Some companies are raising rates 50 percent as the risk of attacks rises in the Persian Gulf.

Insurance companies that provide specialized maritime war coverage are canceling policies and preparing to increase rates as the risk of ships being destroyed or hijacked rises with the war in Iran expanding to the broader Middle East.

The reaction by insurers highlights the unique way that companies that handle risk stemming from military conflicts adapt to the highly volatile market of war coverage.

Insurance for war-related damage resembles flood insurance in the U.S. — both are excluded from standard property coverage because of the unpredictable nature of the risk, and are purchased as separate policies or riders.

War policies include built-in protections for insurers from massive losses due to military strikes, terrorism or piracy. Policies generally include a seven-day cancellation notice that lets either party end coverage if the risk changes, the analytical firm Morningstar DBRS said in a report Monday.

Insurance policies remain in effect during the cancellation period while parties negotiate new rates that reflect the changing risk of war. The cancellations protect insurers from future losses and let them seek immediate steps to recover losses they’ve already incurred.

Insurers that cover war-related risks in the Persian Gulf area — mostly European firms — provided cancellation notices Sunday that will take effect Thursday.

“Marine insurers have been quick to adjust pricing,” said Mahesh Mistry, senior director and head of analytics at AM Best.

One U.S. insurer wrote in a Sunday notice that war coverage in the Persian Gulf “will automatically be terminated” starting Thursday.

The insurer, the American Steamship Owners Mutual Protection and Indemnity Association, said it is “exploring possible solutions to provide a reinstatement of cover on an individual risk basis.”

There is no indication that the actions related to war insurance will affect the U.S. property insurance industry, which faces its own struggles as intensifying extreme weather causes more property damage.

The renegotiated rates are expected to be 25 to 50 percent higher than before the war’s outbreak, marine insurance specialist Dylan Mortimer at insurance brokerage Marsh told Insurance Journal on Monday. The policies typically cost several hundred thousand dollars and vary with the value of the insured vessel.

The difficulty of insuring against acts of war or terrorism came into sharp focus after the Sept. 11, 2001, attacks caused an estimated $60 billion in property damage. Insurers quickly stopped offering terrorism coverage, raising concern about a potentially wide economic impact if lenders responded by holding back loans, according to the Congressional Research Service.

Two months after the attacks, President George W. Bush signed a law creating the federal Terrorism Risk Insurance Program, which pays a portion of terrorism-related losses. A June 2024 Treasury Department report said the program “has been effective” and that “terrorism risk insurance remains generally available and affordable.”

In the Persian Gulf, which sits between Iran and Saudi Arabia, the main risks during the intensifying war are “the threat of vessel boarding and seizure by Iranian forces and the potential closure of the Strait of Hormuz,” Mortimer said.

A direct attack on merchant shipping “could have major repercussions across war insurance rates,” Mortimer added.

The strait, a narrow passageway leading from the Persian Gulf to the Arabian Sea, is a major shipping route for oil tankers. Three commercial vessels near the strait were attacked Sunday, prompting authorities and shipping companies to halt traffic through the chokepoint.

Stephen Rudman, head of marine in Asia for AON, an insurance adviser, said premiums are “rising sharply” for vessels in “high-risk waters.”

“At this stage, we are not seeing a systemic withdrawal of capacity,” Rudman told Australia-based Insurance News. “Rather, the market is repricing to reflect the elevated risk profile and reinsurance constraints.”