The War-Coverage Gap Exposing Middle East Businesses
CNBC reported Tuesday that companies operating across the Middle East are facing a painful insurance reckoning, with billions in potential losses hinging on whether ongoing hostilities linked to Iran legally qualify as “war.”
A Single Word, Enormous Consequences
For most businesses, standard property insurance forms the base layer of risk protection. Those policies almost universally exclude war-related losses. The exclusion is typically written broadly, capturing declared conflicts, invasions, insurrections, and actions by sovereign powers. Separate coverage must be purchased explicitly to address those risks.
Global insurance broker Marsh told CNBC the majority of Middle East-based companies purchased only terrorism and sabotage protection. Relatively few went further to secure full political violence coverage, which would include war-related property damage and business interruption.
Companies Grew Complacent Before the Crisis
Experts say the coverage gap reflects years of underestimating regional risk. David Kinzel, Aon’s U.S. Practice Leader for Political Risk, told CNBC that firms long operating in the Middle East grew accustomed to relative stability and failed to anticipate how rapidly geopolitical conditions could deteriorate.
That miscalculation is now proving expensive. According to Al Jazeera, citing ship-tracking data from Kpler, 22 vessels were attacked in the Strait of Hormuz between the start of the conflict and mid-April. War risk premiums for regional transits surged sharply. Dozens of shipping firms rerouted cargo around Africa rather than use the Suez Canal, adding weeks to voyages and millions in additional fuel costs per trip. On land, brokers reported missile strikes landing near data centers and production facilities.
Trump’s Language Carries Political Weight, Not Insurance Weight
President Donald Trump has consistently avoided calling the conflict with Iran a war. His formal notifications to Congress described the situation as “hostilities,” arguing that without a declared war, congressional authorization under the War Powers Resolution was unnecessary.
Insurance professionals say that framing changes nothing for policyholders. Baxter Southern, head of Marine for Howden U.S., told CNBC that in marine insurance, “war” describes a category of perils rather than a formal governmental declaration. What controls a claim outcome is the policy’s own language, not the White House’s chosen terminology. Insurers examine the specific facts of each loss against the contractual definition embedded in the policy.
Cyber Policies Face Their Own Grey Zone
The ambiguity extends into cyber insurance, where nearly every policy contains a war exclusion. Proving whether a cyberattack constitutes an act of war carries an especially high evidentiary burden for insurers, leaving policyholders in an uncertain position as the region’s conflict continues to evolve.
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