What Month 2 of Mideast war means for Canada’s insureds

As U.S. and Israeli military action against Iran enters its second month, the conflict zone continues to widen.

For all intents and purposes what financial analysts call ‘Tehran’s tollbooth’ remains closed to crude oil shipments. And businesses operating in the region must continue to manage risks posed by a conflict for which no end is in sight.

From an insurance-perspective focus for multinational clients with operations in the region, James Lloyd, a senior vice president specializing in political violence and terrorism at Bowring Marsh, says his team’s exploring what coverages those firms have in place around war perils.

He works with companies in the energy and logistics space, and with multinationals with offices in impacted cities. He explains war perils coverages address insurrection, revolution, rebellion, coup d’état, mutiny, war and civil war. Additionally, there are political violence peril policies that cover terrorism, sabotage, strike, riot and civil commotion.

“Specifically [they’re looking at] whether their insurance program would respond in the event that [even if] they might not be directly targeted, that the building in which their office is located [got] hit by a drone or missile, or their actual physical assets somewhere else are directly damaged,” he tells Canadian Underwriter.

Such clients are examining what changes to their risk picture mean in terms of losses from a property damage and physical damage perspective, “and then, the business interruption that might follow-on from that.”

Related: Will U.S. political risk insurance help restart oil traffic?

While war exclusions are a primary barrier to claims in standard policies, they’re not the whole story, adds Marcos Alvarez, managing director, global financial institution ratings at Morningstar DBRS.

“Clients can still buy specialist cover where those perils are affirmatively insured [and include] stand-alone terrorism, broader political violence, marine cargo war and strikes, hull war, aviation war and allied perils, political risk insurance, and crisis-management [and kidnap and ransom] products,” he tells CU.

“There are also statutory or legal exceptions at the margins, but they are not uniform across Canada. [For example], provincial workers’ compensation systems are no-fault schemes rather than conventional market policies. At the same time, it is still difficult to say that ‘fire following’ a terrorist attack is a clean national carve-out for commercial clients – the rules vary by province.”

Related: A protracted Iran war spells trouble for Canada’s insurers

In general, specialty coverages help clients work around standard war exclusions that are part of property policies, notes Tarique Nageer, terrorism placement advisor at Marsh Risk. Political violence coverages and policies in the political risk market do not have exclusions for war perils.

“We recommend exploring political violence coverage as an add-on or a full coverage onto their terrorism policies,” he tells CU. “That removes the concern of having war being excluded on the policies.”

He adds the policies do contain an exclusion that applies if a war breaks out between five major powers within the United Nations – the U.S., U.K., Russia, China and France.

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“That becomes a not-covered situation,” he says. “But if any one of those five are involved with conflict with another country, like what’s happening now, that is covered within the policy.”

Covering immediate needs

Meanwhile, the clients the Lloyd’s team works with are showing interest in specialized policies that respond to people-related risks, such as emergency evacuation coverage for employees and other insured persons who are currently in the conflict zone.

“We’ve certainly seen claims activity around that where, although there hasn’t been a directive coming from the U.K. or the Canadian government to evac those specific territories, there’s certainly been a number of specific security and medical-related emergencies that require individuals to be extracted, and for insurance coverage within the special risks (kidnap and ransom) area [that] would respond to those types of scenarios,” he says.

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.