IMO chief urges governments to curb high insurance rates, prompts insurers' backlash

The International Maritime Organization's top official has called for government intervention on marine insurance markets to curb high premiums in the Middle East, prompting a backlash from the world's largest industry association representing marine insurers.

During the IMO Council meeting this week, Secretary-General Arsenio Dominguez said continued high insurance costs for transiting the Strait of Hormuz strained shipping companies and hit countries affected by reduced seaborne trades during the US-Iran conflict.

"Market pricing is not adjusting as conditions improve," said Dominguez, describing high premiums as a "matter of great concern."

"Governments with influence over the insurance and reinsurance markets have a role to play in engaging with insurers to ensure premiums reflect current realities, rather than continuing to reflect the peak of the crisis," the IMO chief said in a speech July 8.

"It does not help the reduction on the cost of freight, and it affects, in particular, countries in those regions which have already suffered the consequences of these conflicts and are in need of assistance and the resumption of maritime trade."

The VLCC rate for transporting 265,000 metric tons of crude from the Persian Gulf to China jumped from $46.04/mt on Feb. 27, the day before the war broke out, to $124.14/mt March 3, according to Platts assessments. It remained at a historically high level of $74.84/mt July 10.

Platts is part of S&P Global Energy.

In a statement July 9, International Union of Marine Insurance said the IMO remarks were noted with "some concern," and it was disappointed that insurance was singled out while navigational and legal issues also curbed transits.

Iran has warned that ships need to follow the instructions of the Persian Gulf Strait Authority or risk being attacked, but the US has sanctioned the newly established government agency by Tehran.

"Prices reflect risk and in fact are considerably below the peak," the IUMI said, referring to insurance premiums. "The marine insurance market is international and highly competitive so it is difficult to see why governments would or could have a role when the market is working to support owners where legally permissible and is already reacting to current realities."

US and UK Treasury departments did not respond to emails seeking comments.

Maritime risks

Additional war risk premiums for ships passing Hormuz have increased significantly from the prewar level of 0.25% of hull value and fluctuated on geopolitical developments in recent months.

In early June, shipbroker BRS said the AWRP stood at about 10% while some European tanker sources put the figure closer to 7%-9% for clean tankers and 5%-5.75% for crude tankers. The premium was on average 4.5%-6% before Iran and the US signed a preliminary peace agreement June 17 and fell to 3%-4% after, according to brokerage Marsh. After three tankers were attacked around Hormuz July 6-7, an underwriter told Platts that the AWRP would move back to 4%-5% if the assaults continue.

Total payouts by shipping companies have also risen on shorter coverage time and an expansion of high-risk areas since March, aside from the increase in headline premium levels.

"The wider political environment suggests that the mid-June ceasefire/MOU reduced some pressure but did not remove the core drivers of risk," security consultancy Vanguard TECH said in a monthly report shared with Platts July 10.

"Both sides continued to accuse the other of violating the arrangement, while Iran maintained that it had authority to regulate Strait of Hormuz traffic and the US continued to frame its actions as protection of commercial shipping and enforcement against Iran-linked maritime activity."

BIMCO, the world's largest shipowners' association by direct membership, said security conditions in Middle Eastern waters could deteriorate with little notice, even though commercial passage through Hormuz remains possible.

"Transiting the strait continues to involve significant risk due to the Iranian threat," BIMCO's chief safety officer, Jakob Larsen, told Platts in an email July 10. "It is difficult to say how long it will take to reduce the Iranian threat to an acceptable level, as it depends on several factors such as the US capability and effort to physically destroy the threat, and the impact of renewed economic sanctions on Iran."