The world’s largest maritime insurance mutuals said they will withdraw war risk insurance cover for ships entering the Persian Gulf starting on March 5, as the industry scrambles to work out how to price the cost of covering vessels sailing into the waterway.

The withdrawals are likely to discourage ship owners from loading cargoes within the Persian Gulf in the short-term, which is the source of about a fifth of the world’s supply of crude, and a key exporter of refined fuels and liquefied natural gas.

While cover for vessels is available from other providers, several market participants said costs for that had increased by at least 50% and in some case doubled. 

From midnight London time on March 5, war-risk covers from seven clubs will be terminated automatically if vessels enter the Persian Gulf, specific adjacent waters or Iranian waters, according to notices seen by Bloomberg News. The notices stated that the withdrawals are a result of reinsurers for such policies issuing similar cancellations.

Most marine insurance works the same way as coverage for a house or car, with the policy renewing annually. But standard protection is suspended inside war zones, so shipowners buy a separate risk policy. That’s usually in effect for seven days but can also last a year. The war insurance offered by P&I clubs protects shipowners and charterers from third-party damages resulting from war, terrorism and piracy, among others. 

“The London insurance market is reacting proportionately to developments; marine insurers are assessing their exposures and reacting according to the provisions of their contracts which might include giving notice of cancellation,” said Neil Roberts, head of marine and aviation at Lloyd’s Market Association. 

Some P&I clubs are expected to issue similar cancellation notices to those published by other members of the International Group on March 2, according to people familiar with the matter. There could be provisions for insured parties to seek cover at higher rates based on certain requirements, those people added.

Rate Increases

There are currently 12 members of the International Group of Protection and Indemnity Clubs.

“We would estimate that near-term rate increases for marine hull insurance in the Gulf could range from 25% to 50%, barring any direct attack on merchant shipping, which could have major repercussions across war insurance rates,” said Dylan Mortimer, marine hull U.K. war leader at Marsh, the world’s largest insurance broker.

The international group comprises nonprofit, mutual insurance associations that provide maritime cover to about 90% of the world’s ocean-going tonnage. The clubs that have so far decided to pull war-risk cover are Gard AS, NorthStandard Ltd., Steamship Mutual Underwriting Association Ltd., Assuranceforeningen Skuld, American Steamship Owners Mutual Protection and Indemnity Association Inc., The Swedish Club and the London P&I Club.

Adjacent waters to the Persian Gulf include the Gulf of Oman, and waters west of Oman’s Cape al-Hadd, stretching northeast to near the Iran-Pakistani border.

At least one Japanese insurance firm has also reduced its cover due to the escalation in the Middle East. MS&AD Insurance Group Holdings Inc. suspended underwriting of various insurance products covering war risks in waters surrounding Iran, Israel, and neighboring countries, a spokesperson said. 

Two other Japanese insurers, Tokio Marine Holdings Inc. and Sompo Holdings Inc., said they’re monitoring developments. 

Japan’s main private insurer will also cancel war risk coverage from midnight London time on March 6, according to a notice from the Japan P&I club on March 2. The decision only affects war risks, with other terms of cover remaining unchanged.