Chubb set as main U.S. insurer for Persian Gulf shipping amid Iran war

Insurance giant Chubb will lead the underwriting for a U.S. government-led initiative providing insurance to ships navigating through the Strait of Hormuz.

Chubb will collaborate with the U.S. International Development Finance Corporation (DFC) as part of a $20 billion strategy to support the movement of oil tankers and other commercial vessels amidst the risks posed by the Iran war, as announced by the agency.

Oil prices have surged since the onset of the war at the end of February. Brent crude surpassed $91 a barrel on Wednesday morning. Despite the International Energy Agency’s announcement of coordinating the release of 400 million barrels from its member countries’ strategic petroleum reserves, oil prices have remained high.

Under normal circumstances, the strait witnesses the passage of 15 million barrels per day of oil and an additional 5 million in other oil products, according to IEA chief Fatih Birol. However, this flow has been disrupted despite efforts by companies and governments to alleviate the situation.

Ship crews are hesitant to utilize the route due to fears of potential attacks. The UK Maritime Trade Operations center reported that three ships off Iran’s coast were hit by projectiles on Wednesday.

The strait serves as the maritime link between the Persian Gulf and the Arabian Sea, with the narrow route along Iran’s southern coast being the only maritime pathway out of the oil-rich region.

“The trade flow through the Strait of Hormuz is crucial for the global economy, and ensuring vessels have insurance protection is imperative for resuming trade activities,” stated Chubb Chairman and CEO Evan Greenberg.

The company will serve as the central point for managing all information regarding the ships and cargo, collaborating with the DFC to facilitate the insurance process, as per an anonymous DFC official.

“Ultimately, DFC lacks actuaries and the necessary staff to act as the market’s focal point,” the official explained.

The DFC program offers reinsurance to cover approximately $20 billion in damages on an ongoing basis, with Chubb providing the final insurance to shippers. The DFC may engage with additional companies besides Chubb, as indicated by the agency.

There have been concerns regarding the extent of DFC coverage, which specifically targets potential war-related expenses for eligible vessels, covering hulls, machinery, and cargo. Analysts suggest that ships also require coverage for environmental cleanup costs post an oil spill.

The DFC coverage will include protection against environmental damage, mentioned the official. “We are incorporating this coverage within the hull and machinery product.”

The primary obstacle to vessel movement remains the imminent danger of operating near a war zone. While insurance can provide some level of assistance, ships will remain stationary if crew members fear for their safety.

President Donald Trump, confident of a brief Iran war, cautioned Iran of severe consequences if it disrupts shipments through the Strait of Hormuz. He even hinted at the possibility of taking control of the strait during an interview with CBS News.

An ideal scenario for stabilizing oil prices would involve resolving the conflict, but in its absence, the U.S. could consider offering military escorts to ships navigating through the strait.

“The physical security that only the U.S. military can provide, coupled with the financial risk mitigation through insurance, need to go hand-in-hand,” emphasized Rachel Ziemba, a senior advisor at Horizon Engage, a political risk advisory firm.

Update: This article has been revised to clarify that Chubb will collaborate with the U.S. International Development Finance Corporation to provide insurance coverage to ships transiting through the Strait of Hormuz amidst the Iran war risks. The previous version did not mention the full name of the U.S. agency.