Insight 1: Wartime Risk: Reading the Signals
When Conflict Appears First in Insurance Markets
In the early days of geopolitical escalation, the first signals of systemic stress often do not appear in equity markets or economic forecasts. They appear in insurance markets.
When tensions rise around critical trade corridors or energy infrastructure, insurers frequently respond before the broader economy registers the shift. Premiums adjust, coverage terms tighten and, in some cases, insurers withdraw cover entirely from high-risk zones.
Recent geopolitical tensions involving the United States, Israel and Iran provide a clear illustration of this dynamic. Within days of escalation, maritime war-risk insurance premiums for vessels transiting the Strait of Hormuz reportedly increased dramatically, in some cases by more than tenfold, as underwriters reassessed exposure in one of the world’s most strategically important shipping corridors.
The Strait of Hormuz carries approximately 20 percent of global seaborne oil and liquefied natural gas trade, according to the U.S. Energy Information Administration. Any disruption to this corridor quickly transmits through global energy prices, freight markets and supply chains.
Insurance markets are therefore often among the first systems to register geopolitical stress.
For insurers, these early pricing signals offer important insights into how geopolitical risk propagates through economic systems.
The Systemic Nature of Modern Conflict
Modern conflict rarely remains geographically contained. Instead, it spreads through interconnected systems — energy infrastructure, shipping corridors, financial markets and digital networks.
More than 80 percent of global trade by volume moves by sea, according to UNCTAD, making maritime routes particularly vulnerable to geopolitical disruption.
Strategic maritime chokepoints such as the Strait of Hormuz, the Suez Canal and the Bab el-Mandeb Strait function as critical arteries of the global economy. Disruptions to these corridors can affect energy markets, manufacturing supply chains and food distribution simultaneously.
Academic research has increasingly highlighted the systemic transmission mechanisms of geopolitical risk. Studies examining geopolitical risk indices developed by economists Dario Caldara and Matteo Iacoviello demonstrate that geopolitical shocks can propagate rapidly across financial markets, commodity prices and investment activity.
In this sense, geopolitical risk functions less like a discrete event and more like a systemic stress factor affecting multiple sectors simultaneously.
For insurers, the implications are significant. A conflict affecting energy infrastructure or maritime trade may generate correlated exposures across marine, energy, trade credit and political violence insurance lines.
Understanding how these signals emerge early is therefore critical to risk assessment and underwriting strategy.
Insurance as an Early Warning System
Insurance markets play a unique role in the global risk ecosystem. Unlike many financial markets, insurers must price risk based on forward-looking assessments of potential loss scenarios.
When geopolitical tensions rise, underwriters must quickly evaluate whether exposures remain insurable under existing pricing structures.
This often results in rapid adjustments in:
war-risk insurance premiums
policy exclusions and coverage limitations
underwriting appetite in specific regions
reinsurance capacity allocations
Marine insurance markets historically provide some of the earliest signals.
For example, during periods of geopolitical tension affecting shipping routes, war-risk premiums can increase dramatically. In high-risk zones, premiums may rise from approximately 0.2 percent of a vessel’s value to close to 1 percent or more for a single voyage, according to industry reporting from S&P Global and Reuters.
For a large commercial tanker valued at US$100 million, this shift can increase the insurance cost of a single voyage from roughly US$200,000 to US$1 million.
In extreme cases, insurers may withdraw coverage altogether, effectively closing certain routes to commercial shipping until the risk environment stabilises.
These adjustments often occur before wider economic indicators fully capture the underlying geopolitical stress.
Lessons from Historical Conflicts
History demonstrates that insurance markets have long been sensitive to geopolitical conflict.
During the First World War, marine insurers faced catastrophic losses when shipping routes became targets of naval warfare. Governments eventually intervened to establish war-risk insurance pools to maintain maritime trade.
More recently, the war in Ukraine provided another illustration of systemic insurance exposure.
