Demand for war-risk cover through the Middle East's key shipping corridors has dried up, according to Marsh's global head of marine, cargo and logistics, Marcus Baker, who also warned that a further escalation involving Saudi-linked vessels can't be ruled out.
Speaking to CNBC's Power Lunch, Baker said the picture in the Arabian Gulf and Red Sea has shifted in recent weeks, with more attention now falling on ships carrying a Saudi ownership or flagging background. If more vessels with that profile come under attack, he said, the region could see tensions escalate further still.
Asked whether shipowners are still lining up cover to make the crossing, Baker didn't mince words: demand has all but disappeared. He pointed to Marsh's own vessel-tracking data, which showed no ships passing through the region on one recent day and only a handful since - against a normal daily transit count of around 150.
He put this down to what he called a broken feedback loop. Fewer vessels attempting the route leaves underwriters with less confidence to price the risk sensibly, so rates stay too high for many owners to justify the trip, which in turn keeps the number of vessels low. Cover is technically available, Baker said, but the market backing it has become noticeably thinner.
Marsh has flagged similar volatility in the Strait of Hormuz over recent months, where premiums have spiked each time a ceasefire has looked shaky.
Baker was also asked why rates haven't come down further given the memorandum of understanding (MOU) struck between the US and Iran. He said he'd picked up plenty of unease from insurers behind the scenes - a general view that, MOU or not, the region isn't yet calm enough to justify taking on more of the risk.
Other brokers have made similar points recently. James Reason, a broker at WTW, told Insurance Business the rate trajectory is heading in the right direction, but conditionally so - the longer the region goes without an incident, the more room there is for pricing to ease, though he stopped short of calling it a sharp correction.
The unease Baker describes among insurers has a concrete recent example. Gallagher, one of the Lloyd's of London brokers ranked among the industry's "Big Five" for marine and cargo business, had arranged cover for one of two Saudi tankers struck by Houthi missiles and drones in the Red Sea last week, according to City AM, which cited two people familiar with the matter. Gallagher did not underwrite the policy itself, meaning it isn't facing a direct payout, the outlet reported.
The two vessels, named locally as the Encelia and the Layla, were attacked on Wednesday 22 July as the Houthis moved to enforce a naval blockade against Saudi Arabia they had declared days earlier. Saudi state media confirmed a fire broke out on the Encelia, off the port of Jizan near the Yemeni border, with the vessel's crew reported safe; the reported strike on the Layla has not been independently confirmed by Reuters, though the Houthis said both ships were targeted with ballistic and cruise missiles as well as drones.
A Gallagher spokeswoman said the decision on whether a transit is safe rests with a vessel's master and associated parties, adding that the broker's role is to provide cover for owners looking to travel through the region and that it remains able to insure ships in the Red Sea and other high-risk areas. City AM separately reported that Gallagher, along with a number of underwriters, is now advising clients against attempting fresh Red Sea voyages - even as it continues to offer cover to those who choose to proceed.
The attacks mark an escalation beyond Iran's blockade of the Strait of Hormuz, opening what several outlets have described as a new front in the conflict. With Saudi Arabia now facing pressure on both its Hormuz and Red Sea export routes, the Suez Canal has become one of the few remaining corridors for regional oil shipments - a dynamic James McCormick, research director at Cavendish, said reflects "the market... increasingly pricing a broader kind of logistic delivery supply shock," keeping Brent crude vulnerable to sustained trading above $100 a barrel.
Separate data cited by S&P Global showed transit activity through the Bab al-Mandeb strait falling roughly 30% in the days before the attacks, from 41 vessel crossings to 29 - a decline that sits alongside Marsh's own tracking data showing the wider region's daily transit count collapsing from around 150 to a handful.
Pushed on what it would actually take for rates to normalise, Baker wouldn't commit to a figure. Underwriters need to see a sustained run without incidents, he said, but he couldn't say whether that meant one month, three months, or longer - the market is too dynamic to call. He added that part of Marsh's job as a broker, beyond advising on risk, is pushing to get rates back to a level that works for clients, even if he can't promise when that will happen.
Marsh has reported war-risk premiums for Hormuz swinging anywhere from around 0.25% to as high as 10% of hull value at different points since February, per figures shared with CNBC. Red Sea premiums have followed a similarly volatile path since the Houthi campaign began, with cover for ships calling at Israeli ports seeing some of the sharpest increases of all.
