Ship Insurance Premiums Soar Tenfold Amid Hormuz Tensions... Impact on Ship Owners and Export Companies

26 Ship Insurance Contracts Renewed
Rising Premiums and Oil Prices May Drive Up Freight Rates

Due to the prolonged blockade of the Strait of Hormuz caused by the Iran war, domestic ship insurance premiums have soared by more than 1,000%. This increase in premiums is leading to higher freight rates, which in turn is raising the burden on export companies and could also affect the profitability of the insurance industry.

Oil tanker passing through the Strait of Hormuz. Photo by Reuters Yonhap News Agency

According to data received from the Financial Supervisory Service by Kang Min-guk, a member of the National Assembly’s Political Affairs Committee, as of March 13, there were a total of 26 ship insurance contracts that were renewed after entering war risk areas such as the Strait of Hormuz.

The rate of premium increases varied significantly by insurer, ranging from 200% to 1,000%.

Hanwha General Insurance saw the largest increase, with one contract in which it participated as lead insurer jumping from 50 million won to 580 million won, a 1,056% rise.

Eight contracts from Hyundai Marine & Fire Insurance also rose by 553%, from 640 million won to 4.15 billion won. In addition, Samsung Fire & Marine Insurance (8 contracts) saw a 334% increase, KB Insurance (6 contracts) 253%, and Meritz Fire & Marine Insurance (3 contracts) 221%.

The reason for the difference in increase rates is that each reinsurer uses different criteria to assess war risk.

For hull and cargo insurance, a separate war risk rider must be purchased when entering high-risk regions such as the Middle East. In the event of war, insurers or reinsurers notify cancellation of the existing contract within a set period (NOC), and a new contract is signed at a premium rate reflecting the war risk.

Typically, in marine insurance, multiple insurers jointly underwrite a policy and then transfer the risk to reinsurers to spread the risk.

Ship owners and cargo owners are left with no other choice but to re-enroll in insurance at high premiums due to the significant war risk. With the blockade of the Strait of Hormuz pushing up both oil prices and insurance premiums, freight rates are also expected to rise.

The Korea International Trade Association announced on March 25 that a total of 193 companies had reported 469 cases of export and import logistics difficulties to the 'Emergency Task Force for Export Company Logistics Difficulties.'

Among these, delays due to interruptions in maritime transport accounted for 129 cases, the highest number, followed by sharp increases in freight rates and the imposition of war risk surcharges (117 cases).

Insurance companies are also expected to see their profitability affected.

The insurance exposure (potential payout) that 11 domestic primary insurers and 2 reinsurers hold in Middle Eastern hull and cargo insurance is estimated at about 1.8359 trillion won. If the Iran war continues for a long time, the actual impact could be even greater.

Kim Jin-ok, Senior Research Fellow at the Korea Insurance Research Institute, stated in a recent report, "Korea, which has a high dependence on Middle Eastern energy, is inevitably facing a deterioration in loss ratios for marine cargo and energy insurance due to the blockade of the Strait of Hormuz." He added, "Because it is difficult to immediately reflect the sharp rise in reinsurance costs in premiums, this could lead to a decline in insurers' profitability."

Financial authorities plan to review insurer risks in preparation for a prolonged war. Insurance companies are also considering support measures for companies operating in the Middle East region.

Assemblyman Kang said, "If the war is prolonged, it could have a negative impact on the financial health of domestic export companies and the financial market. If the actual loss ratio rises due to real incidents, insurance premiums for other products may also increase, so strengthened supervision and management by financial authorities is needed."

This content was produced with the assistance of AI translation services.