The Arab region has the experience to deal with war risks and geopolitical unrest, and is prepared to do so, said General Arab Insurance Federation (GAIF) Secretary General Chakib Abouzaid.
This is because the Arab War Risks Insurance Syndicate (AWRIS) was established in 1980, on the eve of the Iran-Iraq war, with hostilities lasting nearly eight years.
Insurance pricing
However, while the insurance industry is well-positioned to weather the current storm, increasing insurance rates is inevitable, Mr Abouzaid added.
All insurance covers related to marine insurance will see price increases, as will those connected to war risks, whether cargo, vessels, or liabilities, due to reduced market capacity, which will push insurance companies to raise premiums, he said.
“As for reinsurance agreements, it is still too early to speak definitively on this matter; however, overall, the impact will likely be on political violence and war-risk related coverages.”
The role of the AWRIS in the current situation is essential, he emphasised. “The AWRIS was established to serve Arab markets in such circumstances where obtaining coverage from global markets becomes difficult. Nevertheless, this does not eliminate the need to raise prices, which reflects a broader global trend,” he said.
Impact of Gulf hostilities
Mr Abouzaid added, “The current situation is exceptionally challenging by all standards. The closure of the Strait of Hormuz would negatively affect oil exports from the Arab Gulf states. This, in turn, would also impact Arab oil-importing countries (such as Egypt) and lead to higher oil prices, which would affect citizens’ purchasing power. In addition, there would be a negative impact on Suez Canal revenues.”
He added that repercussions have already emerged, as some of the world’s largest shipping companies have announced rerouting their vessels via the Cape of Good Hope.
“Overall, there is a combination of influencing factors. The shelling and explosions witnessed in some Gulf countries have affected air traffic, as these countries serve as vital aviation hubs connecting different continents. This, in turn, negatively impacts airlines and consequently insurance companies.”
Mr Abouzaid noted that global trade would also suffer, further affecting both regional and international insurance industries. “To some extent, the current repercussions resemble those that accompanied the COVID-19 pandemic. Almost all sectors suffered then, and now we are seeing a similar scenario on the ground.”
He added that the longer the war continued, the deeper the negative effects might become. “Some countries have already been affected, such as Palestine, Lebanon, Iraq, and Jordan, not to mention the Gulf states, which have directly experienced the impact of the war.”