Insurance companies covering marine, aviation, cyber, and terrorism risks are facing immediate challenges due to the rising conflict between Iran and Israel. According to a recent report by Morningstar DBRS, these sectors could see heightened underwriting pressures and potential large losses if the tensions continue.
The report highlights that marine insurers are the first to feel the impact in such geopolitical crises. Ships passing through key routes like the Red Sea, the Strait of Hormuz, and the Persian Gulf are now facing much higher insurance premiums. In fact, premiums for hull and machinery insurance on vessels crossing the Strait of Hormuz have surged by 60% in recent weeks. While these higher premiums might temporarily help insurers, the risk of a major incident in these narrow and vital shipping lanes could lead to enormous losses, potentially in the hundreds of millions of dollars.
Aviation insurers are also under pressure. The danger extends from in-flight risks to airports and maintenance facilities in Israel, Jordan, and Gulf countries. New threats such as missile and drone technology increase the chances of accidents, which can lead to costly claims. War-risk insurance providers are responding by raising prices and tightening coverage, including more restrictions on active conflict zones. Any big loss in aviation could strain insurer and reinsurer finances.
Cyber insurance is another area of concern. Since cyberattacks can cross borders easily, insurers far from the Middle East are at risk. Recent cyberattacks on U.S. insurers show how even those without direct operations in the region can be targeted. War exclusions in policies are often unclear in these cases, leading to disputes over who should cover such losses. Reinsurers may also increase premiums or limit support, adding pressure on primary insurers.
The conflict’s impact goes beyond these specialized lines. Property insurers covering commercial buildings in the region face growing risks, and companies are seeking more political risk and terrorism coverage at a higher cost. Trade credit insurers might see more claims as exporters have trouble fulfilling orders due to shipping delays or sanctions. There is also a risk that supply chain disruptions could cause business interruptions far beyond the region.
Overall, the conflict is putting a strain on insurers’ capital and could reduce the availability of reinsurance, especially if the conflict drags on. However, companies with strong reinsurance, cautious investment strategies, and solid risk management will be better suited to handle the uncertainty ahead.