Conflict drives demand for specialty tail risk insurance: Moody’s

MUSCAT: Insurance industry experts anticipate a surge in demand for specialty insurance covering tail risks in the wake of drone and missile attacks on critical port, maritime and energy infrastructure across the Gulf region.
Moody’s Ratings, in a new report, warned that the Iran conflict has amplified specialty insurance tail risk — a reference to events that have a very low probability of occurring but could cause extremely large losses if they do occur.
Examples include a missile strike on a major port terminal, a large-scale cyberattack that disables national infrastructure, or natural catastrophes resulting in widespread property damage. Because of their rare but potentially catastrophic nature, such risks are often excluded from standard insurance policies or covered only with significant limitations, experts say.
“Specialty insurers and reinsurers, which provide tailored coverage for complex risks such as marine, aviation and political violence, face an increased likelihood of severe events leading to outsized claims as a result of the Iran conflict”, Moody’s noted in its report.
According to Murtadha M J Ibrahim al Jamalani, a Muscat-based independent insurance expert, insurance and reinsurance coverage for strategic port, maritime and energy assets in the Sultanate of Oman generally excludes losses arising from war, strikes, riots or civil unrest.
For fixed assets, such as refineries and associated storage facilities, protection against these risks can be added through a special endorsement. For movable property and transport infrastructure — including vessels, aircraft, airports and seaports — coverage against war-related risks is available, typically through specialised war-risk syndicates such as those at Lloyd’s of London, Al Jamalani explained.
The Moody’s report also foresees an uptick in demand for insurance against political violence and terrorism (PVT) and strikes, riots and civil commotion (SRCC) across the wider Gulf region. Such policies, the ratings agency explains, are typically issued on an annual basis and generally do not contain cancellation clauses.
While exclusions for war-related risks are standard, the boundaries between war, terrorism and civil unrest are often disputed, particularly in cases involving coordinated attacks or the involvement of proxy actors.
“Demand for this cover has been rising in response to the conflict, at significantly increased prices. This is positive for insurers’ business volumes in the region, but it also increases their exposure to potential further escalation of the conflict”, it said.