Opinion | Geopolitics and insurance

Geopolitics insurance risks surge 30% after Red Sea shipping attacks

[BYLINE]
Muhammad Asghar | GlobalBeat

Global insurance premiums for commercial shipping rose 30% in 2024 after Houthi rebels targeted vessels in the Red Sea, industry data showed.

The attacks pushed war risk premiums to $300,000 per voyage for larger container ships, according to London insurance market figures.

The surge reflects growing concerns that geopolitical tensions increasingly threaten global trade routes and economic stability.

The Houthis began targeting merchant vessels in November 2023, saying they aimed to pressure Israel over its Gaza offensive. The attacks disrupted traffic through the Suez Canal, which handles 12% of world trade.

Shipping companies rerouted vessels around Africa, adding 14 days to Asia-Europe voyages and increasing fuel costs by $2 million per trip, according to Danish shipping giant Maersk.

The attacks created what the insurance industry calls a “systemic risk event” that affects multiple ships and trade lanes simultaneously.

“The Red Sea situation has fundamentally changed how we assess geopolitical risk in shipping,” marine insurance executive Sarah Thompson told Reuters in April.

War risk insurance typically covers damage from military action, terrorism and political violence. Standard policies exclude these perils, forcing shipowners to buy separate coverage.

Premiums remained stable at $15,000-$30,000 per voyage for most of the past decade, according to industry group International Union of Marine Insurance.

The spike began after the first commercial vessel, Galaxy Leader, was seized by Houthis in November 2023.

An unnamed Japanese-operated tanker was hit by missile fire in December 2023, prompting insurers to raise rates for all ships transiting the area.

Major insurers including Lloyd’s of London syndicates and Norwegian firm Gard began classifying parts of the Red Sea as high-risk zones.

The classification triggers automatic premium increases and requires special war risk coverage for all vessels.

Some insurers stopped offering coverage entirely for ships planning Red Sea transits, according to three London market sources who requested anonymity.

“Underwriters are essentially pricing in the possibility of military escalation,” marine lawyer Michael Brown told shipping journal Lloyd’s List in March.

The United States and Britain launched airstrikes against Houthi targets in January 2024, but attacks on shipping continued.

U.S. Central Command said Houthis launched 79 attacks on merchant vessels through June 2024.

Six ships suffered direct hits, according to U.S. Navy data. One vessel sank and four crew members died.

The attacks forced 1,200 ships to avoid the Red Sea route entirely since December 2023, U.S. officials estimated.

This diverted traffic created new insurance complications. Ships taking the longer Africa route faced different risk profiles for piracy and weather damage.

Some insurers offered limited coverage for Red Sea transits but with exclusions for specific ports or carrier types.

Container ships faced higher premiums than oil tankers because they carry diverse cargo from multiple owners, according to insurance brokers Willis Towers Watson.

Tankers transporting Russian oil faced particular difficulties after Western sanctions complicated coverage arrangements.

G7 nations imposed price caps on Russian oil in 2022, requiring insurers to verify cargo prices comply with sanctions.

Russian vessels sought alternative insurance from providers in China, India and the Middle East, according to ship tracking data.

The Russian fleet carried approximately 10% of global seaborne oil trade in 2024, according to energy analytics firm Vortexa.

Insurers expanded their focus beyond traditional war zones to include cyber attacks and supply chain disruptions.

The NotPetya cyber attack in 2017 caused $10 billion in losses worldwide and changed risk assessments.

Shipping firms now face higher premiums if they lack robust cyber security measures, according to insurance broker Aon.

The International Maritime Organization reported 33 cyber security incidents affecting ships in 2023, double the previous year.

These evolving threats force constant reassessment of what constitutes geopolitical risk in maritime insurance.

Background

War risk insurance originated during World War I when standard marine policies excluded war damage. The market evolved through subsequent conflicts including World War II, the Suez Crisis and Iran-Iraq War.

The concept of “war risk” expanded after the September 11 attacks to include terrorism coverage. Premiums briefly surged 400% before gradually declining as security measures improved.

What’s Next

Industry analysts expect Red Sea shipping insurance rates to remain elevated through 2025 without a ceasefire agreement. The International Maritime Organization meets in November to discuss creating an international risk-sharing mechanism for politically motivated shipping attacks.

The current crisis may accelerate adoption of parametric insurance products that pay claims based on predefined triggers like ship diversions or port closures, according to Swiss Re marine division head Andreas Berger.