The attacks on Iran by the US and Israel, followed by retaliatory strikes by Iran on several countries allied to the US, including the UAE and Saudi Arabia, will have a profound impact on the insurance market at large. India is also likely to be significantly impacted.
The direct impact in India will fall on its imports of oil and gas, marine cargo, hull and aviation insurance and other related insurance covers like liability, travel insurance and event cancellation covers. The Strait of Hormuz has been closed to shipping by Iran. The airspace and airports in the region, several of which were hit by Iranian missiles, are closed, with many airlines cancelling flights.
Energy sector
According to the global maritime solutions and data analysis provider Kpler, India, in recent times, has turned to Middle East countries for oil imports, and as such, the exposure to Hormuz-linked risks rises.
In the financial year 2024-25, around 50% of India’s crude imports and 54% of its LNG imports were routed through the Strait of Hormuz.
Speaking with Asia Insurance Review, First Policy Insurance Brokers regional director Hari Radhakrishnan said, “The heightened geopolitical risk in the Persian Gulf will likely result in war risk cover being completely withdrawn. The notice of cancellation for War and Strikes, Riots, and Civil Commotion (SRCC) generally is for seven days for marine insurance.
"Some major oil and trading companies have reportedly suspended shipments through the Strait of Hormuz, a vital artery for global oil shipments."
He added, “The war cover for new risks would be either unavailable or, if available, would be prohibitively expensive. This can mean that the cost of shipping will go up considerably.”
Mr Radhakrishnan said the heightened war situation will also have increased piracy risk in the area, particularly in the Gulf of Aden.
He said, “The naval forces will be more focused on the war situation than on patrolling. This will also make premiums, for both cargo and hull, more expensive. Added to this, the Houthis of Yemen have pledged to resume attacking vessels transiting the Red Sea.”
According to media reports, war-risk underwriters have issued formal cancellation notices for policies covering ships transiting the world’s most critical oil chokepoint. According to brokers, premium rates are expected to climb by as much as 50% in the coming days.
The insurance costs for vessels in the Gulf, previously hovering around 0.25% of a ship’s replacement value, are set to rise to 0.375%. Dylan Mortimer, Marine Hull UK War Leader at broker Marsh, has said that these increases are sweeping; ships calling at Israeli ports, which typically see rates of 0.1%, are also facing 50% hikes.
The Middle East is now becoming a "no-go" zone for many commercial vessels, as such ships are being rerouted around the Cape of Good Hope, which adds at least around a fortnight more to the total transit time. This issue is likely to increase the total transit time for Indian exports to Europe and the US.
It will also impact the freight and insurance for export cargo. This could see an increase of around 15% to 20% in freight rates and war-risk insurance premiums.
Aviation sector will experience turbulence
Similar to marine, the hull war risk insurance coverage for the aviation fleet will see a dramatic increase and capacity withdrawal.
Airspace closures in virtually the entire Middle East have already affected airlines like Air India and IndiGo to reroute flights or to even cancel some of them. This is leading to longer flight times and higher ticket prices for travellers heading West.
With the closure of air spaces across countries in the Middle East, airlines are cancelling flights. These disruptions may fall under the category of force majeure, and in such a case, passengers are entitled to a full refund, free rebooking on a later date, or a travel voucher, depending on airline policy. How it triggers insurance covers will be dependent on the details negotiated for each policy. Travel insurance will also cover hotel or non-refundable bookings that are cancelled.
Like marine insurance, aviation also has seen capacity squeezes and rate hardening for carriers flying near the conflict zones. This is considering the elevated threat of physical damage and higher potential for rerouting of aircraft.
Mr Radhakrishnan said, “The airlines may need reinsurance support from national governments, like the sovereign guarantee Israel is providing to its airlines against war-related losses, so that they can continue operations.
“Further, there can be knock-on effects of the war on other insurances, such as travel insurance, event insurance and others which are dependent on people and material movement.”
He said, “The wider economic impact, such as inflation, supply chain disruptions and the non-availability of inputs and manpower can also adversely impact claim costs. Furthermore, there will be an impact on the stock market, which will put pressure on the earnings of insurance companies.”