Strait of Hormuz Insurance Premiums Surge Fivefold Amid U.S.-Iran Conflict

Insurance premiums for vessels transiting the Strait of Hormuz have surged up to fivefold following the U.S. airstrike on Iran, raising concerns about potential losses of hundreds of billions of won for South Korean insurers if domestic ships come under attack.

Before the U.S. strike on Iran on April 28, domestic reinsurers were charging additional premium rates of approximately 0.2% for vessels passing through the Middle East. Following the escalation, those rates have jumped to between 0.6% and 1%.

Insurers typically align their premium rates with reinsurer standards, as they purchase separate reinsurance policies to cover excess losses when providing risk coverage for ships.

However, Iran's move to blockade the Strait of Hormuz and attack vessels in the Persian Gulf has sharply elevated insurers' loss exposure. Reinsurers responded by issuing Notices of Cancellation (NOC) in early May, renewing war risk clauses at higher rates. NOC allows insurers to cancel contracts and renegotiate premiums within a set period when market conditions shift dramatically due to events such as war.

"Additional premium rates vary by shipping company and reinsurer," a domestic insurance industry official said on May 13. "But rates for vessels transiting the Middle East have surged up to fivefold since the conflict began."

International insurers have followed suit. U.S.-based insurance broker Marsh reported that war risk premium rates for vessels passing through danger zones have risen from 0.25% to between 1% and 1.5%. Some vessels have seen rates climb as high as 3%.

The rate increases became more pronounced after the Lloyd's Market Association (LMA) Joint War Committee designated the Persian Gulf, Arabian Gulf, Gulf of Oman, Indian Ocean, and Gulf of Aden as war risk zones on May 3.

Financial authorities estimate South Korean insurers' exposure to marine insurance at approximately 1.5 trillion won, considered relatively modest. "This exposure figure is calculated based on pure insurance coverage without reinsurance," an industry official said. "The actual amount insurers would bear is likely much smaller."

Nevertheless, the industry notes this crisis differs from previous Middle East conflicts. Actual restrictions on Strait of Hormuz passage are unprecedented. According to the Korea Maritime Promotion Corp., Iran did not blockade the strait during the Iran-Iraq War (1980-1988), the Gulf War (1990-1991), heightened U.S.-Iran tensions in 2019, or the brief Israel-Iran exchange in 2025. Maritime access to the Persian Gulf remained available to some degree in those instances.

The current conflict between the U.S., Israel, and Iran has severed maritime logistics, amplifying its impact beyond previous regional disputes.

Maritime data firm Kpler reported on May 12 that tanker traffic through the Strait of Hormuz had dropped 92% compared to the week before the conflict. The Shanghai Containerized Freight Index (SCFI) reached 1,710.35, up 36.7% from a month earlier.

Iran has openly declared its intention to target cargo ships from not only the U.S. and Israel but also their allies, leaving open the possibility of attacks on South Korean vessels.

"Iran is conducting swarm attacks using small speedboats, significantly raising the danger level for vessels transiting the Strait of Hormuz," a financial industry source said. "With U.S. naval escorts unavailable for now, we cannot guarantee Korean ships won't be hit." The source added that while domestic insurers have likely spread risk through co-insurance arrangements or reinsurance, "in a worst-case scenario, the domestic industry could face losses of several hundred billion won."

Financial industry observers warn that ship insurance premiums could rise further. "War risk clauses were cancelled and renewed once in early May," another financial source said. "If geopolitical risks in Iran escalate further, additional NOCs could follow." No additional NOCs related to the Iran situation have been issued by domestic insurers to date.

Joo-sun Yoo, professor at Kangnam University's School of Law, Administration and Taxation and former president of the Korean Insurance Academic Society, said: "If the war drags on, risk rates set by reinsurers could climb further. That would push up maritime freight costs and negatively impact the domestic economy."