The two-week ceasefire in the US-Israel-Iran war is unlikely to offer any reprieve to exporters, with freight and insurance costs expected to remain elevated. Insurance industry players said vessels transiting the Persian Gulf will continue to be classified as “high-risk” for some time, necessitating additional war risk cover and higher premia.
“There is a significant rise in freight cost due to non-availability of the vessels plying in this high-risk area. Due to high-risk exposure and as the War covers are withdrawn by many reinsurance markets the insurance cost has also gone up,” said Arti Mulik, Chief Technical Officer at Universal Sompo General Insurance. She added that while the ceasefire has offered some relief, it is unlikely to ease freight and insurance costs. “War cover is still essential as uncertainty remains.”
Why Insurance Premiums Remain Sticky
Balasundaram R, Head of Marine Insurance at Policybazaar for Business, says while the ceasefire offers some relief to insurers, the larger concern remains around global exports routed to Persian Gulf ports via Hormuz including essential commodities such as foodstuff, meat and general merchandise. “If the ceasefire extends into complete cessation of hostilities, only then can insurers breathe easy and look at easing war insurance pricing gradually.”
US President Donald Trump on Tuesday announced a “double-sided ceasefire” for two weeks just ahead of a planned bombing and military strikes on Iran, subject to the immediate opening of the Strait of Hormuz, a vital choke point that carries a fifth of the world’s total petroleum liquids and oil supply.
Marine underwriters have imposed war risk premiums on vessels passing through the Gulf since the start of the war. As the conflict escalated, underwriters also issued cancellation notices under standard seven-day war clauses on certain annual hull war policies, revised additional premiums for transits through high-risk areas, and heightened underwriting scrutiny for voyages.
Vaidhehi Desikan, EVP – Practice Leader, Marine, Cargo and Logistics at Anand Rathi Insurance Brokers, said freight rates are unlikely to ease immediately. Drawing parallels with past events such as the Gulf War and the Covid-19 pandemic, she noted that surcharges typically remain in place for three to six months due to fuel cost volatility and operational caution. “While freight normalisation will take time, insurance is more responsive to risk signals. We could see a 30–40% reduction in war-risk rates in the near term for at least the next 10 days, although they are unlikely to return to pre-conflict levels just yet.”
Exporter’s Burden
Freight rates have risen 60–80% since the conflict began, while war-risk premiums in the Persian Gulf have increased from pre-conflict levels of about 0.005%–0.025% to around 0.25%–0.50%, applicable to designated high-risk zones.
Gaurav Agarwal, Head – Marine Specialties, Prudent Insurance Brokers, said he does not expect much impact on freight or war cover rates due to continued mistrust on both sides. “Shipping lines are charging additional Risk Surcharge and bunker Surcharge as fuel costs have gone up, war cover insurance has gone up 10 times with limited capacity to underwrite such cover.”
The world’s largest shipping company MSC imposed an $800 surcharge on every container booked for Middle East destinations. French shipping major CMA CGM also imposed a $3000 per 40ft war-risk surcharge on all shipments to the Middle East.
Hari Radhakrishnan, Expert, Insurance Brokers Association of India, said marine insurance rates in the range of 5% to 10% were being quoted for transit through the Strait of Hormuz on a per-voyage basis. However, vessels with any connection to US or Israel interests through ownership or operational management were denied coverage altogether.