The Insurers Federation of Egypt (IFE) has said that traditional actuarial models are no longer sufficient in light of accelerating geopolitical changes. It has become necessary to introduce additional premiums under the "geopolitical risk" clause and reduce coverage in conflict zones.
The Federation said that escalating geopolitical conflicts, regional wars, and international sanctions are having an unprecedented and direct impact on many insurance sectors, reshaping the pricing landscape and coverage conditions, and imposing increased challenges on the Egyptian market given its heavy reliance on global reinsurance.
The IFE, in its newsletter released on 22 June, recommended redesigning pricing models to include political variables, diversifying reinsurance sources through alliances with reinsurers in Asia and South America, investing in technology to improve risk assessment tools, expanding political risk coverage, and developing new products such as transportation and supply chain disruption insurance.
The federation recommended the following in its weekly bulletin:
1. Redesign pricing and actuarial targeting models to include geopolitical variables.
2. Shift towards diversifying reinsurance sources through regional companies or alliances with reinsurers in Asia and South America.
3. Enhance investment in technology to enable more flexible risk assessment models that respond quickly to global events.
4. Expand supply risk insurance and political risk insurance, especially for exporters and importers dealing with high-risk markets.
5. Develop new products that address geopolitical risks, such as transportation disruption insurance or international supply chain insurance.
6. Establish emergency funds and technical reserves in line with the scope of risks.
Impact of geopolitical situations on insurance branches
Many insurance branches have been affected by geopolitical conditions, given their direct dependence on the geographic and political environment of international roads and routes. In the face of armed conflicts, threats of terrorism, and maritime piracy, insurance companies face increasing challenges in determining risk levels and coverage costs.
Insurance rates for ships and aircraft transiting airspace or sea lanes close to conflict zones, such as the Strait of Hormuz, the Black Sea, and the Gulf of Aden, have increased. In some cases, insurance companies have been forced to include a “war clause” or “terrorism exclusion,” or have imposed significant increases on premiums.
Marine insurance has been particularly affected by the Russian-Ukrainian war, with many companies suspending coverage for ships bound for Ukrainian ports and imposing restrictions on coverage for cargo coming from Russia. The classification of conflict zones as high-risk areas by the Joint War Committee of Lloyd's of London has also led to an unprecedented rise in the cost of ship insurance and war insurance.
In aviation insurance, risks include the possibility of aircraft being shot down, airspace being restricted in certain areas, or airports being exposed to hostile action.
In the field of energy insurance, risks have increased as a result of the targeting of oil facilities, refineries, and threats to pipelines. This has led to increased insurance rates for petroleum assets in high-risk areas (such as the Gulf and the Caspian Sea), increased demand for specialised coverage such as terrorism insurance and business disruption due to wars, and the development of the sovereign insurance model in some countries for their strategic resources.
In the field of travel insurance, geopolitical conflicts affect travel insurance. The Israel-Iran war has led to the cancellation or rerouting of thousands of flights in the Middle East, leading to an increase in travel cancellations, which has negatively impacted travel insurance. If the war continues, insurance companies will be forced to pay huge compensation due to travel cancellations.