As vessels are inactive and premiums climb to levels not seen since the tanker wars of the 1980s, a leading voice from the American P&I Club says that the real barrier to passage through the Strait of Hormuz has never been the insurance market. It is fear - and the entirely rational instinct of a ship's captain who does not wish to die.
Since the United States and Israel launched coordinated strikes on Iran on 28 February 2026, the story that has circulated through wire services, broadcast media and the business press holds that marine insurers withdrew cover from the Strait of Hormuz and that the market broke down; the refusal of underwriters to stand behind policyholders is why commercial shipping ground to a halt through a waterway that ordinarily carries a fifth of the world's oil supply.
This story, according to those close to the market, is substantially wrong.
"The main takeaway here is that the reduced traffic going through the Strait has nothing to do with what insurance is available or not available," said Steve Ogullukian, deputy global underwriting director and reinsurance director at the American P&I Club. "It's purely just a captain or a ship owner not wanting to put their crew at risk."
Ogullukian, speaking in an interview this week, pointed to crew sentiment as the more legitimate cause of reduced traffic. "Any reduced traffic is just because there was that fear; the unknown of what can happen here," he said. "‘Will we be targeted? Will we be hit?’ It's not worth the risk. It was never really an issue about insurance. It was just an issue of safety and personal lives, really."
Meanwhile, traditional marine coverage has been an option for vessels transiting the Strait perhaps subject to even-greater premiums if tied to the US or its conflict allies. “But it was never a situation where it was pulled and there was no cover whatsoever,” said Ogullukian.
The mechanics of how war risk insurance operates have been poorly understood in the coverage of the ongoing US/Iran crisis. This confusion has had real consequences — not least in shaping the Trump administration's response.
Underwriters issue what is known as a “notice of cancellation” — a contractual mechanism built into every war risk policy that allows them to reprice for changed conditions, typically within three to seven days. During that window, the existing policy remains in force. After it lapses, new terms are issued at revised rates reflecting revised war risk. As Insurance Business UK reported, war insurance premiums for vessels transiting the Gulf rose to between 3.5% and 7.5% of a vessel's value following the outbreak of conflict, according to David Smith, head of marine at McGill and Partners.
The “cancellation” notice phrasing has caused confusion in the crises’s coverage and among insurance professionals, said Ogullukian. "It's more of a rerating than a cancellation. From the beginning of the conflict that was always in place. There was never a situation where insurers said, ‘we're not covering vessels in the Gulf because of the war.’ All they said is, ‘well, we have to charge you more.’"
On March 23, the Lloyd's Market Association made the same point in a formal market statement: " Three weeks since the start of the hostilities in the Middle East, we are still seeing reports that suggest insurance coverage is cancelled... and that this is the reason that vessels are not transiting the Strait of Hormuz,” the LMA wrote. "This is not accurate." An LMA survey found that 88% of Lloyd's marine war market participants retained appetite to underwrite hull war risks, with over 90% continuing to offer cargo cover.
The misconception had a direct policy consequence. In early March, the Trump administration directed the US International Development Finance Corporation to partner with a coalition of leading American insurers - Chubb as lead underwriter, joined by Travelers, Liberty Mutual, Berkshire, AIG Star and CNA - to provide up to $40 billion in revolving political risk reinsurance for Gulf shipping, spanning hull, cargo and liability.
"We are pleased to see that the DFC was able to provide a US insurance alternative for US interests, but It sounds like nobody has taken up that cover," said Ogullukian, referencing a recent Chubb earnings call where Chubb itself had flagged difficulties with the programme, in part because a condition of the coverage had been the provision of a US naval convoy through the strait, which had not materialised.
“This reinforces what we have been saying all along: This is not just about the availability of insurance. There are vessels in the Persian Gulf that consider themselves to be targets, and the crews on these vessels do not want to put themselves in harm’s way,” said Ogullukian. “The naval convoy is meant to offer protection and assurance that they can safely transit the Strait of Hormuz, and the DFC programme is meant to fill this need. Without this protection, they are not going through the Strait.
Ogullukian’s observation, as an underwriting director of P&I insurance (which includes marine liability elements such as cargo, third-party property or oil pollution, not hull), aligns with what brokers in the London market have been saying privately for weeks. As Insurance Business UK noted in its analysis of how the blockade is reshaping broker practice, Howden Re data showed war risk pricing on Hormuz transits climbing from roughly 0.10%–0.125% of vessel value before the conflict to around 2%–3% by March. The London market, brokers told the publication, never ceased to function - it simply became far more expensive.
