|Israeli tanks and troops move near the border with Gaza on Oct. 28, 2023, in Sderot, Israel.
Source: Dan Kitwood/Getty Images News via Getty Images.
Global insurers are hiking prices and reducing coverage on war policies in Israel as the country's conflict with Hamas develops.
Hamas, which controls the Gaza Strip, launched a surprise attack on Israel on Oct. 7, triggering the war. The initial Hamas attack killed more than 1,400 people in Israel, the Israeli government has said. As of Nov. 2, the death toll in Gaza had surpassed 9,000, according to Gaza Heath Ministry figures cited by the United Nations. A key area of exposure to the conflict for international insurers is political violence cover in Israel. This covers property damage from a range of events, including war.
Lloyd's of London insurer Inigo Ltd. is still quoting for political violence cover in Israel, Russell Merrett, the insurer's chief underwriting officer, said in an interview. Inevitably, "the pricing is quite different today from what it would have been a year ago," he said. Pricing depends where the risks are; those in areas reachable by rockets from Gaza will attract "a very high rate on line" Merrett said. Rate on line is premium as a percentage of total coverage.
Where insurers are willing to provide political violence coverage terms, the limits of cover on offer are "a fraction" of what the expiring policy provided, Adam McGrath, head of international political violence at specialty insurer Mosaic Insurance Holdings Ltd., said via email. Insureds with political violence policies that expire Nov. 1 or Dec. 1 are are invoking one- or two-month extensions to their coverage where policy terms allow, McGrath said.
The insurance industry has "several billion dollars" of political violence and terrorism exposure, mainly concentrated in and around Tel Aviv, Merrett said. This is despite an Israeli government fund that compensates direct or indirect property damage stemming from acts of hostility and war.
Although the exposure exists, there is little evidence of large insured losses so far. Hamas rockets breached Israel's Iron Dome defense system on Oct. 7, but the attack has not triggered catastrophic insured property damage in the country, McGrath said.
Inigo has a good handle on its political violence and terrorism exposures in Israel, Merrett said, and the company takes "relatively modest" shares of risks, but "we don't know at this stage what damage there may have been from the rockets fired out of Gaza." He added that one of the risks Inigo writes may have been affected, but it does not know the extent of the impact at this time.
Insurers are also responding to the heightened risk in the marine market. Many parts of the Middle East, including Israel, were already on a list of high-risk shipping areas maintained by the Joint War Committee, a group of Lloyd's and London market underwriters. Shipowners typically have to pay an additional hull war risk premium for journeys into these areas. The additional premium for a seven-day journey to Israel jumped to between 0.15% and 0.2% of a ship's value from 0.0125%, Reuters reported shortly after the war broke out.
There had been downward pressure on marine rates in 2022, but conflicts such as the Israel-Hamas war typically harden the market, Jonathan Moss, managing partner and head of marine and trade at law firm DWF, said in an interview. Moss expects lines of war risk insurance to be withdrawn.
"There will be heightened levels of due diligence for insurers, there'll be reinsurers withdrawing from the war risks market, and that will mean that premiums will rise, and it will be more difficult in marine insurance to find appropriate cover," Moss said.
Closure of ports and changes to sailing schedules, meanwhile, could trigger claims for sensitive cargo such as perishable goods. Goods stuck at ports could also be prone to theft. "The cost of covering these goods from an insurance perspective will be higher, and insurers will be perhaps prone to increased claims for goods that are held up, languishing in ports," Moss said.
For aviation, exposure to the Israel-Hamas war has been limited to an extent by the Israeli government's announcement that it would provide $6 billion of hull war cover to Israeli airlines amid reports that several aviation insurers had given notice to cancel cover. Aviation was a big source of potential claims from the Russia-Ukraine war.
But there is still scope for disruption and losses to the international aviation hull war market if, for example, Ben Gurion International Airport, close to Tel Aviv, is targeted. "Hamas in Gaza will definitely see Ben Gurion as a legitimate target for … rocket attacks," Bilal Bassiouni, head of Middle East and North Africa forecasting at risk advisory firm Pangea-Risk, said in an interview.
For non-Israeli airlines operating in the affected area, insurers have imposed 48-hour cancellation notices for aviation hull war cover, Merrett said, in case "the situation were to develop in a sufficiently worrying direction." Insurers could offer cover on a per-flight basis "at a rate which reflects the much-changed circumstances existing in Israel," he said, adding that Inigo and others will still quote for flights in and out of Tel Aviv.
Threat of expansion
A big worry for the insurance industry would be if the conflict expands beyond Israel and Hamas into the wider Middle East region, as this would amplify exposures on all fronts.
"Concern over a broader conflict is the very reason the majority of markets are reluctant to offer cover going forward, particularly for the market standard of 12 months" on the political violence side, McGrath said. "We may see 'short-term, short-rate' policies emerge to allow time for the conflict to evolve, or, hopefully, to subside." He added that systemic loss from more than one country is "the main concern for both the direct and reinsurance markets."
For marine and energy risks, an expansion of the conflict could mean disruption to key shipping trade routes, such as threats to blockade the Strait of Hormuz or the Bab el-Mandeb Strait, and there may be direct attacks on oil and gas assets in the region, Bassiouni said.
Marine war risk premium rises have so far been limited to ships calling at Israeli ports, S&P Global Commodity Insights reported Oct. 30, citing a marine insurance executive. But premiums may "rise rapidly" if the conflict widens in the Persian Gulf, the executive added.
For the time being, however, expansion of the conflict is not the base case. While noting that it is "definitely a very fluid and volatile situation," Pangea-Risk considers the conflict remaining confined to Gaza and the neighboring areas of Israel as "the high likelihood scenario," Bassiouni said.