An unexpected consequence of Donald Trump’s adventure in Iran has been that a surprising number of Americans briefly became experts in wholesale marine insurance.
As the conflict raged, and the Iranians began firing rockets at any target within reach, commercial shipping predictably became very reluctant to cross the Strait of Hormuz.
The rising oil price was becoming an embarrassment for the Trump Administration, and the White House was keen to get freight moving again. Looking at the range of disincentives, one notable factor seemed to be insurance — specifically that standard Marine Cargo and Hull & Machinery policies do not cover acts by belligerent parties in conflicts, and the cost of taking out separate War Risks cover was suddenly becoming prohibitive in the Gulf. The latter was particularly the case since the Iranians had explicitly stated they would attack any shipping that was not associated with Iran or its partners.
So, Trump announced that, effective immediately, the United States Development Finance Corporation (DFC) would provide cover for the financial security of all maritime trade, especially energy, travelling through the Gulf, at “a very reasonable price”. This was a powerful statement of intent by the President, and an imaginative use of the resources at his disposal. But it smelled of desperation. Given that any vessel leaving the Gulf must pass within 20 miles of the Iranian coast and the country had threatened to sink neutral commercial shipping, insurance alone was unlikely to be the only obstacle.
It was not merely a misunderstanding of some technical component of a complicated issue — it was a complete invention
Yet by the time screenshots of Trump’s announcement made their way from his Truth Social media platform onto “X” (twitter), the move had grown not only into a work of geostrategic genius, but also as a coup de grâce for Lloyd’s of London. Within hours, a number of highly detailed, viral posts set out how the greed of Lloyd’s underwriters, the cowardice of Keir Starmer, the weakness of the Royal Navy and the ballsy gumption of Donald Trump had come together to lay low the one industry in which Britain still retained predominance. Henceforth, the world’s wholesale insurance industry would rotate around Washington D.C. and the US Government, rather than Leadenhall.
This was all, not to put too fine a point on it, total horseshit. It was not merely a misunderstanding of some technical component of a complicated issue — it was a complete invention, without any relationship with reality. In fairness, some of the accounts responsible for this output breezily admitted that they didn’t actually have any prior knowledge of insurance, and were just learning about it themselves. But by that point, hundreds of thousands of people — some presumably influential — had read it, thought it plausible, and carried on their lives with this rubbish weightlessly added to the pile of stuff in their brain that they thought they knew.
Lloyd’s sits at the heart of the world’s insurance industry, with a well-established global network of producing brokers feeding an industry of placing brokers in London, who submit risks to the thousands of underwriters writing business for about a hundred different syndicates at Lloyd’s. This is in addition to a broader sector of commercial insurers operating in the London company market outside Lloyd’s.
It is a cliche about any industry to say that it operates on trust and personal relationship, but it is truer of wholesale insurance than any other sector. Lloyd’s very nearly collapsed a few decades ago due to sharp practices, but it was ultimately its investors and “names” who got stuffed, not insured parties. Lloyd’s has endured all of these years because its cover-holders have a reputation for paying their claims promptly and in full — even at the height of the crisis in the early 1990s. The corollary to this is that exclusions are written in such a way that insured parties know damn well when they are breaking them, and premium is priced robustly if rather unscientifically.
Lloyd’s is a marketplace rather than a company, and its underwriters have to price risk competitively against one another to win business. Sometimes, they will enquire from a broker what their peers have quoted, and pitch either slightly lower or higher depending on how cautious or punchy they are feeling that day, or on how well the broker manages to negotiate. But if the market as a whole quotes a premium that is so high it makes the underlying transaction unprofitable with cover priced in, that is as good a signal as you are likely to get from any institution on earth that what you are undertaking is a bad idea. And that is what happened to indicative pricing for marine war risks in the Persian Gulf at the end of February.
It is because of situations like this that there is an entire category of state-backed insurance, to help businesses mitigate extreme or political risks on terms that would not be feasible for the commercial market. This is primarily geared toward non-payment or expropriation for exports, which encompasses political risk; but in extraneous circumstances they can provide other forms of cover to ensure that risky activities can go on if the government wants them to. Every developed country has an institution along these lines. DFC isn’t even America’s primary one — as its name suggests, its focus is development finance rather than political risk insurance; US EXIM covers that. What was unusual about Trump’s announcement was that it was extended to companies of any nationality rather than just American vessels. But this is because his goal was to ensure as much fuel got through as possible to ease the pressure on the global market, rather than to boost US firms’ (minimal) presence in Middle Eastern energy shipping.
