Ship insurance premiums in South Korea have surged more than tenfold as the prolonged blockade of the Strait of Hormuz amid the Middle East war disrupts maritime trade.
Data from the Financial Supervisory Service (FSS), obtained by Rep. Kang Min-kuk of the ruling People Power Party on the National Assembly's Legislative and Judiciary Committee, showed that 26 ship insurance contracts had been renewed for vessels entering war-risk zones including the Strait of Hormuz as of the 13th. Premium increases ranged from 200% to 1,000%.
Hanwha General Insurance saw the steepest hike, with a single contract where it served as lead insurer jumping 1,056% from 50 million won to 580 million won. Eight contracts at Hyundai Marine & Fire Insurance rose 553% from 640 million won to 4.15 billion won. Samsung Fire & Marine Insurance (000810.KS) saw premiums on eight contracts climb 334%, KB Insurance on six contracts 253%, and Meritz Fire & Marine Insurance on three contracts 221%.
The variation in premium increases stems from differing war-risk assessment standards among reinsurers. Ship and cargo insurance policies require separate war-risk riders when entering high-risk zones such as the Middle East. When war breaks out, insurers or reinsurers notify policyholders of contract cancellation within a set period and renegotiate at new premium rates reflecting the war risk. Shipowners and cargo owners have no choice but to pay the sharply higher premiums to maintain coverage given the elevated threat.
With oil prices and insurance premiums both rising due to the Hormuz Strait blockade, shipping freight rates are expected to climb, inevitably increasing the burden on export companies. According to 469 logistics complaints filed by 193 companies through the Korea International Trade Association's (KITA) emergency task force for export logistics difficulties on the 25th, shipping disruptions and voyage delays accounted for 129 cases — the most common issue — followed by 117 cases involving sharp freight rate increases and war surcharges.
Insurer profitability is also expected to take a hit. Estimated insurance payouts that 11 domestic primary insurers and two reinsurers may have to cover on Middle East ship and cargo policies stand at approximately 1.8359 trillion won ($1.4 billion). While this is small relative to the overall insurance market, concerns are growing that the actual impact could be far greater if the Iran war becomes protracted.
Financial authorities plan to examine insurer risk exposure in preparation for a prolonged conflict. Insurers are also reviewing support measures for companies operating in the Middle East.
"If the war drags on, it could negatively affect the financial soundness of domestic exporters and the financial market," Rep. Kang said. "If actual incidents push loss ratios higher, premiums on other insurance products could also rise, making it necessary to strengthen oversight and supervision by financial authorities."
