Indo-Pak tension: War risk premium in marine, aviation sector may inch up

Marine and aviation insurance premiums may rise if India-Pakistan tensions escalate, with reinsurers likely to revise exclusions and reassess cyber risk exposure

War risk premiums in marine and aviation sectors could rise, if the conflict between India and Pakistan post Operation Sindoor is prolonged, insurance experts believe.

 

Additionally, experts said that reinsurance premium rates in the aviation and marine segment might see an upward revision in the short term, if the tension between these two nations continue.

 

“While there is no immediate systemic impact, localised pricing hardening, revised exclusions, and portfolio de-risking from cautious reinsurers are likely if tensions persist or incidents escalate,” said Nymphea Batra, CEO, Guy Carpenter India. 

 

“The immediate impact in the reinsurance market with heightened geopolitical tensions or incidents could lead to increased risk premiums, terrorism and political violence covers may see repricing, marine and aviation treaties could face scrutiny for cross-border exposure. There is already an increased demand for standalone war covers, however, this may not be available immediately,” Batra added.

 

According to insurance experts, commercial lines, including property, fire and other segments, do not cover "war", as war on land is historically a standard exclusion. However, war cover may be bought under marine hull and cargo, and aviation segments. This means that an escalation will not have any direct impact on rates for many insurance covers. Still, developments on the ground may influence rates and coverage, as reinsurers evaluate the implications of the attacks.

 

“Amid these geopolitical tensions, war related uncertainty might result in higher premiums in aviation and marine insurance in the long term. However, it is not likely to happen immediately. Also, considering the fact that most of the commercial carriers have already stopped using Pakistan’s airspace, the rate revision will take some time. The situation is still not very alarming,” said a reinsurance official. 

 

Marine and aviation are relatively small segments, accounting for 1.80 per cent and 0.36 per cent respectively of the ₹3.07 trillion general insurance industry in FY25.

 

War insurance is a high-risk offering with very limited domestic availability and highly volatile pricing, experts said. Also, there is an increased risk of cyber warfare which is likely to trigger cyber premium rates or might result in reinsurers re-looking at the cyber reinsurance treaties.

 

“Marine cargo and hull are in international waters, so their rate will increase. The second cover where I believe the rates will increase is cyber because IT experts in opposing countries are likely to start cyber warfare. The aviation sector will also see a rate increase. There is an increase in queries from customers for war insurance cover,” another insurance broker said.

 

Batra added, “Global reinsurers may reduce appetite. Potential restrictions or exclusions in high-risk zones, retrocession support for terrorism or CAT covers might tighten, and cyber war exclusion clauses in reinsurance treaties might be scrutinised. However, this is an evolving situation.”