very low levels. In fact, such premiums are no more than nominal: for example, if applied to an average family car, the cost would be less than £1 a year. Instead, this mechanism allows premiums to be reassessed as risks increase,” the LMA explains.
An LMA survey of key players in the Lloyd’s maritime war market a week after the start of hostilities showed that 88% of these players continue to be interested in underwriting international (including US and UK) relevant hull war risks.
The survey also highlighted continued demand for international (including US and UK) related cargo coverage, with over 90% of participants expressing interest.
It is worth noting that premium terms will be determined based on each group’s personal preferences.
“The reason for the berthing of ships is not a lack of insurance; it is an overestimation by captains and owners of risks to crew and ship safety,” analysts said.
Since the conflict began, the Joint Maritime Information Center (JMIC) has documented 23 maritime attacks involving commercial vessels and offshore infrastructure in the Arabian Gulf, Strait of Hormuz and Gulf of Oman.
According to intelligence from Lloyd’s List, which tracks cargo ships over 10,000 tonnes deadweight, there were 111 recorded transits from early March to the end of last week.
However, analysts believe this figure may be conservative as it does not take into account ships transiting while satellite tracking is disabled.
“These incidents involve a variety of ship types and flag states, with no consistent ownership pattern. Underwriters have confirmed that a number of unapproved casualties have been insured or reinsured in the London market and numbers will inevitably rise the longer the conflict continues,” the LMA said.
Analysts such as Morningstar DBRS point out that the deteriorating security environment has significantly increased the risks for commercial shipping.
The agency observed that while the market remains open, some insurers have tightened terms or limited coverage for specific Gulf operations, leaving some shipowners with fewer insurance options.
As a result, more ships are anchored outside the channel as operators assess the potential for casualties, environmental disaster and total asset losses.
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