‘Huge build-up of risk’: London’s centuries-old shipping industry wrestles with Iran war

Shipping risk been insured by Lloyd’s of London for more than 330 years, but now the centuries-old heart of maritime insurance is getting to grips with the most modern of threats – drones and missiles threatening hundreds of vessels stuck in the Gulf region amid the escalating Middle East conflict.
For nearly three weeks the crucial strait of Hormuz has effectively been closed to the more than 100 gas and oil tankers and container ships that usually pass through each day.
Pressure is building to find a way to safely reopen the narrow maritime channel to allow the estimated 1,000 vessels and their crews – mainly oil and gas tankers but also container ships – currently trapped in the Gulf to continue their journeys, restarting the global flow of fuel, chemicals and goods.
A total of 23 vessels had been attacked between the start of the war and Thursday, according to analysts from Lloyd’s List Intelligence, including near misses and those that have sustained minor damage. Several crew members have been killed.
Lloyd’s of London insists shipping insurance has remained available throughout the conflict at the “right price”, even though brokers have conceded there has been little demand for the strait in recent days. The vast majority of shipowners have chosen to leave their vessels anchored in the Gulf or waiting in the region’s ports.
For Lloyd’s, this is just the latest crisis in centuries of global turmoil. The insurance market’s roots stretch back to a London coffee house owned by Edward Lloyd in 1688, where sailors, merchants and shipowners met to exchange maritime gossip.
The centrepiece of the underwriting room within the distinctive Richard Rogers-designed marketplace on London’s Lime Street is the bell salvaged from the wreck of the HMS Lutine after it sank off the Dutch coast in 1799 with its cargo of gold and silver insured by Lloyd’s. Since then, Lloyd’s experienced its greatest maritime loss when the Titanic sank in 1912, insured risks during the second world war, and made enormous payouts after the 9/11 terror attacks of 2001 in New York.
During the latest Middle East conflict, war insurance premiums have soared since the outbreak of the conflict, rising to between 3.5% and 7.5% of a vessel’s value, according to David Smith, the head of marine at the broker McGill and Partners, which operates in the Lloyd’s of London insurance market. This compares with 1% to 1.5% a week earlier, and 0.25% before the war.
However, it is not the cost of insurance which is preventing companies from making the decision to move their vessels out of a perilous region, rather what Smith called the “fear factor”.
Silke Lehmköster, a former container ship captain and now the fleet managing director at German shipping company Hapag-Lloyd, relayed the danger being faced by the company’s six vessels and 150 crew stuck in the Gulf.
Her seafarers have reported seeing drones whiz past, as well as explosions and lots of smoke. One Hapag-Lloyd cargo ship was hit by shrapnel in recent days, causing a small fire on board, which the crew were able to extinguish with no injuries.
In the early days of the conflict, ships at anchor were considered safe, but there is a “huge buildup of risk” in the area, according to Richard Meade, the editor-in-chief of Lloyd’s List Intelligence.
“We are still not at the stage where ships are being profiled in these attacks, as far as we can tell. Some are falling into the category of collateral damage or hits to sustain the closure of the strait,” he said.
Despite the ongoing danger for seafarers, who are forced to spend their time below deck, shipping companies have said several conditions would have to be met in order for them to have confidence to tell their crew to attempt a transit of the strait.
“We would need an end of this escalation, so that there are no drones, no missiles, no whatsoever flying, and a clear message from everyone that they would stop,” Lehmköster told the US network CBS.
It is not clear what exact conditions would allay shipowners’ fears and allow traffic to restart. Various measures have been suggested, including the establishment of a safe maritime corridor, naval escorts or even security guarantees issued by Iran.
The threat posed to vessels in the Gulf differs significantly from other dangers faced by commercial shipping in recent years, such as piracy.
These situations could be mitigated by crews, said David Appleton, a senior leader at the trade union Nautilus International, but this is not possible in a conflict where drones and unmanned vehicles are being used.
“You would have armed guards on board in certain places, you would have operational procedures where you’d avoid certain areas or you would travel at certain speeds so you weren’t vulnerable to attacks. But none of this applies to the current situation,” he said.
The UN’s shipping agency – responsible for regulating international safety – called for the creation of a humanitarian corridor in the Gulf to evacuate commercial vessels and seafarers from high-risk areas, after an extraordinary meeting of countries in London this week by the International Maritime Organization (IMO). However, the IMO has not given a timeline for establishing the corridor and it is not clear whether Iran would cooperate. Iran’s vast southern coastline, stretching about 1,200 miles (2,000km), would also make it difficult to monitor.
Iran has suggested it may offer security guarantees to certain ships, according to factors such as the nationality of their owners or origin and destination of the cargo.
Tehran is aiming to re-route vessels through what it calls a “safe corridor” through the strait of Hormuz, close to the Iranian coast. This route allows Iranian authorities to “verify” vessels visually and give approval to proceed, although it is not clear whether payment will be required.
“At this stage the idea that this approval guarantees safe passage should be treated with extreme caution,” Meade added.
The US, the UK and other European nations have discussed plans to provide military escorts for merchant vessels, but the situation is now deemed too dangerous. Some shipping companies have privately called the proposals unrealistic, given the large numbers of vessels anchored in the Gulf.
However, insurance brokers have said the effective use of naval escorts could help to significantly help to bring down insurance costs, as London’s ancient maritime insurance market hopes to solve the latest challenge in its lengthy history.