PHOTO: REUTERS/FILE

AFP, London

Iranian forces’ threat to ships in the crucial Strait of Hormuz has driven up payments for the insurance that underpins the world freight industry.

Here are facts and figures about how maritime insurance works -- and the impact from the war sparked by US-Israeli strikes on Iran, which has virtually cut off shipping in the strait.

INSURANCE AVAILABLE

After the fighting broke out on February 28, some insurers served so-called cancellation notices for war risk policies to “reassess... and then reinstate that cover at adjusted terms”, the International Union of Marine Insurance said in a statement.

Despite the name, “a ‘Notice of Cancellation’ does not, necessarily, end the cover. War cover remains available for owners and operators wishing to take it.”

Executives in London -- the world’s top shipping insurance market -- insisted captains were avoiding the route to protect their crews, not because they could not get insured.

“Safety concerns, not insurance availability, (are) driving reduced vessel traffic,” headlined the Lloyd’s Market Association (LMA), a trade body for the London ship insurance industry, in a report.

The price of such policies to cross the strait has shot up, however, according to industry players.

SURGING PREMIUMS

Before the current Middle East conflict, a war risk premium would typically have cost less than one percent of the vessel’s so-called hull value.

Now, war risk insurance could run into tens of millions of dollars for a single trip through the Hormuz Strait.

Premiums have surged for ships seeking special cover to cross the strait, according to Robert Peters of UK maritime consultancy Ambrey, which has an insurance arm.

“I’m not sure the market has settled on an agreed range,” he added, noting figures typically range “from five percent down to one percent”.

David Smith, head of the marine arm at specialist insurance broker McGill, meanwhile estimated it at “anywhere between three and-a-half and 10 percent”.

“It is going up and down almost on an hourly basis,” he told AFP.

Cargo insurance rates have followed the same trajectory.

“A brand new LNG (liquefied natural gas) ship could be worth $200 million to $250 million alone, and then a cargo could be worth the same again,” Smith noted.

FIVE-FOLD COVER

Commercial ships typically need several separate insurance policies.

Hull cover insures against loss or damage to the vessel, while protection and indemnity (P&I) acts like third-party liability coverage.