The Iran war has effectively shut down the Strait of Hormuz, a critical chokepoint for global trade, sending marine insurance costs into the stratosphere.
This crisis has placed Korean non-life insurers in a difficult position. With about KRW 1.7 trillion in marine insurance exposure tied to ships and cargo, companies like Samsung Fire & Marine and Hyundai Marine & Fire are now grappling with soaring risks. The core of the problem is the dramatic spike in war-risk insurance premiums. Rates have jumped from a baseline of about 0.25% of a ship's value to as high as 1-3% for a single seven-day voyage. For a large tanker, this translates to millions of dollars in extra costs per week, making transit nearly impossible for many.
So, how did we get here? The causal chain began in late February when attacks on merchant ships triggered cancellation clauses in standard insurance policies. First, this prompted major insurance bodies, like the London-based Joint War Committee (JWC) and P&I Clubs, to take action. By early March, they had officially withdrawn standard war-risk coverage for the region and designated it a high-risk area. Second, this withdrawal of mainstream insurance capacity forced shipowners into a niche, high-priced market for bespoke coverage. Third, with insurance becoming prohibitively expensive and physical risks mounting, many shipping companies chose to avoid the strait altogether, effectively halting a significant portion of trade.
This shock was amplified by pre-existing conditions. Tighter global energy supplies meant the disruption had a bigger impact on oil prices, with Brent crude quickly surpassing $100 a barrel. Furthermore, recent precedents, like the insurance market's reaction to the Red Sea crisis, taught insurers to react more swiftly by pulling capacity. For Korean insurers, who were already navigating the transition to new solvency standards (K-ICS), the pressure to avoid high-severity risks was even greater.
As a result, Korean regulators have launched risk assessments, and the insurance sector faces a period of heightened uncertainty. The path forward now depends heavily on geopolitical developments and any potential international efforts to secure the waterway.
- Glossary
- P&I Club (Protection and Indemnity Club): A non-profit mutual association that provides liability insurance for shipowners, covering risks like cargo damage and pollution.
- JWC (Joint War Committee): A London-based body that assesses and designates areas of heightened risk for marine insurance, influencing premium rates and coverage availability.
- Hull Value: The insured value of a ship's physical structure, including its machinery and equipment. War-risk premiums are often calculated as a percentage of this value.