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Iran Conflict Boosts Insurance Costs, But Major Losses Seen Manageable

Moody's Ratings states that insurers covering marine, aviation, and political violence risks will face significant claims due to the Iran conflict, driving up premium prices. However, the agency expects losses to be manageable for large insurers due to careful risk selection, reinsurance, and claims limits. The duration of the conflict is a critical factor, with prolonged hostilities increasing the risk of complex, multi-asset losses. The report notes a sharp drop in vessel traffic through the Strait of Hormuz and heightened risks for aircraft at regional airports.

Key Points: Iran Conflict Insurance Impact Manageable: Moody's

  • Marine & aviation insurers face outsized claims
  • PVT insurance prices rising
  • Losses manageable for large, diversified firms
  • Conflict duration key risk factor
  • Strait of Hormuz traffic drastically reduced
2 min read

Iran conflict amplifies insurance risk, but losses likely manageable: Moody's

Moody's says Iran conflict raises marine & aviation insurance claims, but losses are manageable for large insurers due to risk controls & reinsurance.

"War exclusion clauses will also provide some insulation, although these will likely face legal challenges in some cases - Moody's"

New Delhi, March 12

Insurers and reinsurers that provide coverage of complex risks such as marine, aviation and political violence are likely to face outsized claims as a result of the ongoing Iran conflict, said Moody's Ratings.

The insurance service providers are also benefiting from an increase in the price of political violence and terrorism (PVT) coverage amid rising demand from businesses looking to protect assets in the conflict-hit Gulf region.

The rating agency also expects losses to be manageable for large, diversified insurers - thanks to their careful risk selection, aggregate claims limits and reinsurance protection.

"War exclusion clauses will also provide some insulation, although these will likely face legal challenges in some cases," Moody's said.

According to Moody's, the conflict will be relatively short-lived, likely a matter of weeks, and navigation through the currently blocked Strait of Hormuz, a key transit route for oil tankers, will then "resume at scale."

The duration of the conflict is an additional risk factor, with longer hostilities increasing the likelihood of larger and more complex loss scenarios.

The concentration of high-value assets in the Gulf region increases the potential for loss accumulation relative to other recent episodes of increased geopolitical tension, such as the Russia-Ukraine conflict.

According to data, vessels transiting the Strait of Hormuz have reduced drastically since the conflict began in late February.

Aviation insurers also face similar challenges. Although the recent resumption of flights from some major regional airports has improved the outlook for them.

"Airspace closures and missile activity have increased the risk of damage to aircraft on the ground. The potential for aggregate losses - where a single event triggers multiple claims - has also risen at major airports, as has the risk of passenger fatalities," the rating agency noted.

"Overall, we expect aviation losses to be contained in most scenarios. This is because insurers can reprice risk quickly, have strong risk limits and accumulation controls and benefit from reinsurance protection. However, a prolonged conflict would raise the probability of multi-asset losses and more complex claims development, especially with large numbers of aircraft at airports vulnerable to attack," said the report.

- ANI

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Reader Comments

R
Rohit P
The aviation risk part is scary. So many Indians work in the Gulf and fly through those airports. If a major incident happens at an airport like Dubai or Doha, the human cost could be devastating. Insurance claims are one thing, but passenger safety is paramount. Airlines need to be extra cautious with their routes.
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Aditya G
Moody's seems optimistic about a short conflict. Geopolitical tensions in the Middle East rarely resolve in "a matter of weeks." If this drags on, the strain on marine insurance could disrupt global supply chains significantly. Indian exporters and importers should brace for potential delays and higher shipping costs. 🚢
S
Sarah B
Interesting to see the comparison to the Russia-Ukraine conflict. The concentration of high-value assets in the Gulf is indeed a different beast. While the report says losses are manageable, I have a respectful criticism: calling it "manageable" might downplay the real financial shock for smaller regional insurers and the businesses that rely on them.
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Karthik V
The immediate impact is already visible with reduced vessel traffic. This directly affects oil prices and, consequently, our petrol and diesel rates. The government should actively monitor this and consider strategic releases from reserves if needed to cushion the blow to the common man. Jai Hind.
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Meera T
It's a classic case of high risk, high reward for insurers. Premiums for PVT coverage shoot up, so they might actually make more money if the conflict ends quickly as predicted. But the legal challenges to war exclusion clauses mentioned could set important precedents. A very volatile situation.

We welcome thoughtful discussions from our readers. Please keep comments respectful and on-topic.

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