We have seen a spike in marine, cargo, and life premiums historically whenever situations like geopolitical tension or life risk rise. Due to the recent conflict between Israel and Iran, major shipping routes like the Strait of Hormuz and the Red Sea are under threat.
We have already seen the rise in the prices of crude oil, touching $78.45 per barrel on Friday, and gold & silver touching their recent highs. However, this is a kind of good news for the insurers, especially in marine, aviation, and international travel.
What does it mean for Indian Insurers?
Due to increased heightened war risk, global reinsurers (Insurance for insurers to protect them from huge claims) are raising premiums. Indian insurers dependent on those reinsurers (particularly for marine, cargo, and aviation policies) may need to raise prices, which may be passed on to policyholders.
Indian shipping or transport of cargo through conflict zones (e.g., the Red Sea) increases the risks for those vessels. If there are incidents, any claims against insurers like ICICI Lombard or New India Assurance could significantly increase in the marine and travel segments.
And third, but not the least, Global uncertainty may drive consumers to want more protection. Indian life insurance providers may see an increase in demand for term plans or more health insurance, creating an advantage for players like SBI Life, HDFC Life, ICICI Prudential Life, etc.
Additionally, we can also connect the dots like geopolitical tensions especially with Iran, which is one of the major contributors to OPEC’s output, might raise inflation fears in India, which would be a product of a surge in global oil prices.
This inflation fear might allow the RBI to stop cutting interest rates or may even increase the interest rate, which will directly in turn lead to less liquidity in the market. This may trigger global investors’ exit from Indian equity and invest in safe havens like gold, silver, etc, and pulling out of money will result in a sharp decline of the Indian equity market.
Conclusion
Though geopolitics can elevate risk across sectors, insurers might benefit from unintended consequences. Insurers should see higher premiums in marine, aviation, and increased volume in life and health insurance segments as the world responds to its geopolitical uncertainties. But investors have to be wary of the impact sponsored by inflation and interest rate volatility.
Written by Satyajeet Mukherjee
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