How geopolitical conflicts are changing insurance markets

Geopolitical risks have significantly impacted marine insurance, particularly in high-risk areas like the Persian Gulf, Gulf of Aden, and Strait of Hormuz. A top executive of a government insurance firm explained that these tensions affect three main areas: marine risks, aviation, and related covers. For marine hull war risk—covering damage to the ship itself—reinsurers, including the General Insurance Corporation, withdrew protection effective March 3, 2026, around 7 p.m., with others following suit shortly after by issuing cancellation notices.

This withdrawal, she said, has driven up rates dramatically, with reports indicating marine insurance premiums surging five to 25 times in affected routes. Cargo war and strikes coverage remains available, often with additional premiums, while aviation risks have not faced similar withdrawals. Insurers are closely monitoring the situation, potentially offering hull war cover as an optional add-on with higher premiums for vessels operating in those zones, while those avoiding the areas may opt out.

Beyond marine, the insurance sector is responding dynamically to geopolitical challenges. Supply chain disruptions have heightened trade credit risks, but existing covers persist without withdrawal. Cyber sabotage, now integral to modern conflicts due to technological advances, is addressed through cyber policies that include war-related elements at nominal premiums. Few insurance firms proactively introduced standalone war covers for properties.

They introduced both in border states and elsewhere, recognizing that war threats extend beyond land invasions to missiles, submarines, or aircraft from neighbouring countries like Pakistan, Afghanistan, Bangladesh, or Sri Lanka. Another executive of a private insurance firm noted that war coverage, once routinely excluded, is now evolving into a desirable, purchasable add-on—even as a standalone product—reflecting the industry's shift toward inclusivity and responsiveness.

Climate risks present another major challenge, with natural catastrophes (nat cats) like cyclones, floods, and landslides increasing in frequency and unpredictability due to climate change. Areas once considered safe, such as Rajasthan's deserts or parts of Chennai and Kerala, now face extensive flooding and property damage. To address this, parametric insurance—referred to as "Misri Suraksha" in some contexts—has emerged as a game-changer. Unlike traditional indemnity-based policies, parametric covers are trigger-based-the insurer and insured agree on predefined parameters.

Such as wind speed exceeding a certain km/h, rainfall over 200 mm in 24 hours, earthquake magnitude, or heat waves above 48°C. Once the trigger is breached—verified objectively—the predetermined payout is released immediately to the beneficiary's bank account digitally, without surveys, paperwork, or delays. This model is gaining popularity not only for property but also in renewable energy (e.g., compensating for reduced wind or solar output) and even dairy farming (e.g., heat wave impacts on milk production).

A senior functionary of a government bank mentioned that in infrastructure development under initiatives like Viksit Bharat and Sagarmala—encompassing roads, bridges, tunnels, railways, ports, coal mining, and oil exploration—insurance surety bonds (also called insurance security bonds or ISBs) are emerging as a strong alternative to traditional bank guarantees. Previously, contractors needed bank guarantees, which blocked capital as collateral. Surety bonds require no collateral, releasing capital for productive use, with low rates and coverage up to five years.

They include bid bonds (for tender compliance) and performance bonds (for project execution). Though government entities like NHAI and NHPC initially hesitated, guidelines from the Department of Financial Services (DFS), Ministry of Finance, and RBI have encouraged acceptance. A central repository for contractor data—covering credibility, credit ratings, defaults, and ongoing projects—is also in development, making surety bonds a mainstream tool and boon for MSMEs and large projects.

The discussion underscores the insurance sector's adaptability—from navigating geopolitical and climate uncertainties to pioneering innovative products like parametric covers and surety bonds—while aligning with national goals for broader protection and development. As risks evolve, so does the industry's role in safeguarding individuals, businesses, and the economy. Stay informed and protected—that's the core mantra.