Political rivalries and conflicts are increasingly being played out on the high seas, increasing risks for ship owners and seafarers, as demonstrated by a number of hostile incidents involving vessels in one of the world’s most important shipping channels, the Strait of Hormuz and the Persian Gulf. Marine hull, cargo and war insurance policies can help protect vessels sailing into risky waters but how do they work and how are recent events impacting the insurance market?

At its narrowest it is only 21 miles wide, yet the Strait of Hormuz, which separates Iran from Oman and the United Arab Emirates (UAE) is the world’s most important chokepoint for oil shipping with 21 million barrels – or around as much as 1/3 of all oil moved at sea – passing through each day from nations including Saudi Arabia, Iraq, Kuwait, the UAE, Iran and Qatar. As well as being a vital route for international shipping, the strait – and the surrounding area – is also a hotbed of regional political tensions which have been rising. There have been a number of incidents in the region through 2019, including oil tankers being attacked off the coast of the UAE in May and the taking of the UK-flagged Stena Impero tanker, detained by Iranian forces in late July. However, despite the increasing threat many vessels – and oil and gas tankers in particular – still need to navigate these dangerous waters in order to deliver their cargoes.

“There are no other routes into or out of the Persian Gulf except for the Strait of Hormuz,” explains Captain Andrew Kinsey, Senior Marine Risk Consultant at Allianz Global Corporate & Specialty (AGCS), who sailed the Strait numerous times during a long career at sea. “That is what makes it such a strategic chokepoint. “


The oil tankers typically sailing in the region which have to date been the main targets of hostile activity can be worth in excess of $200mn, once their valuable cargoes are taken into consideration. For example, the value of the hull of a very large crude carrier (VLCC) could be anywhere between US$85mn to $100mn for the largest vessels. However,  size and age are important factors in any valuation – a five year-old VLCC, which could carry between 180,000 to 300,000 deadweight (dwt) would have a hull value of around $70mn, according to Baptiste Ossena, Global Product Leader Hull and Marine Liabilities at AGCS.

At the same time the estimated value of the cargo of a VLCC could come to around $130mn, based on the price of oil being around $65 a barrel and the vessel being at full capacity, carrying in the region of 2,000,000 barrels.


Due to the high risks and large sums of money involved, ocean-going ships are usually insured on a subscription (or coinsurance) basis. This means that the risk is spread over a number of different insurers thereby limiting the exposure for the individual companies, explains Majid Beladraoui, Senior Business Analyst, Hull, AGCS.

As a leading insurer of both marine hull insurance and marine cargo insurance, which can either be bought at the same time or separately from different insurers, AGCS insures such vessels transits every day. A marine hull insurance policy covers physical damage to a vessel, which can include collision liabilities. However, such hull policies do not cover acts of war, piracy or the seizure of vessels, as in the case of the Stena Impero. These risks require a standalone war coverage policy to be purchased, which AGCS also offers, although it is not a major provider of this type of insurance.  Sometimes the war risk cover is placed by a broker alongside the hull cover, sometimes it is placed separately.

Cargo insurance provides cover for all risks of physical loss or damage to goods while in transit. Unlike with marine hull insurance cargo war risk premiums have typically been included within the “all risks” premium without a separate rate for a number of years.


With regards to marine hull insurance, following the first incident in the region in May in which four oil tankers were damaged off Fujairah, the Lloyd’s Market Association (LMA) Marine Joint War Committee added the Strait of Hormuz and surrounding areas of the Gulf to its list of locations in which there is an enhanced risk to vessels – categorizing it as a war breach zone. Insurers then issued seven day cancellation notices on existing war insurance policies to all customers, given this region was now excluded from future war insurance coverage.  However, if ship owners/charterers still need to travel to the excluded region they can do so but typically have to pay an additional insurance premium, known as a breach premium, during the time they are in the breach area. On the hull side, such a premium is calculated as a percentage rate of the whole value of the vessel’s hull – normally for a seven day call in the breach zone, reflecting the enhanced exposure.

