Quills and conflict: How protection in the Strait of Hormuz is bought and sold

By Hanna Ziady, CNN

Inside a futuristic building in central London, leather-bound tomes contain quill-and-ink records of vessels lost at sea over the past 250 years. An entry in one of hundreds of such “Loss Books” details the demise of the Titanic in April 1912. More than 100 years later, entries are still handwritten using a quill pen by staff known as “waiters.”

History’s most famous ship was insured by Lloyd’s of London for £1 million (about £101.6 million today). The unofficial headquarters of the global insurance industry, Lloyd’s has been at the heart of marine insurance for more than three centuries.

So when Tehran blockaded the Strait of Hormuz in response to strikes by the United States and Israel on February 28, the Lloyd’s market sprang into action. Overnight, the risks of transiting the strait skyrocketed, and insurance premiums needed to reflect that. War insurance policies were swiftly cancelled to be reinstated at much higher prices.

Insurance underwriters are once again scrutinizing prices and “individual risk factors” following renewed strikes across the Middle East this week, said David Smith, head of marine at London broker McGill and Partners.

“Following a period of relative stability and recovering transit volumes, recent events in the Strait of Hormuz have once again shifted the risk landscape,” he told CNN.

In the immediate aftermath of the US-Israeli strikes, rates for ships passing through the strait soared to as high as 10% of a vessel’s value from roughly 0.25%-0.5% before the war, according to Marcus Baker, the global head of marine and cargo for insurance broker Marsh.

On an oil tanker worth $100 million, “that’s a $10 million voyage,” he noted. Hull war rates, which cover a ship’s physical structure against damage or loss caused by conflict, have since pulled back to 1-3% of a ship’s value.

At the same time, some underwriters are offering “no-claims bonuses,” returning half the premium to ship owners if their vessels sail through the strait without incident, Baker told CNN.

Six minutes to insure a ship

The Hormuz crisis is a high-stakes affair for insurers. War insurance premiums will “track exactly what is happening geopolitically… almost on an hourly basis,” said Smith of McGill and Partners.

Underwriters insuring ships wishing to transit Hormuz want to price the policy just six hours ahead of the voyage, down from the usual 24-48 hours, according to Smith. Once issued, policies are valid for just three to seven days before needing to be renegotiated.

Smith told CNN that a ship owner rang him one morning seeking coverage for a possible strait transit later that same day, under the guidance of the US Navy. Smith quoted him a price and waited.

The ship owner called back that afternoon to confirm the voyage and “bind cover,” or activate his insurance policy. The catch? The ship was due to enter the strait within six minutes of the call.

“It took myself and three brokers… screaming at underwriters on the phone,” Smith recalled. Within 10 minutes the certificate of insurance was placed in the command deck of the vessel. The crew insisted on seeing the policy for themselves to ensure their family members would receive compensation should anything befall them on the perilous journey through the strait.

While that vessel sailed through safely, dozens of others have been less fortunate, with at least 14 seafarers killed since the conflict began, according to the International Maritime Organization.

So far, no vessels recorded in this year’s Loss Book have been destroyed during the conflict in the Persian Gulf. However, more than 50 ships have been attacked in the waterway since the conflict began, many of them insured in the London market, according to Neil Roberts, head of marine and aviation at the Lloyd’s Market Association, an industry trade group.

A risky voyage

While insurance has been readily available throughout the conflict, most ship owners have opted not to transit the strait, given the threat of attacks.

Lloyd’s does not expect enormous losses for insurers based on the industry’s exposures in the region. But major risks remain, not least mines in the waterway; ongoing US-Iranian strikes; and difficulty navigating new, and in some cases narrow, routes in and out of the strait.

Insurer Allianz said last month that around 1,150 cargo-carrying vessels with an estimated vessel and cargo value of $125 billion remain stranded in the Persian Gulf.

If the conflict drags on for several more months and vessels remain stuck, a large number could become “total losses,” written off because they are effectively trapped and so cannot practically be used, according to Roberts of the Lloyd’s Market Association.

In other cases, ship owners might secure insurance payouts for the additional costs of running and manning vessels stuck in the strait.

Insurance premium rates, meanwhile, are unlikely to return to their pre-war levels in the short-to-medium term, said Ben Stone, head of marine hull at insurance broker Aon. “The market needs to see that anything agreed (between the United States and Iran) is stood by and the number of attacks ultimately subsides or disappears,” he noted.

There is yet another potential wrinkle facing ship owners and insurers: Hormuz tolls. Western insurance companies will refuse to cover ships that pay fees to sanctioned entities, which includes several key Iranian institutions. And even if a third party such as Oman were involved in collecting the fees, tolls would likely still be a breach of international maritime laws, allowing insurers to reject voyages or terminate cover.

Where shipwrecks have been recorded for centuries

Virtually synonymous with maritime shipping, Lloyd’s has recorded marine losses from all over the world since 1774 in what now amounts to hundreds of Loss Books.

Ship losses are entered by liveried “waiters,” front-of-house staff who go on calligraphy courses to properly update the records, which are still written using a swan’s quill pen and ink. Waiters are so called in a throwback to the insurance market’s origins in Edward Lloyd’s Coffee Shop in 1688, where actual waiters would serve up coffee and the latest maritime shipping news.

Shipping history is on display all over Lloyd’s. In the center of the underwriting room, where brokers shop around for insurance from specialist underwriters, the Lutine Bell serves as a constant reminder of the dangers at sea. The bell was salvaged in 1858 from the shipwreck of the HMS Lutine, which had run aground off the Dutch coast some 60 years earlier.

Traditionally rung for news of an overdue ship – once for the ship’s loss and twice for its safe return – it is now used only for ceremonial purposes, such as on Remembrance Day to honor fallen soldiers. It was also rung once when Queen Elizabeth II died and twice when King Charles III ascended to the throne.

While the inside of Lloyd’s is historic, from the outside the structure looks like something from a science-fiction film. Designed by British architect Richard Rogers and built in 1986, it was famously called “the oil rig of Lime Street” by then-Prince Charles. Its imposing steel and glass façade, with lifts, bathroom facilities, staircases and ducts housed externally, led to it being dubbed the “inside-out building.”

Opinion is divided over its aesthetic appeal, but the high-tech Lloyd’s building is one of only a handful built in the second half of the 20th century that enjoys “listed” status in the United Kingdom, meaning it is of special architectural and historic interest.

The label seems apt for a modern marketplace firmly grounded in tradition.

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