Conflict is reshaping global shipping routes and increasing marine insurance risks

Major ongoing conflicts are fundamentally reshaping global shipping routes and driving significant changes in the marine insurance market. Brokers serving clients who depend on international shipping face constant challenges as they navigate the insurance implications of military actions, particularly those in the Red and Black seas. The volatility of these conflicts – marked by sudden escalations and shifting frontlines – has caused war insurance premiums to surge and forced a dramatic reconfiguration of global maritime trade.

Recent months have seen a pronounced spike in the number of ships rerouting around Africa via the Cape of Good Hope, bypassing the Red Sea and Suez Canal. Insurers consistently identify the Red Sea as the principal conflict zone currently influencing the volatility of war insurance premiums.

Shipping journeys can be nearly twice as long

This rerouting is a direct response to the heightened risk of attacks by Yemen’s Houthi rebels on merchant vessels. Major shipping lines – including Maersk and Hapag-Lloyd – have suspended Red Sea transits, opting for the longer and more expensive Cape route. The logistical impact is substantial: the journey from Jebel Ali Port in the UAE to Hamburg, Germany, is about 6,500 nautical miles (12,000 kilometres) and takes 19 days via the Suez Canal. This extends to 11,800 nautical miles (21,850 kilometres) and 35 days via the Cape of Good Hope.

These changes in routing directly affect risk profiles and, consequently, insurance costs. “We always look at how much activity is going through in different areas and we have to assess what that means from the risk standpoint,” said McMellin.

Risk assessment now must account for sharply increased fuel consumption, higher crew and vessel hire costs and the broader supply chain impacts of delayed cargo arrivals. For brokers, these factors mean goods may take longer to reach their destination, potentially disrupting subsequent transport arrangements and customer expectations.

Using breach zones and exclusions

A key tool in this risk management process is breach zones – geographic areas designated as high-risk due to war, conflict, piracy, or political instability. When a vessel enters or transits a breach zone, it is exposed to risks not covered under standard marine insurance. The Joint War Committee (JWC), operating under Lloyd’s Market Association, is responsible for designating these zones and updating guidelines for war risk coverage, sometimes on a weekly basis.

“The big thing is that it adds time and cost and not everyone is able to do that or wants to do that,” said McMellin. “Some have chosen to do that [ship via the Cape of Good Hope], others would rather pay the insurance for the war premium and go through the Red Sea.”

The scale of this shift is striking: some sources estimate that 80% of container ships that would normally use the Suez Canal are now diverting to the Cape of Good Hope.

War insurance premiums have soared

As Russia’s Black Sea incursions and Houthi attacks in the Red Sea persist, industry reports indicate that marine insurance premiums for certain routes have doubled or tripled compared to pre-conflict levels. War insurance premiums have soared, with current rates for ships in conflict zones reaching up to 1% of a vessel’s value for a single week – amounting to hundreds of thousands of dollars per voyage. Before these escalations, the war risk premium in the Red Sea was a much lower 0.07% of the ship’s value for a seven-day cover.

“We’ve seen activity [in the Red Sea] increase of late and war premiums, not surprising, because the risk has gone up, have risen as well,” said McMellin.

The world’s largest providers of war cover include Lloyd’s of London (through its syndicates), the International Group of P&I Clubs in London, and Norway’s DNK and Gard. Markel International is a key player, offering cover both through Lloyd’s and its own insurance company.

“We’re still very much heavily involved in insuring vessels going around the Black Sea and taking grain out of Ukraine,” said McMellin.

War insurance is calculated based on the “value of the ship,” which typically includes hull and machinery, permanent fixtures like anchors and communications systems and equipment such as lifeboats. It generally does not cover the value of cargo, crew personal effects, or consumables like fuel and provisions.

This calculation can be complex in areas where shipping routes run close to or through active conflict zones, such as the grain corridors in the Black Sea.

Insurer response to increasing war risks: new offerings

Insurers are also innovating in response to these new risks, developing combined covers that address the increasingly interconnected threats facing brokers and their clients.

“We’ve also launched – with Willis again – a cargo facility called undercover, which wraps up cargo together with war, terrorism and political risk in a package policy to be able to offer to clients in a bespoke way,” said McMellin.

Other insurers have recently introduced combined hull and cargo war risk covers. However, there is also a trend toward narrowing or excluding cover for vessels deemed more likely targets, such as those flagged to the US, UK, or Israel, especially when transiting the Red Sea.

“It really does change week on week and what we’re there to do is provide clients with a product that enables them to undertake trade, which is clearly important for world economies.”

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