Cruise ships set for hike in premiums

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The cruise industry is sailing into uncharted waters because insurance companies are planning to ratch up premiums covering liners to unprecedented levels.

Underwriters are worried that the ships could be targeted in terrorist attacks. They have told operators they will have to pay a substantial "war-risk premium" on top of existing policies.

Lloyd's List newspaper says premiums could be raised 10-fold for the most vulnerable ships, the ones serving the US market. That will be a blow to the three main operators, Carnival Corporation, Royal Caribbean and P&O Princess, whose shares have plummeted since the terrorist attacks in America. Last week P&O was forced to divert many of its cruises and said that the week following the attacks had cost it up to £3.4m. A spokesman for P&O said: "As a total cost, insurance is a small proportion. War risk is a small part of that. We are now expecting it to become a large part."

Many policies are arranged through Lloyd's of London, involving reinsurance giants Swiss Re and Munich Re. Lloyd's and Swiss Re refused to comment. A spokeswoman for Munich Re said: "We are in discussions [with Lloyd's] on war-risk premiums."

Cruise operators will face an additional premium for trips to a defined zone between Algeria and Pakistan.