When Russia invaded Ukraine in 2022, hundreds of commercial aircraft leased by Western firms remained stranded within Russian territory. Insurers faced claims estimated at more than US$10 billion, making the incident one of the largest aviation insurance losses in history.
The conflict also disrupted global grain exports and energy markets, demonstrating how geopolitical shocks can quickly affect sectors far beyond the immediate conflict zone.
These examples reinforce a central lesson: geopolitical conflict often produces multi-sector risk transmission rather than isolated losses.
Geopolitical Risk and Insurance Demand
Academic research suggests that geopolitical risk not only affects insurance pricing but also insurance demand.
Studies published in economic and financial journals have found that rising geopolitical risk tends to increase corporate demand for insurance coverage as firms seek protection against uncertain operating environments.
One cross-country study examining insurance markets across multiple economies found that increases in geopolitical risk are associated with higher insurance premium volumes and increased demand for coverage.
This dynamic creates a complex environment for insurers. Geopolitical instability may simultaneously produce:
higher claims exposure
greater insurance demand
tightening reinsurance capacity
Managing these competing pressures requires careful underwriting discipline and portfolio diversification.
Why This Matters for Australia
Although Australia is geographically distant from many geopolitical conflict zones, the Australian economy remains deeply connected to global trade systems.
Australia imports approximately 90 percent of its refined fuel, making domestic energy supply sensitive to disruptions in global shipping routes and energy markets.
Similarly, several of Australia’s largest service industries depend heavily on global mobility.
The international education sector, one of Australia’s largest exports, generated approximately A$53.6 billion in export earnings in 2023, according to the Australian Bureau of Statistics.
Tourism is also a significant contributor to the national economy, with the visitor economy contributing more than A$80 billion annually to GDP, according to Tourism Research Australia.
Geopolitical instability affecting aviation routes, travel confidence or international mobility can therefore have significant economic implications.
For Australian insurers, these structural exposures reinforce the importance of monitoring geopolitical signals that may affect global supply chains, travel patterns and energy markets.
Signals Insurers Should Monitor
For insurers and reinsurers, several early signals may indicate that geopolitical stress is beginning to influence risk exposure.
These include:
Marine insurance pricing signals
Sudden increases in war-risk premiums or withdrawal of coverage in key shipping corridors.
Energy market volatility
Sharp fluctuations in oil and gas prices driven by geopolitical tensions affecting supply routes.
Cyber escalation
Increased cyber attacks linked to state actors or geopolitical conflict.
Sanctions and trade restrictions
Rapid changes in international sanctions regimes affecting trade and financial flows.
Reinsurance capacity shifts
Changes in reinsurance pricing or capacity allocation related to geopolitical risk exposure.
Monitoring these signals can help insurers identify emerging systemic risks before they fully materialise in claims experience.
Strategic Implications for Insurers
The challenge for insurers is not predicting the precise trajectory of geopolitical conflicts.
Instead, the more important question is how the operating environment changes when geopolitical instability becomes a structural feature of the global economy.
In such environments, insurers may need to reconsider:
policy wording clarity for war-related events
aggregation risks across insurance classes
geographic portfolio exposure
reinsurance protection strategies
geopolitical risk monitoring within enterprise risk management frameworks
These considerations are increasingly relevant as geopolitical competition intensifies across multiple regions.
A More Contested Risk Environment
The global economy is entering a period in which geopolitical tensions may play a more visible role in shaping economic conditions.
Energy security, strategic supply chains and technological competition are becoming central to national policy and international relations.
For insurers, this evolving environment presents both challenges and opportunities.
Insurance markets will continue to function as early warning systems for emerging risk.
By carefully observing shifts in pricing, coverage terms and underwriting appetite, insurers can gain valuable insights into how geopolitical forces are reshaping the global risk landscape.
Understanding these signals will become an increasingly important capability for insurers operating in a more contested world.
