Insurance: Uncertainty On the High Seas

The global shipping industry is facing a crisis in maritime insurance due to escalating uncertainty in the Strait of Hormuz, where active conflict and volatile transit conditions have triggered a collapse in commercial risk appetite. Professor Dr. Jason Chua explains that war risk premiums have surged from a baseline of 0.25% to as high as 10% of a vessel’s value—making voyages economically unviable without government intervention. What’s more, insurers are defaulting to 'held cover' with seven-day cancellation windows, while reinsurers are refusing to participate, creating a systemic breakdown in coverage. The U.S. government’s attempt to fill the gap via political risk insurance has limited impact, only applying to U.S.-linked trade and failing to address the broader global need. As a result, ships are rerouting around Africa, adding weeks to journeys and further inflating insurance costs. The ripple effect is now spreading to other chokepoints like the Strait of Malacca, not because of direct threats there, but because entire regions are becoming uninsurable. This reveals a hidden truth: the real bottleneck in global trade isn’t just military conflict—it’s the financial system’s inability to absorb risk in war zones.