The conflict with Iran is triggering a surge in demand for war insurance in the Middle East, while sparking fights over rising premiums and what’s covered by existing policies.
Standard commercial policies, such as property, cyber and business-interruption insurance, typically don’t include war-related damage. That means companies now have to pay increasingly steep rates to get protection against threats such as missile strikes.
As the war enters its second month, there is a lot at stake for insurers and regular
The conflict with Iran is triggering a surge in demand for war insurance in the Middle East, while sparking fights over rising premiums and what’s covered by existing policies.
Standard commercial policies, such as property, cyber and business-interruption insurance, typically don’t include war-related damage. That means companies now have to pay increasingly steep rates to get protection against threats such as missile strikes.
As the war enters its second month, there is a lot at stake for insurers and regular businesses across the Middle East: Losses for buildings, infrastructure and ships could run into the billions of dollars if the conflict drags on.
Companies are rushing to take out new war coverage. “Most insurers have seen well over 300 new submissions in the last few weeks,” said Fergus Critchley, global head of terrorism and political violence at broker WTW.
War-risk cover for real estate in the Persian Gulf now typically costs 6% to 8% of a property’s value, compared with well under 1% in peacetime, according to Sachin Sahni, an insurance analyst at S&P Global Ratings.
“Buying war risk cover has become really expensive,” Sahni said. “It is still possible to get if they’re ready to pay the price, but it’s very tightly controlled.”
The scramble comes after many businesses in the Gulf dropped war-risk cover in recent years to reduce their premiums, brokers said, trusting the region’s reputation as a haven from political turmoil.
For example, the Fairmont the Palm hotel in Dubai that was set ablaze early in the war was insured against terrorism and sabotage, according to people familiar with the matter. But the luxury hotel didn’t pay the additional premium for a so-called political violence policy, which explicitly covers war losses, the people said.
While claims are starting to trickle in, brokers and analysts say it is too early to gauge overall losses stemming from the conflict—not least because of the challenge of getting surveyors to assess damage in a war zone.
So far, financial pain for insurance has been limited. Losses from political-violence policies, including missile damage to energy terminals, likely run into the hundreds of millions of dollars, according to Brian Schneider, an insurance analyst at Fitch Ratings.
Rising rates have been a flashpoint. Some insurers recently withdrew from a group providing cover for Emirates’ fleet of aircraft after the airline balked at a much higher premium because of the war, according to people familiar with the negotiations.
Aviation insurers can typically reprice policies after a war breaks out. Iran has targeted Dubai International Airport, where Emirates is based, damaging at least one of its planes, people familiar with the incident said. The jet only required cosmetic touch-ups and the carrier hasn’t filed a claim, they said.
Emirates’ broker pushed back on the requested rate rise, saying the potential for a conflict was already baked into existing agreements, the people familiar with the negotiations said. The stalemate was broken when the lead underwriter agreed to continuing covering the airline for a more modest increase in its premium, they said.
With insurers leaning on exclusions to limit payouts, a lot more fights are forecast.
Marine insurance is a hot spot for likely conflicts. The effective closure of the Strait of Hormuz has left around 1,000 ships stranded. Ships can get insured to go through the strait—at steep prices—but most are choosing not to because of security concerns.
More than 20 ships have been hit, or suffered near misses, since the conflict began, according to Lloyd’s List, a marine-data provider.
Long cargo delays and damage to ships are expected to trigger claims—and fights over what’s covered by existing policies. Some claims could take years to get resolved, lawyers said.
“This will likely cause a wave of litigation,” said Raymond Waid, a New Orleans-based maritime lawyer. “The longer this goes on, the more cases there will be.”
Sanctions add another layer of complication, lawyers said. Some of the few ships that are traversing the Strait of Hormuz are part of the so-called shadow fleet of vessels flouting sanctions on oil.
Marine war-risk insurance policies typically have sanctions exclusions, lawyers said. Insurers are legally barred from paying claims linked to sanctioned individuals or companies.
But moves to expand sanctions mean some vessels that were legally underwritten might now be banned from payouts.
“It’s a minefield for insurers,” said Jonathan Moss, head of the London office for law firm DWF. “If they pay a claim, or even investigate it, and the vessel is linked to sanctioned entities, they could face very serious consequences.”
Repercussions from the conflict are spreading beyond the Gulf. Outside of the region, there has been a rise in demand for terrorism insurance from big multinationals, according to James Bannister, head of global war and terrorism at broker Lockton.
“They’re concerned the Middle East tensions could lead to more extremist cell activity in Western countries,” Bannister said.
Write to Jean Eaglesham at Jean.Eaglesham@wsj.com and Benjamin Katz at ben.katz@wsj.com
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