Strait of Hormuz opens to ships but marine covers to stay pricey

Despite Iran's recent announcement allowing 'non-hostile vessels' to transit the Strait of Hormuz, marine insurance premiums are set to remain elevated due to persistent geopolitical tensions and the region's continued classification as high risk, impacting global shipping and trade.

• Insurance brokers warn that the threat of attacks and collateral damage persists, leading to elevated war cover rates and restricted availability.
• The region, including the Red Sea and Black Sea, is still considered high risk, and premiums are unlikely to ease without sustained peace and a clear political resolution.
• The Indian government has launched a Rs 497 crore relief package under the Export Promotion Mission (EPM) and the RELIEF scheme to mitigate rising freight and insurance costs for exporters.
• Insurers are offering quotes with shorter validity, sometimes as low as 24 hours, adding to uncertainty for exporters navigating geopolitical tensions.

Marine insurance premiums are likely to remain elevated in the near term despite Iran allowing "non-hostile vessels" to pass through the Strait of Hormuz, as the region continues to be classified as high risk, insurance brokers said.

They cautioned that the threat of attacks persists, including the possibility of collateral damage to vessels.

Despite available capacity, war covers are currently offered only at elevated rates and on a highly restricted basis due to prevailing uncertainty.

According to recent reports, Iran has told International Maritime Organization member states that "non-hostile vessels" may transit the Strait of Hormuz if they coordinate with Iranian authorities.

The ongoing conflict involving Iran has disrupted shipments of about one-fifth of the world's oil and liquefied natural gas through the strait, affecting the movement of oil and other key goods.

Persistent High-Risk Classification

"Iran's recent announcement is unlikely to reduce marine war-risk premiums, given the high level of mistrust in the region.

"The situation remains extremely uncertain and could change at any time. As a result, insurers have neither reduced nor significantly increased premiums at present," said Gaurav Agarwal, head — marine specialty, Prudent Insurance Brokers.

He added that rates remain elevated due to recent strikes and ongoing tensions.

The outlook suggests premiums will stay high in the short term and are unlikely to ease unless there is sustained peace and a clear political resolution.

Even a single renewed attack could push rates higher again.

Experts said the region, along with the Red Sea and the Black Sea, continues to be treated as high risk due to ongoing tensions.

Insurers are expected to remain cautious, maintaining elevated premiums unless stability is demonstrated over time. Brokers said war cover for marine cargo is currently around 0.5 per cent following the tensions, while marine hull cover attracts an additional premium of 5-7.5 per cent.

Impact on Shipping and Government Response

Since the start of the conflict, several reinsurers have either issued cancellation notices or raised premiums for ships transiting the Strait of Hormuz, classifying it as a high-risk zone. Several shipping companies have also halted transit through the route.

"An announcement alone is unlikely to reduce marine war-risk rates due to persistent uncertainty in the region.

"Premiums remain elevated and are unlikely to fall immediately," another insurance broker said.

The broker added that these areas had no war cover until 2022, and vessels and cargo transiting the region had to purchase additional cover of around 0.25 per cent, which has now risen to 0.5–1 per cent.

Although reinsurers have capacity, they are offering cover at much higher rates for cargo moving through the region.

As a result, several vessels are waiting near ports in Oman, with goods being transported onwards by land to other Gulf countries.

Amid the disruptions, the Government of India has launched a Rs 497 crore relief package under the Export Promotion Mission (EPM). It has also introduced the RELIEF (Resilience & Logistics Intervention for Export Facilitation) scheme to mitigate rising freight costs, insurance premiums, and maritime risks in the West Asia corridor.

The scheme targets shipments to around 18 countries in West Asia, including the United Arab Emirates, Saudi Arabia, Israel, and Iran.

"The government's move to support exporters comes at a critical time, as geopolitical tensions in West Asia are affecting marine insurance markets.

"We are seeing reduced vessel movement through key routes and a steady increase in risk exposure, leading to higher war-risk premiums.

"At the same time, insurers are offering quotes with much shorter validity — sometimes as low as 24 hours — adding to uncertainty for exporters," said Sanjay Kedia, chief executive officer (CEO), Marsh McLennan India, and president and CEO, Marsh India Insurance Brokers.