How Shipping Insurance Really Works During a War

In this episode of Odd Lots, hosts Tracy Alloway and Joe Weisenthal dive deep into the complex world of maritime insurance, focusing on how war risks impact shipping operations in volatile regions like the Strait of Hormuz. With the ongoing conflict in the Middle East disrupting global trade, the conversation centers on the role of P&I (Protection and Indemnity) clubs—nonprofit, mutual insurance organizations that protect shipowners from liabilities such as crew injuries, pollution, and collision damage. Dorothea Ioannou, CEO of the American P&I Club, and Steve Okolukian, Reinsurance Director, explain how these clubs function as collective risk pools, enabling global shipping by providing at-cost liability coverage. They clarify that while standard P&I policies exclude war risks, clubs offer excess war coverage through collective reinsurance, allowing members to pay a small annual fee for protection beyond the value of their vessel. The episode debunks myths about insurance being unavailable during war, explaining that policies are canceled not for lack of coverage, but due to rate resets based on new geopolitical risks. Ultimately, the real barrier to shipping through conflict zones is not insurance, but crew safety and operational risk. The discussion also touches on the historical evolution of maritime insurance, the global reach of P&I clubs, and the surprising lack of financial shift toward Asia despite the region’s dominance in shipping and shipbuilding. Key takeaways include: (1) P&I clubs are mutual, nonprofit organizations that pool risk among shipowners to cover liabilities, not own-ship damage; (2) War risk insurance is excluded from standard P&I policies but available as excess coverage through collective reinsurance; (3) Insurance premiums surge rapidly when war breaks out, but coverage remains available—just at higher rates; (4) The decision to transit dangerous waters is ultimately made by the ship’s master, prioritizing crew safety over insurance availability; (5) P&I clubs actively promote safety through training, posters, and loss prevention programs; (6) Despite Asia’s dominance in shipping volume and shipbuilding, the financial center of maritime insurance remains in London, the U.S., and Scandinavia. The episode underscores how insurers act as enablers of global trade, but their power is bounded by human judgment, geopolitical reality, and the limits of risk pricing.