Insurance Risk Premium Increases After Houthi Strikes On Ships

By Charles Kennedy - Dec 04, 2023

In the aftermath of new attacks by Houthi missiles on commercial vessels in the Red Sea, war risk insurance premiums have risen for this trade route. 

"It has now become clear the Houthis will attack anything at sea with links to Israel or Israelis, regardless of how feeble the links may be, and regardless of the potential for collateral damage to non-Israelis, for example crew members," Jakob Larsen, head of maritime safety & security with BIMCO, told Reuters. On Sunday, Yemen’s Houthis attacked three ships off the Red Sea coast of Yemen with ballistic missiles, while a U.S. warship shot down three Houthi drones

“These attacks represent a direct threat to international commerce and maritime security,” the U.S. military’s Central Command said in a statement. “They have jeopardized the lives of international crews representing multiple countries around the world.”

Last month, the Houthis seized a cargo ship linked to an Israeli businessman, sparking speculation that more such attacks will follow against Israeli-owned vessels. A second hijacking took place shortly after, but was determined to have been Somali pirates taking advantage of the chaos in the Red Sea in the wake of the Hamas attack on Israel on October 7, and Israel’s aggressive response in Gaza. Sunday’s attacks were claimed by the Houthis who claimed the vessels were linked to Israel, though U.S. Central Command said the three vessels were connected to 14 nations and not to Israel.

Following the Sunday attacks, an Israel military spokesman cited by Reuters said, “there is little a merchant ship can do to protect itself against weapons of war. Rerouting away from the area is a valid consideration, especially for ships at heightened risk.” 

Insurance risk premiums have risen as of Monday from around 0.03% prior to Red Sea attacks last week to between 0.05%-0.10% of the value of a ship, according to Reuters. The heightened risk means that commercial vessels will be forced to pay higher insurance or to use longer routes, which can increase transportation costs by tens of thousands of dollars. 

By Charles Kennedy for Oilprice.com