Middle East tensions: Global insurers exit Iranian waters as conflict deepens

MUMBAI: India's trade and energy supplies face fresh risks after reinsurers and Protection & Indemnity (P&I) clubs announced cancellation of war risk insurance for vessels transiting the Strait of Hormuz and Iranian waters, following an escalation in the Iran conflict. The cancellations, effective from this week, have left over 150 vessels stranded and disrupted a corridor that handles nearly one-fifth of global oil flows.

P&I clubs are mutual, non-profit insurance associations owned by shipowners. They provide third-party liability cover through a pooled premium for risks such as cargo damage, pollution, crew injuries and collisions that are not covered under hull insurance. The clubs also provide legal support and dispute resolution across jurisdictions.




"The industry is currently in a wait-and-watch mode, as much depends on how long the conflict persists. If it turns prolonged, insurers are likely to come together to create additional capacity for war-risk cover. Typically, there is an immediate surge in demand when hostilities break out, but that demand tends to ease quickly if the situation stabilises in a short span," said Tapan Singhel, MD & CEO, Bajaj General Insurance.

Brokers said that in the past when international reinsurers ceased to provide cover for some risks like terrorism the Indian market had provided the capacity by building an insurance pool where domestic companies come together and share the risks. However, this tie state-owned reinsurer GIC Re, which leads domestic marine pools, has itself issued cancellation notices for marine hull war risk covers effective March 3, 2026, mirroring global reinsurers and P&I clubs. The crisis has brought marine insurance centerstage, the share of this line of non-life had shrunk to around 2% of industry premium as risks ebbed due to containarisation and more safety in transport. The size of the premium also determines the capacity of the industry to provide large covers.

Their role is central to global shipping. Without P&I cover, shipowners face potentially unlimited liabilities in the event of accidents, pollution or war-related damage. In high-risk zones, the absence of insurance effectively halts voyages, as operators are unwilling to expose vessels to uninsured losses. In previous crises in the Red Sea, war risk exclusions by insurers sharply curtailed traffic and drove up freight rates.

In the current episode, major P&I clubs and reinsurers have issued notices cancelling war risk cover for Iranian waters, the Persian Gulf and the Strait of Hormuz, citing tanker damage, casualties and threats from Iranian forces. Reports of VHF warnings and GPS disruptions have added to concerns.

Insurers have invoked standard cancellation clauses following US and Israeli strikes on Iran, with broader policy implications if the conflict further widens.

Fresh war risk cover may be available, but at sharply higher premiums. Rates that were around 0.25% of vessel value have surged multiple times, rendering transits commercially unviable for many operators. Even where cover is available, shipowners remain wary of risks such as seizures or missile strikes.