Article

Insurance is doing what it should in the Middle East crisis — but the pressure points are visible

Marsh's Global Chairman of Energy and Power, Andrew Herring, spoke at the Westminster Energy Forum event, Geopolitics of Global Energy Transitions: International Risks, Resilience, and Competition.

Marsh's Global Chairman of Energy and Power, Andrew Herring, spoke at the Westminster Energy Forum event, Geopolitics of Global Energy Transitions: International Risks, Resilience, and Competition. A summary of his key points follows below.

The Middle East crisis is demonstrating that the insurance market is functioning as intended: cover remains available, markets are competing on rate, and premiums are adjusting to reflect changed circumstances. But while the system is working, the conflict is likely to leave a lasting mark on how the market assesses, aggregates, and prices geopolitical risk.

Some insurers have found themselves heavily exposed to the region, which may lead to reduced underwriting shares over time. The way risk is aggregated is also likely to change. Where exposures were once assessed country by country, they may increasingly be assessed on a regional basis, reflecting the wider reach of modern threats such as drone technology in the wrong hands. Reinsurers, meanwhile, are widely expected to respond to the recent Middle East crisis by tightening treaty capacity as they seek to recover losses through pricing.

That could drive broader market change. Capacity may tighten precisely when demand is rising. Buyers who once purchased only terrorism cover may now seek wider political violence protection, including war cover, while lenders may begin to insist on it for projects in the region. The result will be a classic supply-and-demand squeeze, with consequences for pricing and availability. We are already seeing signs of this dynamic, with one policy placed last year recently renewing at four times the previous premium for just one-tenth of the limit.

Higher insurance costs driven by geopolitics could affect the energy transition

These higher costs are likely to have a particular impact on the energy transition. Cost is often a much greater constraint in the renewable energy sector than in the oil and gas sector. In oil and gas, stronger margins have historically given many operators greater flexibility to retain risk themselves. In renewables, by contrast, commercial viability depends much more heavily on stringent cost control. This means even modest increases in insurance costs can materially impact project economics.

Assets that are especially exposed may become difficult to insure. Subsea interconnectors, cables, and pipelines belong on that list, as they are highly vulnerable to deniable attacks and much harder to protect. Onshore assets at least benefit from Patriot and similar defences against drone threats.

Floating production and business interruption face growing insurability challenges

By contrast, movable assets such as vessels and aircraft have historically usually found war cover available, and that is likely to remain the case. But we are already seeing challenges in parts of the oil industry, particularly with floating production, storage, and offloading units (FPSOs). In theory, these assets can be moved, but in practice, many have limited mobility.

There are also practical challenges arising from the shifting geopolitical situation. Even where the premium is viable, significant difficulties may remain with the insurance process itself. Can loss adjusters access the site to assess damage? Can contractors reach it to begin repairs? Can equipment be delivered? Can the asset be rebuilt in situ, or will it need to be relocated?

Property damage is generally more straightforward to insure than business interruption, where uncertainty around repair times or resumption of operations can have far greater consequences. This is particularly relevant where lender-driven insurance requirements include business interruption cover, whether for project delay-in-start-up or to protect revenue once operations begin.

The challenge becomes even greater with contingent business interruption. For example, a refinery supplying a tank terminal or port can significantly amplify the underwriting risk, because the insurer is no longer covering only the refinery itself, but also the terminal and port infrastructure — assets over which the insured has no control. We have seen this in practice in the Strait of Hormuz, where assets have remained operational in theory, but have been unable to run because terminal or port infrastructure has been affected.

Insurance capacity will be vital to financing the energy transition

The insurance market currently has a strong appetite for risk, despite the recent rise in geopolitical tensions. Capital levels remain robust, and insurers are benefiting from the profitable years of 2024 and 2025, with many now looking to deploy capacity and write more premium. But this remains a cyclical market, and conditions may tighten as insurers become more cautious than they are today.

A healthy and well-functioning insurance sector will be essential to supporting the significant investment required for the energy transition, including the interconnectors and pipelines critical to its success. Insurance capacity will also be vital to sustaining the transition amid ongoing geopolitical uncertainty.

To discuss your insurance requirements, please contact your Marsh risk advisor.

Report

Insurance is doing what it should in the Middle East crisis — but the pressure points are visible

Higher insurance costs driven by geopolitics could affect the energy transition

Floating production and business interruption face growing insurability challenges

Insurance capacity will be vital to financing the energy transition

Our people

Andrew Herring

Related insights

100 largest losses in the hydrocarbon industry 1974 - 2025

Protecting energy operations: Insights from Marsh's 29th 100 largest losses report

Volatility rules: Navigating today’s commodities landscape

Getting to know new teammates: Evolving roles and risks in the new energy ecosystems