The numbers are striking. W K Webster, the marine claims specialist owned by Gallagher Bassett, reported that on the basis of hull war risk rates of around 3% of vessel value, insuring a tanker worth $100 million could cost roughly $3 million in war risk premium alone - per voyage. Lloyd's List intelligence has reported indicative quotes of between $10 million and $14 million to cover a Very Large Crude Carrier with US nexus through the strait.
"In the beginning of the conflict, some rates were going up to 5% of the vessel's value, maybe more" said Ogullukian. "Hearing that (war rates) now might be at 3%... does not seem alarming. It seems pretty much par for the course given the circumstances at the moment." He drew an explicit comparison to the Black Sea during the Russia/Ukraine conflict in 2022: rates spiked sharply at the onset, then stabilised as underwriters gained a clearer picture of actual loss frequency. "You'll typically see a spike, and then it may stabilise somewhat. But obviously this changes on a day to day basis."
He was equally direct on why P&I clubs do not typically write war business as part of their mutual liability offering. The typical war-risk spike is the result of the risks notorious difficulty in studying, given its unpredictability. "This is something that is very difficult to model from an actuarial perspective. While we could look at vessels transiting the world, going from port A to port B, carrying certain cargoes, and have a good feel for what to expect on the claim side," he said. "There's no way you could accurately model the likelihood of the vessel getting hit by a missile or hitting a mine. So that's why it's more of a specialised risk - those underwriters are going to charge a lot for it in a high risk area, and on an individual voyage basis they're either going to make a lot of money or lose a lot of money. This type of volatility and uncertainty is not something that a P&I club is looking to write on a mutual basis"
One dimension of the crisis that has received insufficient attention is the definitional problem at the heart of many claims. As Insurance Business UK reported this week, international disputes lawyer Mahmoud Abuwasel of Wasel & Wasel has warned of a growing divergence between how governments characterise the conflict and how insurers interpret policy language. "Different governments' positions are what insurers and policyholders take into account," said Abuwasel. "We colloquially talk about it as a war, but from the United States' official position, it's not a war. That distinction matters because it directly affects whether war-risk provisions in insurance policies are triggered."
The concern echoes disputes from the Yugoslav conflict of the 1990s, when insurers successfully argued that a limited conflict not formally declared a war did not trigger war exclusion clauses. For commercial policyholders - cargo owners, energy traders, logistics firms - whose losses fall into the gap between standard war exclusions and political violence coverage, the definitional ambiguity may prove costly. Insurance Business UK's analysis of the hidden insurance crisis in the Gulf found that many mid-market policyholders had purchased only terrorism or civil unrest coverage, leaving them potentially uninsured for losses arising directly from the conflict.
Among the more nuanced questions for the market is how the US military presence - framed by Washington as a "defensive layer" rather than vessel-by-vessel escort - should be priced into war risk premiums.
"I would think it would lower your premium," said Ogullukian. "But, more importantly, is should offer your crew some comfort that they are protected and should not be harmed while navigating within a high-risk area. As of 5 May, according to the Joint Maritime Information Centre, traffic through the strait stood at five transits on 4 May against a historical average of 138 vessels per day.
The USS-escorted CS Anthem chemical tanker completed passage through the strait on 5 May, becoming only the second known commercial US-flagged vessel to do so under military protection. Three others remained in the Gulf awaiting departure.
For Ogullukian, the path back to normal is neither obscure nor primarily an insurance question. "They just need to have that comfort that the conflict is over, or that vessels are not targets and are not at risk," he said. "Until the crew on those ships are comfortable that their lives are not at risk, they may be stuck for a little bit." The clearest shape of this assurance, for both crew and their underwriters, would be a US-Iran peace-negotiation line-item prohibiting naval hostilities within the Strait, said Ogullukian.
Calvin Gray, global head of marine at Intact Insurance, made a similar point in an assessment published by Insurance Business UK last month: "The Strait may be officially open, but we are far from seeing normality restored," he said. "Cover will return where voyages are considered safe, but that threshold has not yet fully been met."
The market is functioning as designed; experts agreed. Policies are still in place, capacity is present, and the London market has not retreated. What it has done is price the risk honestly - and what that price is telling shipowners, captains and cargo interests is that the Strait of Hormuz remains, at present, a corridor defined not by an insurance failure, but by a war.
The American P&I Club is a member of the International Group of P&I Clubs. Steve Ogullukian is deputy global underwriting director and reinsurance director at the American Club.
