The Big Question: Red Sea Crisis: Are insurers rising to the challenges facing global shipping?

December has seen further challenges in the Red Sea as vessels continue to be intercepted and attacked off the coast of Yemen.

The United Kingdom Maritime Trade Operations (UKMTO) Centre which monitors the area confirmed the incident in which a vessel reported sighting approximately 15 small craft, which closed in on the vessel and there was an exchange of fire. Those on the crafts failed to board the vessel and no crew members were hurt.

As such given the ongoing suspicious activity the centre advises vessels to “transit with caution and report any suspicious activity to UKMTO”.

The attack followed a similar incident when a bulk carrier encountered a coordinated assault in the Bab-el-Mandeb strait off Yemen’s coast on 5 December.

The Red Sea and the Suez Canal remains a vital route for global shipping and while there are signs of a small recovery in the number of vessels which are using the route it is still significantly below the levels before the attacks began.

However, insurance remains vital to delivering the confidence for shipowners and charterers to transit the area.

The recent attacks come amid tentative signs of recovery for the Red Sea shipping corridor. It comes after a suspension of operations in the Red Sea throughout November 2025. However the assaults have resumed and the risks remain.

Lee Williams, Head of AdvantageGo

Darren Stewart, IQUW’s head of Marine, Energy & Aviation Claims says the Red Sea has become one of the most dangerous maritime trade routes in the world in the last two years – as a result, the insurance industry is facing heightened risks.

“Marine Insurance premiums worldwide are worth $38.9 billion according to the International Union of Marine Insurance (IUMI), and the challenges of maritime security and its implications for this important sector were one of the hot topics discussed at the IUMI conference in Singapore last year,” he explains. “The Red Sea is a critical waterway for oil and commodities but a vast amount of Marine traffic – chiefly carrying oil and gas – has been diverted since hostile activity off Yemen’s coast began in November 2023.

“Despite the real and significant risks of transiting the Red Sea, some operators are still sending their vessels through the region, resulting in growing pressure on the marine insurance industry to manage heightened exposure to conflict‑driven losses.”

Around 70 merchant vessels have been targeted with missiles, drone and small boat attacks in the Red Sea and the Gulf of Aden over this period – which, to date, have sunk at least four ships, seized a fifth and killed more than 10 crew members.

“Today, the primary risk stems from geopolitical tensions in the region, particularly the proxy wars waged by Iran,” Stewart adds. “The cost of insuring vessels and goods in the Red Sea has risen significantly in 2025, with war‑risk premiums more than doubling – sometimes reaching 1% or more of a ship’s value, up from 0.3–0.4%, due to ongoing threats. This has led to major additional costs and prompted some insurers to halt coverage, forcing vessel rerouting or driving up overall freight costs.”

Attacks on Red Sea shipping escalated in mid-2025, with two Liberian-flagged, Greek-operated cargo ships, the Magic Seas and Eternity C, targeted in early July, resulting in ship sinkings, casualties and the kidnapping of crew members.

He continues: “The attacks heightened fears in the maritime industry and put global shipping routes, supply chains and insurance markets under growing pressure. The Red Sea and the adjacent Suez Canal account for up to 12% of world trade and are vital conduits for shipments between Europe and Asia. Many shipping companies are diverting cargo around the Cape of Good Hope, which further increases costs and delays, adding roughly 3,500 nautical miles (4,000 miles/6,500km) and 10-12 days of sailing time to each trip.

“According to Lloyd’s List, larger operators that diverted their fleets at the start of the crisis have been making a gradual return, with Bab el-Mandeb – the narrow strait between the Red Sea and Gulf of Aden – transits hitting their highest level in almost two years. This may represent the ‘green shoots’ of returning to a less volatile situation in the Red Sea, however, tensions in the region still run high and the possibility of a return to frequent hostile acts cannot be ruled out.”

“Marine insurers have designated the Red Sea and Gulf of Aden as high risk since they became flashpoints in 2023, with underwriters recalibrating the risk based on the rise in premiums following the attacks on vessels,” Stewart explains. “Insurance brokers are helping their clients find the best policies during the shipping crisis, while risk managers are advising clients on how best to proactively manage risk with measures such as monitoring geopolitical developments in real time. Insurers in the region are also offering coverage extensions, or separate marine and war risks for more tailored pricing and flexibility. Claims teams are leveraging their expert networks and new technologies in the space to best service their clients through difficulties following an attack.”

“The Red Sea crisis demonstrates insurance’s vital role in supporting businesses and keeping international trade moving against a backdrop of geopolitical tensions and heightened risk.”