Insurance gaps leave airlines exposed as Iran conflict widens

By Noor Zainab Hussain and Manya Saini

March 2 (Reuters) - As the U.S.-Israeli air war against Iran widened on Monday with no end in sight, focus shifted to the impact on airlines. Operations have been disrupted for a third day and revenue losses are not covered by insurers, analysts and insurance industry sources said.

Travel stocks from Asia to New York tumbled, wiping billions off market value, as the conflict hit thousands of flights worldwide, shut key Middle Eastern hubs and sent oil prices surging.

Here is how insurance industry experts and analysts view the event:

• Analysts at Jefferies said commercial property "almost always" excludes war-related risks and, unlike marine and aviation exposures, such cover is not easily available as a separate policy.

• The brokerage added that notable losses in commercial property, such as damage to Dubai's iconic Palm Jumeirah, might not be covered by insurance.

• Jefferies said aviation war policies also give insurers the right to cancel cover, while the remaining non-war policies typically exclude war, either explicitly or under force majeure wordings.

• Still, an industry source told Reuters that aviation insurers are used to dealing with such events and that there has so far been no notice of cancellation from any insurers.

• Airlines have aviation war cover for their fleets, including damage to aircraft and liability, but revenue losses from operational disruption typically fall under business insurance policies that include war exclusions, leaving airlines to foot the bill, a second industry source said.

• Ratings agency Morningstar DBRS said the events create significant underwriting and investment challenges for marine, aviation, property, travel, and supply chain insurance lines.

• "From an aviation-hull perspective, insurers must consider the risk that missiles or air-defence interceptors could result in large hull and liability claims," it wrote in a note.

• Morningstar DBRS added that an expansion of the conflict in the Gulf could prompt higher pricing and reduced capacity in terrorism and political violence insurance markets.

• The insurance cost of shipping goods through the Middle East Gulf has surged as much as fivefold in the past 48 hours, with most underwriters not offering cover for sailings through the Strait of Hormuz, Reuters reported citing industry sources on Monday.