News / Hormuz tension creating more complexity in insurance claims

ID 134839303 © Pattanaphong Khuankaew

Rising hostilities around the Strait of Hormuz are driving a sharp escalation in marine insurance costs and complexity, according to industry experts. 

Marine claims consultancy WK Webster has been handling cargo claims from vessels near the strait and noted that the “complexity” of these claims was “continuing to increase”.  

Such claims are likely to involve Hull, P&I, and Cargo insurance, but WK Webster highlighted that not only had vessels in the region seen explosion and fire damage, but assets sent to assist have also been targeted by military strikes. 

The consultancy added that, in many cases, war-risk insurance had been subject to “widespread cancellation” and carriers are re-evaluating their willingness to accept transits through conflict-affected regions with elevated risk top crew safety.  

“Though war-risk insurance remains accessible, particularly in the London market, adjustments to terms and dramatic increases to rates have reduced or eliminated voyage margins.” 

WK Webster CEO Anthony Smith urged that in high-risk, high-cost business environments, effective claims management had become “especially vital”. 

“While hostilities continue to escalate, we will continue to see impacts widening and losses increasing. 

“We are prepared for challenges in deploying surveyors or other experts to certain claims locations or emergency situations. Our global network of local agents ensures that we can respond to and investigate claims thoroughly as they arise,” said Mr Smith. 

Ellis Morely, divisional director at insurance broker Howden, agreed that while insurance was still available, it had become more expensive and complex.  

“There were some contrary views in the media last week around the ‘uninsurable’ nature of vessels and cargo in the region, which frankly isn’t the case. Obviously, it’s an incredibly high-risk scenario at the moment and, just because the insurance is available, does not mean vessels should – as Trump said – ‘run the gauntlet’.” 

He explained that war coverage for vessels prior to the conflict was provided at a “very, very low rate”, but most contracts allowed for cover to be cancelled with a seven-day notice and reinstated at a different price.  

“Cargo owners that had the seven-day grace period could, if possible and if safe, move their assets out of the high-risk area with no additional cost from the insurance side. That seven days has now elapsed, so there is now a heightened rate environment.” 

Michael Hird, COO at WKW, said delays to cargo, additional freight charges, and vessels invoking the right to deviate or deploy force majeure clauses was to be expected.  

“This means increased costs for cargo movers and the potential for shipments landing at unintended ports, with cargo then needing to be on-carried to final destinations,” he explained. “We will see more frequent losses for time-sensitive cargo, production downtime, breakdowns in supply contracts, and stock accumulation or shortages.” 

Meanwhile, ocean carrier Maersk announced it was adding an emergency freight rate of $1,800 per teu on cargo from or destined to ports in Iraq, Kuwait, Saudi Arabia (Damman & Jubail), Bahrain, Qatar, the UAE, and Oman (except Salalah).   

“We are implementing this emergency freight rate to arrange alternative routing to final destination, including finding potential storage solutions, additional charters, and so forth. This fee includes transportation from temporary storage to final destination, when safe to complete the voyage,” it explained.