Rising tensions in West Asia following the US and Israeli strikes on Iran have disrupted regional and global trade flows. Freight and marine insurance premiums are up by nearly 80 per cent, with insurers reassessing war-risk premiums and withdrawing marine hull war-risk cover, thereby increasing logistics costs and potentially adding further pressure on supply chains if the situation escalates, insurance industry sources said.Marine insurers said they are cancelling war risk cover for ships due to the conflict in Iran and the Gulf. Insurers including Gard, Skuld, NorthStandard, the London P&I Club and the American Club said their cancellations will take effect from March 5, according to notices on their websites.War risk cover will be excluded in Iranian waters, as well as the Gulf and adjacent waters. Public sector GIC Re has decided to withdraw marine hull war risk cover in select high-risk global regions. The high-risk regions include the Persian Gulf, Black Sea and Red Sea.War cover premiumsThe premiums for war cover are in the process of a big rise for both marine cargo and hull insurance of ships. “How much it will go up can be predicted. It will depend on the risk exposure. It can be very high. Normal rates are around 0.2% to 0.5% for high-risk areas. It can surge to 3% also during active conflicts. Not 20% or 30% increase, the increase can be multi-fold,” said Hari Radhakrishnan of Insurance Brokers Association of India (IBAI).If the rate rises to 3% during an active conflict, for a ship valued at $100 million, a 3% hull war premium would mean $3 million for that voyage (or specified policy period). For cargo worth $20 million, a 3% cargo war premium would mean $600,000. “Most shipowners prefer to cancel sailings rather than pay a huge premium or reverse the sailing through another route which can also add to costs. Many have already halted sailings,” said an official.An estimated 170 container ships — with a combined capacity of roughly 450,000 TEU, or about 1.4 per cent of the global fleet — are currently inside the Strait of Hormuz and facing restrictions on departure.Heightened security risks around key shipping lanes have forced vessels to reroute or pause transits, increasing voyage times and operating expenses for carriers.High risk zonesStory continues below this adThe Persian Gulf and the Red Sea-Suez Canal corridor have already been designated as high-risk zones for the past three years. “Insurers have therefore been charging additional war risk premiums for cargo transiting through these waters. With the current escalation involving Israel and Iran, the situation remains fluid,” said Gaurav Agarwal, Vice President, Marine Insurance, Prudent Insurance Brokers.“We expect clarity on whether… war risk rates will be further increased, coverage terms will be restricted or withdrawn for certain voyages, or the market will stabilise depending on geopolitical developments. Historically, marine war premiums react immediately to heightened hostilities, especially in strategically critical trade corridors such as the Persian Gulf and the Red Sea route via the Suez Canal,” Agarwal said.“Higher prices will have a direct impact on cost of imports as this will also go with higher insurance and freight costs unless imported from other countries which are willing to supply at a lower price,” said Madan Sabnavis, Chief Economist, Bank of Baroda.At this stage, stakeholders across the shipping and logistics ecosystem are closely monitoring developments, Agarwal said. Any sustained escalation could translate into higher freight costs, extended transit routes, and increased insurance outlays for exporters and importers. “Prudent is watching the situation closely and advising clients on dynamic risk assessment and contingency planning,” he said.Claim costsStory continues below this adRadhakrishnan said the attack on Iran by the US and Israel followed by the counterattack by Iran on several countries allied to the US, will significantly impact the insurance market, particularly India, mainly the marine cargo, hull and aviation insurance.“The airspace and airports have already been closed with airlines cancelling flights. Added to this, the Houthis of Yemen have pledged to resume attacking vessels transiting the Red Sea. The heightened geopolitical risk in the Middle East, with both major shipping lines affected, will likely result in war risk cover being completely withdrawn. The war cover for new risks would be either unavailable and even if available would be extremely expensive,” he said.This can mean that the cost of shipping will go up considerably. For India, which is heavily dependent on oil imports from the Gulf, this can have a serious economic impact. Similarly for aviation insurance, the war risk coverage will become expensive or unavailable for affected countries.The wider economic impact such as inflation and supply chain disruptions can also adversely impact claim costs.