Specialty market remains cautious following Israel-Iran conflict escalation

By Michael Jones

June 17 - (The Insurer) - Underwriters across several specialty insurance lines are adopting a cautious approach to risks affected by the escalation in hostilities between Iran and Israel, various senior market sources told The Insurer.

Iran and Israel have traded attacks since Friday, with missile strikes on major Israeli cities as well as nuclear and missile facilities in Iran leading to civilian casualties on both sides.

In the wake of the attacks, Israeli airlines moved their planes out of the country and a number of airlines suspended flights to certain Middle East destinations, most commonly Tel Aviv.

Three senior aviation insurance market sources said that Israeli airspace was now considered closed, with few aircraft left on the ground except for planes with mechanical issues and those for government use. The aviation market has not given notice regarding Israeli airspace, two senior aviation market sources said.

These sources said the evacuation of aircraft was largely due to caution among airlines rather than any action on the market's part, although insurers are keeping a close eye on developments.

Three aviation market sources said concerns remain around neighbouring airspace, particularly Jordan.

These concerns relate to possible debris, missiles hitting the wrong targets or the accidental targeting of aircraft by ground-to-air missiles involved in the conflict between Iran and Israel, these sources said. One senior aviation war market source said the latter risk was not considered likely as Israeli air defence is perceived as competent.

Previous commercial aviation market losses from conflict zones include the shooting down of Malaysia Airlines Flight MH17 in July 2014, which the council of the International Civil Aviation Organization voted in May was the responsibility of Russia. Separately, Azerbaijan's President Ilham Aliyev said in December that a crashed Azerbaijan Airlines passenger plane had been damaged by accidental shooting from the ground in Russia. Moscow has not confirmed this.

POLITICAL VIOLENCE

One senior political violence market source said that the conflict between Iran and Israel was not considered a market shock as this type of incident has been on the cards since the attacks on Israel by Hamas in October 2023.

This source said the market is likely to respond by pausing or triggering a "material change" subjectivity on outstanding indications, which means the terms offered last week will be invalid but existing policies will continue to run.

They said there would also be a general contraction in appetite, which could affect the availability of limits and the affordability of coverage. This will result in an increased focus on the type of occupancy and locality of insured premises to sites of strategic or security interest in the coming months.

PERSIAN GULF

Munro Anderson, head of operations at Pen Underwriting's marine war risk specialist Vessel Protect, said that Iran has shown in previous times of regional sensitivity that it has the capability to disrupt commercial shipping activities in the Persian Gulf and Gulf of Oman.

"Thus far, this most recent conflict between Iran and Israel has not evolved to include threats to commercial shipping; however, the current conflict and associated risk profile must be contextualised against previous Iranian activity in this area," Anderson added.

Two senior marine broking market sources said that the escalation in the conflict between Israel and Iran would increase the risk in the Persian Gulf. They said rating has spiked in light of the conflict's escalation but one argued this still may not result in war risk rating in the Persian Gulf rising "appropriately" due to an oversupply of capacity in the market.