As oil tanker traffic through the Strait of Hormuz ground to a halt, Donald Trump turned his ire on Tehran.

“No matter what, the United States will ensure the FREE FLOW of ENERGY to the WORLD,” he wrote on Truth Social. “The United States’ ECONOMIC and MILITARY MIGHT is the GREATEST ON EARTH.”

But the president’s anger may also have been aimed at London, where decisions made this week in the “inside-out” building in the City of London have had just as powerful an effect on traffic through the crucial maritime route.

Insurers at Lloyd’s of London, the world’s largest insurance market, have this week ramped up the cost of coverage to such eye-watering prices that no one is willing to pay them.

Costs for vessels passing through the Strait have risen by two to five times for a typical tanker, in a move that could add up to $1m in premiums for each ship. Some insurers have pulled away from the market entirely.

It is this, as much as threats from the Iranians, that has brought shipments of oil and liquefied natural gas (LNG) to a standstill.

In response, Trump on Tuesday vowed to provide rival insurance policies at a “very reasonable price”. The president has instructed the US Development Finance Corporation (DFC) to provide coverage. Trump has also promised gunboats for protection.

Details are so far thin on the ground but Mohit Kumar, an economist at Jefferies, said US coverage “could be a game changer”.

Trump’s insurance may be good news for shipping companies, and energy prices, but it is potentially bad news for Lloyd’s. The president’s offer could destabilise a key line of business at a time when the market is already under pressure from competition in Bermuda and the US.

“Shipping companies will always welcome measures that improve the safety and predictability of key global trade routes,” James Mills, the head of trade policy at Logistics UK, said of Trump’s rival offer.

Aaron Le Marquer, the head of insurance disputes at law firm Stewarts, added that the scheme “will certainly appear attractive to those operating in the region”.

Started out of a coffee shop in 1689, Lloyd’s of London has developed over centuries into a sophisticated marketplace for all types of insurance, ranging from coverage for oil tankers to protection against cyberattacks.

Lloyd’s itself is a marketplace covering 50 insurers that pool risks as part of syndicates and sell policies to customers through brokers, who operate out of the Lloyd’s of London headquarters.

Together, Lloyd’s insurers underwrite over £50bn worth of policies each year and control around 45pc of the so-called speciality insurance market, making it by the largest individual market for such policies in the world.

Speciality coverage includes the high-risk – but potentially lucrative – “war risk” market. Lloyd’s joint war committee has added Bahrain, Kuwait, Oman and Qatar to its “war, piracy, terrorism and related perils” list in recent days, pushing up coverage costs for ships that dock in those countries.

Creating a US state-backed insurer to cover war risk at a lower price poses a significant threat to that market.

Above all, Trump’s plan come at a time when increasingly sophisticated rivals are already eating into Lloyd’s business.

Growth in London’s insurance market has lagged behind rivals over the past five years following a sharp slowdown during the pandemic. By contrast, growth in both the US and Bermudan markets has increased significantly over the same period of time.

It has seen America’s insurance industry overtake London as the world’s most valuable market, including in the speciality areas which Lloyd’s of London has historically dominated.

At the very least, Trump threatens to divert further business away from London.

It comes as Lloyd’s is preoccupied with a scandal involving its former boss John Neal, who in November lost a job at one of America’s top insurance companies over claims he had an affair with a colleague. In May, Lloyd’s launched an investigation into claims Neal had a relationship with Rebekah Clement, a PR executive at the company, and gave her preferential treatment, including by unfairly promoting her.

Those close to the market argue that it’s not as simple as Trump undercutting its business, however. Centuries’ worth of experience give Lloyd’s a formidable edge in a market where intelligence is everything.

“Most roads still lead to London. London’s leading position in war insurance is a very long-standing historical position,” says David Smith, head of marine insurance at London broker McGill & Partners.

In particular, the high levels of expertise, deep pools of capital and unrivalled access to top tier talent have given the London market an edge.

“We’re very fortunate in London and particularly in Lloyds that there is just this enormous ecosystem of underwriting experts, lawyers, and third-party independent advisors who just are all within five seconds wall,” said someone who knows the market well.

There is also speculation that some insurance may have links to Britain’s intelligence agencies, something that would give them an edge.

Smith downplays these rumours but says intelligence does still play an important role.

“There is obviously a significant amount of non-open source intelligence which is used by the underwriters and indeed brokers in order to assess the risks involved,” he says. “It’s mainly driven by commercial intelligence gathering companies and the contracts that exist within those with within those commercial companies and the London insurance community.

“There is clearly a very close interlinked intelligence network within the marine war insurance industry in London, which I don’t think exists anywhere else in the world.”

Meanwhile, crucial details of Trump’s scheme remain unclear, including whether the US-backed policies will be available to ships linked to America’s geopolitical rivals, like China.

Then there is the question of how long coverage will be offered.

“The insurance backstops would not only have to be competitive but also sustainable to threaten London’s position as a hub,” said Gonzalo Erausquin, a research fellow at the Royal United Services Institute, a security think tank.

He added it was “unlikely” Trump’s plans would topple the London market.

Experts warn there are also considerable challenges to setting up such a scheme, with some suggesting the Trump administration could even be forced to work with Lloyd’s of London to set it up, including by hedging any risks with reinsurance policies.

At the same time ministers in Britain are exploring their own plans. Patrick Tiernan, the chief executive of Lloyd’s of London, met Lucy Rigby, the City minister, in an emergency meeting on Wednesday to discuss the impact of the war in the Middle East.

“There’s a healthy level of scepticism around the practicalities of how it could be applied,” Smith says of Trump’s scheme. “We’re advising all our clients that for the time being, do not make any plans on the basis that this is going to come into effect.”

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