None of this made it as far as the viral galaxy-brain analysis on social media, because the individuals pushing it were both unaware of it and uninterested. As far as the story went, Trump had undercut Lloyd’s, and the 300 year old market was finished. Because of the slavish devotion to Labour governments that City underwriters are famous for, London’s insurance industry had defied the US President by increasing premia for shipping in a war zone, in order to signal their moral disapproval to his intervention in Iran — and they had lost everything. From now on, whether they wanted fine art covered against fire, or prize bloodstock indemnified against tropical diseases, it would be the American Government to which brokers would turn, rather than the denizens of Lime Street.
With this established, a raft of competitive theorising could commence. If, by four o’clock on the Wednesday afternoon, you were still unsold on the idea that Lloyd’s had only been sustained all these years by MI6 briefings and the presence of the Royal Navy, you were reckoned a very naive fellow indeed. No appeal to reason was sufficient; not that MI6 wouldn’t be particularly good at predicting the kind of weather events or mechanical failures that Lloyd’s marine policy holders typically seek protection against. Nor that Trump had not signalled any interest at all in covering anything beyond transit through the Gulf, let alone the tens of thousands of other risks that commercial insurance deals with. Less still that the United States Government is not actually a particularly appealing counterparty to enter into negotiation or contract with, unless it is absolutely necessary — especially for clients as financially dodgy as the average marine cargo firm in the Gulf.
But this didn’t matter. The point was that Trump had once again got the better of the tired, lazy, woke Europeans — and that under hapless Keir Starmer, Britain had lost out yet again. All that was left to do was hallucinate the technical details around an important sounding element of the world economy that most people never really think about, in a manner that sounded vaguely plausible if you didn’t think about it too hard.
The platform has a terrible weakness for this type of Misinformation for Midwits
Social media, and especially Twitter, plays an important role in facilitating the transfer of niche elements of knowledge. If Donald Trump really had done something that genuinely undermined London’s wholesale financial services industry, I am confident that an intelligent person plugged into the right networks on X would get the information days ahead of anyone relying on either the BBC or The Times. But the platform has a terrible weakness for this type of Misinformation for Midwits — viral content about the latest big story aimed at people who are reasonably thoughtful and genuinely curious about the world, but who lack the intelligence or the depth of understanding to assess the plausibility of a compelling story that fits their political priors. This is potentially a bigger worry than the normal vulgar misinformation that it is fashionable to worry about in polite circles, because it is liable to affect people who are actually influential.
The belief that Russia was only days away from economic or military collapse endured among western elites for many months longer than it ought to have done — and there is a good case to be argued that this was at least partially because of a small handful of entertaining but completely spurious accounts on Twitter in 2022-23. It is almost painful to recall what the platform was like during lockdown, but again, a very small number of commentators built vast followings promoting the very worst types of politically-motivated hysteria among people who like to think of themselves as elite adjacent. They did so by mixing a little esoteric technical detail with a vivid narrative, and an assiduously political framing that allowed their audiences to convince themselves that their opponents were going to lose.
In both of these cases, the audience was mainly American left-leaning, and it enjoys far less clout across the media spectrum than it did six years’ ago, especially on Musk’s X. We can safely go about our days without encountering an Eric Feigl-Ding or Eric Topol take in the wild. But the format is being repeated among right-wing audiences. In particular, a few canny Americans have noticed there is a huge British market for a kind of “tough love” American pessimism about Britain, providing it is Starmer and Labour who ultimately get the kicking. For those who enjoy this sort of stuff, it isn’t actually doom and gloom at all; it signals that the current trajectory is so unsustainably negative that our present overlords will surely be shaken off soon.
The danger is that the wider political space becomes infected with perceptions that are based on claims that are not just incorrect, but wildly and comically disconnected from the truth. As good as the dopamine hit might feel at the time, it will do the British Right no more good than it did the American Left.
