Doubts emerge about Trump’s marine war insurance plan

Types : In the News

The feasibility and efficacy of President Donald Trump’s plan to backstop marine insurers covering shipping in the Persian Gulf is being questioned as the war between the US and Israel and Iran continues.

Trump announced on his Truth Social platform March 3 that he had ordered the US International Development Finance Corporation (DFC), the international investment arm of the US government, to extend political risk insurance and guarantees “at a very reasonable price” to secure maritime trade on its transit through the Gulf. The president also said the US Navy would begin escorting tankers through the Strait of Hormuz, a key shipping lane for seabound energy that has been obstructed since the war began. The DFC has also issued a statement on the plan.

The move follows news that insurers have been restricting cover and raising prices for some marine war insurance for journeys through the Gulf, and the Strait of Hormuz in particular, since the war started on Feb. 28. Iran has responded to US and Israeli airstrikes with widespread missile and drone attacks across the Gulf region.

“While it’s welcome news in theory, and no doubt based in good intentions, there’s nothing beyond the post that we’ve seen and no details as to how this will work in practice,” David Smith, head of marine at insurance broker McGill and Partners, said in an emailed comment.

Putting together a plan to protect and insure vessels in the Gulf would be “very difficult,” he added. “Until there is any further clarity as to how this will be applied, no one is adapting their plans at this stage.”

The DFC said in an email it had no additional details about the initiative.

Unanswered questions

If the DFC plan offers marine war cover at pre-conflict rates “they would be effectively setting a market cap that private insurers will be forced to acknowledge,” which should result in cheaper war insurance prices, Jon Werner, partner at Montgomery McCracken Walker & Rhoads, said in emailed comments.

The DFC has offered war risk reinsurance before but cargo or direct hull insurance would be a “radical departure,” according to Werner. The main concern for insurers and shipowners is how any claims would be handled, Werner said, as private insurers have more claims-paying experience than the DFC.

The market has also yet to see whether the DFC’s political risk cover will align with standard war risk wording.

“If there is a gap between what the DFC covers and what a shipowner’s excess policy requires, it could create significant legal exposure,” Werner said.

Coverage by the DFC could come with conditions like mandatory coordination with the US Navy and adherence to specific transit corridors, Werner said. As a result, while coverage might be cheaper, “the long-term cost may be measured in the loss of operational autonomy for shipping lines that choose to opt-in.”