As Arctic ice retreats and the Northwest Passage emerges as a viable shipping lane, the insurance industry is facing a risk it can see coming but is not yet equipped to handle - and it sits directly in Canadian territory, according to a source who leads a major marine underwriting practice at a global insurer, speaking to Insurance Business Canada on condition of anonymity.
The Northwest Passage connects the northern Pacific and northern Atlantic, offering an alternative to the Panama Canal. But the route runs through some of the most punishing operating conditions on earth, with almost no local infrastructure to support vessels that get into difficulty - and foreign ships are already transiting it with increasing frequency.
"It's a huge risk to Canadians, believe it or not," the source said.
The danger is not just operational. A vessel that loses power and runs aground in Arctic conditions may never be retrieved, unlike a similar incident in more temperate, accessible waters where salvage operations are routine.
"That vessel is pretty much there forever. It's not being removed," the source said. They have seen it firsthand. "I've had large barges lost in the Arctic and some of them are still there because we just can't get to them; they're frozen."
For brokers placing marine and cargo risks on routes that are shifting as global trade patterns change, that permanence has direct implications. A total loss in the Arctic isn't just a claims event - it's an environmental liability with no clear timeline for resolution and no established playbook for response.
The Northwest Passage is ecologically sensitive, and a spill there would be extraordinarily hard to contain - both because of the remoteness of the region and the limited window each year when conditions even allow for a cleanup response.
"What happens if we have an oil spill? What happens if we have a bulk or a bunker loss? Who's going to clean that up? How do you clean that up?" the source said.
Getting resources to the site is the core difficulty. Canada is building out its icebreaker fleet, the source noted, but the capacity that can reach the region in any given window remains limited - meaning even a well-resourced response could still arrive too late to prevent lasting damage. For underwriters, that combination of remoteness, environmental sensitivity and near-impossibility of remediation creates an exposure that conventional marine pricing models are not built to absorb. For brokers, it raises questions about what coverage their clients actually have if a loss occurs on an Arctic transit - and whether the policy language has kept pace with the route.
The Northwest Passage doesn't sit in isolation. The source said the recent conflict in the Strait of Hormuz exposed how fragile the world's shipping chokepoints are collectively, and it is pushing trade onto alternative routes - including the Arctic - that carry risks of their own.
"Insurers, logistics providers are now looking at alternative trade routes and saying, do we have the same exposures, and how do we protect them?" the source said.
They pointed to the Panama and Suez canals, the Strait of Malacca between Malaysia and Indonesia, and the Bab-el-Mandeb Strait off Yemen and the Horn of Africa as sharing the same fundamental vulnerability. The Malacca Strait alone carries around 23 million barrels of oil a day - a volume that underscores just how much global trade depends on a small handful of narrow, easily disrupted passages.
The disruption is also raising the prospect of new political pressures on those routes. Straits that run through sovereign waters could begin charging for passage, the source said, or be closed off entirely - adding a layer of political risk on top of the physical and environmental hazards insurers already have to account for.
"I think that our global trade lanes, all of them, not just the Strait of Hormuz, are incredibly at risk," they said. "And I don't think it's going to stop with the Strait of Hormuz."
What concerns the source as much as any individual flashpoint is the speed at which the market is being forced to react. They have now lived through two mass cancellations of war-risk cover triggered overnight - first when the Russia-Ukraine conflict began and again with Hormuz. Each time, the industry withdrew cover for the affected region almost immediately, before working out whether it could offer pricing at all.
"Who would have thought, when we did our first mass cancellation of war and strikes, that we would be doing it again today?" the source said. "Nobody really thought about that."
For brokers with clients carrying cargo through any of these lanes, that pattern matters. A policy that looks adequate today can become effectively void overnight - not through any fault of the broker or client, but because the geopolitical ground shifted while the cover was in force. Knowing which routes carry war-risk exposure, and how quickly that cover can be withdrawn, is increasingly part of the placement conversation brokers need to be having before a loss occurs rather than after.
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Underlying all of it is a pattern the source expects to keep repeating: sudden geopolitical shocks that force the market to react within hours, whether that shock originates in a Middle Eastern strait or opens a new front in an increasingly navigable Arctic passage that few in the industry are genuinely prepared for.
"It's going to happen again. It will," the source said. The timing is impossible to predict - which is exactly the point.
The specific flashpoint will change. The pattern will not. And insurers and brokers who assume today's relative calm will hold are, in the source's view, simply waiting for the next surprise rather than preparing for one they can already see coming.
