War risk insurance premiums for ships likely to rise amid West Asia crisis: Experts
Freight carriers will have to pay an additional premium to restore war cover for shipments passing through high-risk areas amid the escalating crisis in West Asia, experts said.
Vessels of the Shipping Corporation of India (SCI) are also involved in the movement of crude oil and LNG, especially through areas around the Red Sea, and would have to pay an additional premium for war cover to ensure risk cover.
“It is reasonable to expect that Indian oil companies will have cargo exposures and SCI will have hull exposure in this region. Oil prices are also likely to face upward pressure in the near term,” Policybazaar Head (marine insurance) Balasundaram R said. According to Prudent Insurance Brokers Head (marine specialities), Gaurav Agarwal, notice of cancellation of war cover has been issued on hull on March 1, and a similar cancellation on cargo is expected soon.
After this cancellation, Agarwal said, the insurers may increase premiums on hull and cargo.
“If the conflict becomes a serious war risk, insurance premiums for ships are likely to go up, and insurance companies may adjust pricing quickly based on the risk level. Since cargo insurance premium is calculated based on cargo value, the total premium amount may go up, even if the rate stays the same,” he said.
However, he said, unless the conflict becomes long and widespread, a major overall increase in insurance premiums across the board is unlikely.
Experts further said shipment or cargoes that have already sailed from India are anchoring in international waters, are waiting for the situation to ease out, and alternate routes are being worked on by shipping lines, which will add additional cost to the importer/exporter.
Heightened geopolitical tensions in the Persian Gulf have resulted in the withdrawal of war risk coverage for marine insurance, Insurance Brokers Association of India (IBAI) expert Hari Radhakrishnan said.
“Under marine insurance policies, war and SRCC (Strikes, Riots, and Civil Commotion) coverage is typically subject to 3 days or seven days’ notice of cancellation. Once cancelled, fresh war risk cover may become unavailable - or, where still offered, priced at prohibitively high levels,” Radhakrishnan said.
Reportedly, rates have gone up to 1 per cent from 0.25 per cent to 0.5 per cent, and this will significantly increase shipping costs and disrupt global trade flows, he added.
In aviation, hull war risk (HWR) coverage for airline fleets is expected to see sharp rate increases and potential reductions in underwriting capacity, he said, adding that airlines may require Government-backed reinsurance support to maintain operations, similar to the sovereign guarantee Israel has extended to its national carriers against war-related losses.
Beyond marine and aviation lines, he said, the conflict is likely to create knock-on effects across other classes of insurance.
“Travel and event insurance will be directly affected by restrictions on movement and heightened cancellation risks. Broader economic consequences - including inflation, supply chain disruptions, and shortages of materials and labor - could drive up claims costs across multiple lines,” he said.
Additionally, he said, volatility in global financial markets may pressure insurers’ investment portfolios, further affecting profitability and capital adequacy.