On the cargo side seven-day war risk cancellation notices on existing policies were issued to a number of insureds and an additional premium charged on any goods shipped to, from or within the region. Additional premiums for cargo war risks are charged on the rate applied to the full value of the cargo shipped.

Frigate at Sunset
Frigate at Sunset


Marine war premiums for ships entering the Persian Gulf have increased since the first tanker incidents occurred. Although ship owners are paying more for their war risk insurance it isn’t just an overall rate increase; rates for certain transits have increased because of the enhanced risk now perceived. In many cases ship owners pass on the cost to the charterer of the vessel.

Once the Gulf was listed as representing an enhanced risk to vessels, additional breach premiums for ships entering the region applied. Following further attacks on two tankers in June, the Front Altair and the Kokuka Courageous, the risk of sailing in the region was perceived to have become greater, culminating in the detaining of the UK-flagged tanker. During this period there have been reports of additional breach premiums being applied in the range of between 0.2% to 0.5% of the value of the hull, although terms and conditions could reduce this amount. Following the incident with the UK-flagged tanker there have been reports of percentage rates in excess of 0.5% of hull value being applied for UK and US flagged vessels which only make up a small proportion of the vessels in the global fleet. The UK government‘s decision to provide a navy escort for its ships through the Strait of Hormuz will positively impact pricing for ship owners.

The marine cargo insurance market has predominantly applied additional war rates to oil and gas risks as the general view has been that the vessels carrying these cargoes are at greater risk but the situation could of course change in future.


The detaining of the Stena Impero also brings questions about how insurance responds when a vessel is seized. The most concerning aspect about this incident is the fact that 23 crew members were confined to the vessel by Iranian forces. On vessels, the crew is typically insured by P&I clubs, mutual insurance associations that provides risk pooling, information and representation to its members. In such an event as the seizure of a vessel the insured party would contact their broker who would then contact the claims team, who would instruct lawyers and potentially a team of professional negotiators to make contact with the party which had seized the vessel.

For ship owners seizure of a vessel is covered under a specialist war insurance policy. Typically, if the vessel has been taken and has not been returned after six months, the owner has the chance to claim a total loss. However, some contracts require 12 months before a total loss is allowed.

Of course, from a financial point of view, every day a ship is detained also results in a business interruption in terms of the vessel being unable to deliver its cargo. In this situation insurance can also respond in the form of war “loss of hire“ cover, which can cover the vessel for loss of earnings for the period during which it is detained. However, this is an optional coverage and is not always taken up by ship owners.


Kinsey explains that for vessels transiting the Arabian Gulf, Strait of Hormuz and the Gulf of Oman  several key references  are available which can help shippers keep abreast of latest developments , such as UKMTO (United Kingdom Maritime Trade Operations) Advisory Notices 002/JUL/2029; U.S. Maritime Alert 2019-004A; BMP5 and UKHO (The UK Hydrographic Office) Security Chart Q6099

Similarly, the following guidance has been developed  by the BIMCO Maritime Security Committee to help prepare vessels in the event of incidents transiting the Strait Of Hormuz.

While this is not officially permitted, there have been reports of some ships turning off their transponders while passing through the Strait of Hormuz in order to avoid detection. However, turning off transponders increases the risk of accidents, injuries and collisions at sea, Kinsey concludes.


Since 1980, 269 ships of greater than 100 gross tons have been involved in attacks around the world.
Only seven of these were total losses (damaged beyond repair).
The great majority (201) were in the 1980s, of which 184 occurred during the Iran-Iraq war (1980-1988).
In recent years, incidents of this type have been greatly reduced, typically being one or two vessels affected per annum. In the six years from 2013-2018, 11 ships were reportedly involved in such attacks, primarily in parts of the Mediterranean (off Libya), and the Red Sea (off Yemen).
The largest ship to be affected was the super tanker Seawise Giant (aka Mont) which was also the largest ship ever built at the time of its sinking (458 metres long – nearly twice the length of the Front Altair).  It was bombed and sank off Larak Island, off the coast of Iran, during the Iran-Iraq war in 1988 although was later salvaged and repaired.
The above incidents do not include piracy incidents