Since the U.S.-Iran conflict began in March, global oil prices have surged more than 45% – from $70 per barrel of Brent crude to roughly $104 by early May.6 Due to this geopolitical tension, the Strait of Hormuz remained closed as of June 1st amid discussions of a ceasefire between the U.S. and Iran. The Strait remains one of the world’s most critical energy corridors, serving as a key route for delivering crude oil to markets worldwide, and the current disruption is greatly magnifying the impact on shipping markets and global oil prices. These increases are creating ripple effects across the global economy (see “Geopolitical Ripple-Out Effect” in this issue), with significant implications for the insurance industry.
Energy prices ripple through production costs across industries, financial markets, and inflation felt by consumers. Beyond driving higher fuel and transportation costs, sustained increases in oil prices can affect insured asset values, underwriting exposure, and insurance dynamics across multiple industries.
Rising oil prices can cause underinsurance across markets
Insurance programs are frequently structured around previously reported asset values and replacement cost assumptions. If oil prices rise sharply, the value and replacement cost of infrastructure, equipment, and inventory may increase faster than insured values and policy limits are updated. Rising transportation and logistics costs across multiple industries such as aviation and inland marine would also contribute to this. As a result, some firms could find themselves carrying inadequate coverage relative to current exposures.
These pressures may be particularly pronounced in the energy sector, where companies involved in the production, transportation, and storage of crude oil, natural gas, and related commodities may experience significant increases in asset and replacement values during periods of elevated energy prices.
Marine insurance faces disproportionate strain
Marine insurance markets are facing additional pressures as geopolitical instability reshapes shipping dynamics. While war-risk insurance costs have gone up for maritime sectors, some marine insurers have reportedly reduced or canceled war-risk coverage for vessels operating near the Strait of Hormuz.7 If coverage tightens further, shipping companies could face higher operating costs and freight rates as vessels look for alternative routes.
The Trump administration has tapped the U.S. International Development Finance Corporation, or DFC, for the job, with the president noting that the agency will provide political risk insurance to “all shipping lines.”8 This is intended to help stabilize war-risk pricing and maintain shipping activity throughout the region. These developments highlight the increasingly important role insurance markets can play during geopolitical and energy crises.
Potential opportunities for excess and surplus
Rising oil prices and geopolitical instability may create opportunities for E&S carriers and MGAs. Periods of heightened volatility often produce risks that are more difficult to standardize, price, and model using typical underwriting frameworks. As insured values fluctuate and war-risk concerns rise, businesses may increasingly turn to specialty insurers and delegated authority platforms capable of providing customized coverage solutions and technical underwriting expertise. E&S carriers, in particular, are well positioned to step in where admitted markets pull back, offering flexible capacity and tailored risk solutions in an increasingly complex and shifting environment.
Putting this all together, rising oil prices and ongoing tensions surrounding the Strait of Hormuz underscore a broader challenge for the insurance industry: Interconnected economic and geopolitical risks quickly exert a “domino effect,” rapidly cascading across multiple markets and shaping the underwriting decisions and performance outcomes over an ever-expanding array of lines.
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