War Risk Insurance Monitor

The withdrawal of all six major Protection and Indemnity (P&I) clubs from Hormuz transit coverage represents an extraordinary development in maritime insurance. P&I clubs, which provide third-party liability cover to shipowners, have traditionally been the most stable and reliable source of maritime insurance. Their collective withdrawal signals that the underwriting community considers Hormuz transit to carry unacceptable risk, regardless of premium level.

The war risk premium surge from 0.15% to 3% or higher means that a VLCC with a $100 million hull value now faces a single-transit insurance cost of $3 million, compared to just $150,000 before the crisis. For a typical shipping company operating a fleet of 10 vessels, this translates to an additional $28.5 million in annual insurance costs alone, an amount that makes many routes commercially unviable. The result is a self-reinforcing cycle: fewer ships transit, which increases the per-vessel risk, which drives premiums even higher.

The insurance crisis also has secondary effects on global trade finance. Banks require proof of adequate insurance before issuing letters of credit for cargo shipments. Without P&I coverage, cargoes cannot be financed, and without financing, they cannot move. This creates a bureaucratic bottleneck that compounds the physical bottleneck at the strait itself, effectively doubling the barrier to resumed trade flows.