Safety a bigger concern than insurance for Hormuz shipowners

• Security is the worry, says Lloyd’s chair
• Hormuz traffic almost at zero
• Expect big demand once strait reopens

Marine insurance has remained available throughout the US-Israeli conflict with Iran, but shipowners have largely declined to seek cover because of concerns there is still no safe way to navigate the Strait of Hormuz, the chair of insurance market Lloyd’s of London has said.

Demand for insurance cover of tankers and other commercial vessels will be “huge” once a credible arrangement is found to guarantee navigation, Sir Charles Roxburgh said at an event yesterday organised by the Atlantic Council think tank in Washington.

Capacity will be there to meet soaring needs, but costs will depend on perceived risk, he said.

“The reason ships aren’t transiting is a concern about security not about the availability or pricing of insurance coverage.

“I met some shipowners recently in Singapore and they explained it was absolutely their priority to protect the safety of their crews and their vessels, and so they would not be making any transit until there was a safe passage.”

Traffic through Hormuz has slowed to a near-standstill since the US and Israel launched their offensive against Iran on February 28 and Tehran retaliated across the region.

A fragile, month-old ceasefire has enabled some ships to sail in and out of the Gulf, but naval blockades from the US and Iran have kept numbers to a minimum.

Fewer than 200 vessels crossed Hormuz in April – down from the 3,000 a month that typically traversed the strait before the war, according to a CNN report citing shipping data providers Kpler and Lloyd’s List.

About 20,000 seafarers remained trapped aboard vessels inside the Gulf because of the effective closure of the straight.

Disruptions to global energy exports via the strait, which usually funnels some 20 percent of seaborne oil volumes, and production shut-ins across the Gulf have left the world short of nearly 1 billion barrels of crude, Shell’s chief executive Wael Sawan said last week.

Roxburgh said Lloyd’s of London appreciated a recent $40 billion reinsurance commitment by the US Development Finance Corporation and insurers such as Chubb, Berkshire Hathaway and AIG to spur trade through Hormuz.

“I think it’s a useful addition and we welcome competition,” he said. “We think that’s good for the market and good for industry and good ultimately for shipowners.”

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Lloyd’s of London is not an insurance company but rather a marketplace where syndicates, or groupings of different insurers, underwrite policies.

Asked whether prices for coverage would rise, Roxburgh said they would “reflect the risk”.

“We run a marketplace, we don’t set the prices. The prices are set by competition both within the market but also importantly providers outside the market, too, who will also be willing to bid on the pricing.”

After Iran established a formal mechanism earlier this month to extract tolls from ships seeking to enter or exit Hormuz, some have paid up to $2 million in Chinese yuan, according to Lloyd’s List.