War-risk premiums (marine insurance)

What it is

War-risk premiums are charges ship owners pay on top of standard marine hull and cargo policies when routing through conflict zones. Standard hull policies exclude war, seizure, and piracy by design; a standalone war policy or endorsement covers those risks separately.

The London market reference is the Lloyd's Market Association's Joint War Committee (JWC), a body of hull war underwriters from Lloyd's syndicates and the International Underwriting Association (IUA). The JWC publishes a "Listed Areas" register of regions carrying enhanced risk. Entering a listed area gives underwriters the right to cancel war cover with 48 hours' notice, requiring the ship owner to secure fresh coverage before transit. Rates are individually negotiated between brokers and underwriters. The JWC sets no rates itself.

P&I clubs (Protection and Indemnity associations) handle crew liability and third-party claims as mutual insurers and are separate from hull war underwriters. The International Union of Marine Insurance (IUMI), based in Zurich, Switzerland, serves as the global statistical and policy body across both segments.

History

The design of the modern war-risk market traces to the World Wars, when UK government-backed schemes covered vessels private underwriters refused. The heaviest peacetime test was the Iran-Iraq Tanker War, 1980 to 1988: 184 vessels were attacked in 201 recorded incidents. The supertanker Seawise Giant, bombed off Iran's Larak Island in May 1988, was the largest single casualty, though the vessel was later salvaged.

After 2019 Persian Gulf tanker attacks attributed to Iran, additional premiums in Gulf waters reached 0.2-0.5% of hull value per seven-day period. The Red Sea crisis of late 2023 to 2025, driven by Houthi drone and missile attacks from Yemen, pushed premiums in the Bab el-Mandeb corridor to 0.7-1% of hull value, a roughly 500% increase from pre-crisis norms, making most transits commercially unviable and diverting container traffic to the Cape of Good Hope.

Current state

The 2026 Hormuz crisis is the most severe marine war-risk event in decades. Within 48 hours of US-Israeli airstrikes on Iran on February 28, 2026, the LMA JWC redesignated the entire Arabian Gulf as a conflict zone, triggering 48-hour cancellation notices across the market. Premiums surged to roughly 1% of hull value, adding approximately US$800,000 to a single VLCC voyage; some brokers reported voyage-specific quotations reaching US$10-14 million per trip for larger tankers.

Coverage has not ceased. The LMA confirmed in March 2026 that hull war cover remains available in the London market, with 88% of underwriters maintaining appetite. Coverage reverted to a voyage-by-voyage model, requiring fresh actuarial clearance at each reinsurance layer. The June 25 attack on the Ever Lovely and the June 27 strike on the VLCC Kiku each tightened terms further. As of early July 2026, the LMA concluded that safety concerns, not insurance cost, are the primary reason owners avoid the strait.

Relationships

War-risk premiums feed directly into VLCC freight rates: during peak 2026 disruption, war-risk insurance cost more than the freight itself on some Persian Gulf cargoes. The Cape of Good Hope diversion adds roughly 10-15 days to voyages, and the extra bunker and time cost often undercut the combined insurance-plus-freight cost of strait transit. Premiums also function as a real-time geopolitical signal; the roughly 60-fold surge in late February 2026 preceded official government risk advisories by hours. The Strait of Hormuz concentration means a single 33-kilometre-wide channel can price out global commercial traffic before any formal closure is declared.

What to watch

• Whether the LMA JWC removes the Arabian Gulf from its conflict-zone list, the formal signal of London market normalisation
• The spread between voyage-by-voyage premiums and annual treaty rates, a proxy for residual market uncertainty
• Whether IUMI and national P&I clubs establish state-backed reinsurance backstops, a proposal raised in early 2026 as premiums strained private-market capacity
• Repeat attacks near Hormuz, which can re-trigger 48-hour cancellation notices even after a partial premium retreat