In a futuristic building in central London, leather-bound volumes contain records written in pen and ink of ships lost at sea over the past 250 years. One of the hundreds of entries in the so-called "Loss Books" records the sinking of the Titanic in April 1912. More than a century later, new entries are still written by hand with a goose quill by staff known as "waiters." The most famous shipwreck in history was insured by Lloyd’s of London for 1 million British pounds (roughly 101.6 million pounds in today's money). The unofficial headquarters of the global insurance industry has been at the heart of marine insurance for more than three centuries. So, when Tehran blockaded the Strait of Hormuz in response to attacks by the United States and Israel on February 28, the Lloyd's market swung into action immediately. Overnight, transit risks through the strait skyrocketed and insurance premiums had to be adjusted accordingly. War insurance contracts were quickly canceled and reissued at much higher prices.
Underwriters reassess the risk daily
Ship insurers are re-examining pricing and "individual risk factors" following new attacks in the Middle East this week, said David Smith, head of marine at British insurance brokerage McGill and Partners. "After a period of relative stability and recovery in transit volumes, recent events in the Strait of Hormuz have once again altered the risk landscape," he told CNN. Immediately after the US-Israeli attacks, premiums for vessels transiting the strait surged up to 10% of a ship's value, from around 0.25%-0.5% before the war, according to Marcus Baker, global head of marine and cargo at Marsh. For a tanker valued at 100 million dollars, "that means a 10 million dollar voyage," he noted. War risk premiums for ship hulls, which cover damage or loss due to conflict, have since receded to 1%-3% of the vessel's value. At the same time, some underwriters are offering "no-claims bonuses", returning half the premium to shipowners provided their vessels cross the strait without incident, Baker told CNN.
Six minutes to insure a ship
The crisis in the Strait of Hormuz is a high-stakes affair for insurance companies. War risk premiums "will track exactly what is happening geopolitically… almost on an hourly basis," explained Smith of McGill and Partners. According to him, underwriters covering ships that want to pass through the strait now prefer to price contracts just six hours prior to the voyage, instead of the usual 24-48 hour window. Once issued, the policies remain valid for just three to seven days before needing to be renegotiated. Smith described to CNN the case of a shipowner who called him one morning requesting coverage for a potential transit through the strait that same day, under the guidance of the US Navy. Smith quoted him a price and waited. The shipowner called back in the afternoon to confirm the voyage and "bind the cover," meaning to activate the insurance policy. The problem? The ship was scheduled to enter the strait just six minutes after the phone call. "It took myself and three brokers… shouting at underwriters on the phone," Smith recalled. Within 10 minutes, the insurance certificate had been placed on the ship's command bridge. The crew insisted on seeing the actual policy to ensure that their families would receive compensation in case anything happened to them during the dangerous passage through the strait. That particular vessel managed to cross safely. However, dozens of others were not as fortunate, with at least 14 seafarers having been killed since the start of the conflict, according to the International Maritime Organization. So far, no ship recorded in this year's Loss Book has been destroyed during the conflict in the Persian Gulf. However, more than 50 vessels have been attacked in the region since the onset of the crisis, many of which were insured through the London market, according to Neil Roberts, head of marine and aviation at the Lloyd’s Market Association.
A voyage fraught with danger
Although insurance remained available throughout the conflict, most shipowners chose not to pass through the strait due to the threat of attacks. Lloyd’s does not anticipate catastrophic losses for insurance companies, based on their exposure in the area. However, significant risks remain: from marine mines and ongoing US-Iranian attacks to the difficulty of navigating new and, in some cases, narrower entry and exit routes through the strait. The insurance company Allianz reported last month that approximately 1,150 cargo ships, with a total estimated vessel and cargo value of 125 billion dollars, remain stranded in the Persian Gulf. If the conflict drags on for several more months and the ships remain immobilized, a large number of them could be deemed a "total loss", as they will essentially be trapped and practically unusable, according to Roberts of the Lloyd’s Market Association. In other cases, shipowners may secure compensation for the additional operating and manning costs of vessels that remain gridlocked in the strait. Premiums, however, are unlikely to return to pre-war levels in the short or medium term, said Ben Stone, head of marine hull at insurance brokerage Aon. "The market needs to see that any agreement reached (between the United States and Iran) is honored and that the number of attacks ultimately decreases or disappears," he noted.
The issue of transit tolls in the Strait of Hormuz
Another potential headache for shipowners and insurers is transit tolls in the Strait of Hormuz. Western insurance companies will refuse to cover vessels that pay fees to sanctioned entities, which include several major Iranian organizations. Even if a third country, such as Oman, became involved in collecting the fees, the charges would likely still violate international maritime law, allowing insurers to reject voyages or terminate insurance coverage.
Where shipwrecks have been recorded for centuries
Nearly synonymous with global shipping, Lloyd’s has recorded maritime losses from around the world since 1774 in hundreds of Loss Books. Vessel losses are logged by the "waiters," the market's front-of-house staff, who take specialized calligraphy courses to properly update the archives. The entries are still made using a pen crafted from a swan feather and ink. The designation "waiters" is a reference to the insurance market's origins at Edward Lloyd's coffee house in 1688, where real waiters served coffee and the latest shipping news. Maritime history is visible everywhere in the Lloyd’s building. In the center of the underwriting room, where brokers seek coverage from specialized underwriters, the Lutine Bell stands as a constant reminder of the perils at sea. The bell was salvaged in 1858 from the wreck of the HMS Lutine, which had sunk off the Dutch coast about 60 years earlier. Traditionally, it struck for news regarding overdue ships — once for the loss of the vessel and twice for its safe return. Today, it is used only on ceremonial occasions, such as Remembrance Day to honor fallen soldiers. It also struck once following the death of Queen Elizabeth II and twice when King Charles III ascended the throne.
A building from the future with roots in the past
While the interior of Lloyd’s is historic, the exterior appearance of the building resembles a science fiction movie set. Designed by British architect Richard Rogers and constructed in 1986, it was famously described as "the oil rig of Lime Street" by the then Prince Charles. The imposing steel and glass facade, with elevators, restrooms, stairs, and ducts placed on the outside, led to the nickname "the inside-out building." Its aesthetic value continues to divide opinion, yet the high-tech Lloyd’s building is one of the few structures built in the second half of the 20th century to be designated as a listed building in the United Kingdom, due to its exceptional architectural and historical significance. A designation that seems perfectly fitting for a modern market that remains deeply rooted in tradition.
www.bankingnews.gr
Readers’ Comments