US-Israel War Against Iran Heats Up, Indonesian Insurance Sector Braces for Impact
Jakarta – The escalation of conflict between Israel, backed by the United States, against Iran is once again triggering concerns across global markets, not least the insurance sector.
Previously, on Saturday 28 March 2026, the US and Israel launched a coordinated attack, bombing the heart of Iran’s capital, resulting in the deaths of Iran’s Supreme Leader Ayatollah Khamenei and several Iranian military commanders.
This assault was then countered by Iran, which launched missiles at the heart of Israel’s capital and several US military bases in the Middle East. The tensions in the Middle East are not only impacting geopolitics and energy, but are also reshaping the risk landscape for the global insurance industry.
The most immediate impact is being felt by the marine insurance sector due to the closure of the Strait of Hormuz. This waterway carries approximately 20% of global oil supplies and 20% of tanker shipping. The closure of this route will automatically affect global supply chains with potential to drive up inflation rates.
Rising security risks will also cause war and terrorism risk premiums to surge. In conditions of active, particularly protracted conflict, maritime insurance rates could increase significantly per voyage, driving up global logistics costs.
Several major marine insurance companies including Gard and Skuld from Norway, NorthStandard and London P&I Club from the United Kingdom, and American Club based in New York, have cancelled war risk coverage for vessels operating in Iranian waters, the Gulf, and surrounding waters.
Rising oil prices represent the next transmission mechanism for risk from the Strait of Hormuz closure. If energy prices remain elevated, vehicle repair costs increase, distribution and logistics costs rise, and construction and property costs will follow suit.
Consequently, the loss ratios of general insurance companies could increase. If premiums are not adjusted accordingly, the combined ratio could come under pressure. Whilst this pressure is indirect in nature, it would be significant if the conflict extends beyond several months.
On the other hand, the global reinsurance market tends to react quickly to geopolitical risks. When the potential for large claims increases, reinsurers can raise renewal treaty rates, reduce capacity for high-risk zones, and increase deductibles.
This situation could create a hard market, in which primary insurance companies must pay more for protection against major risks such as energy, industrial property, and marine coverage. Meanwhile, the global reinsurance market is currently in a softening phase following several years of hardening.
Impact on Indonesia
Although Indonesia is not directly involved in the conflict, the transmission of its effects remains felt. At least three impacts will be experienced by insurance players in Indonesia.
First, imported inflation pressure. As an energy-importing nation, rising oil prices could increase domestic production and distribution costs. This could impact claim values in the vehicle and property sectors, and even healthcare. Particularly for health insurance claims, imports have been one factor driving high medical inflation.
Second, claims denominated in US dollars will swell. Many claims in the insurance sector are paid in US dollars, such as marine cargo and hull, aviation, energy and infrastructure projects. Rupiah depreciation resulting from Middle East war sentiment could increase the value of claims faced by Indonesian insurance companies.
Third, increased reinsurance costs. Global reinsurers tend to tighten capacity and raise prices when geopolitical risks increase. This means Indonesian insurance companies must pay higher premiums for reinsurance protecting major exposures.
Insurance companies in Indonesia rely heavily on global reinsurance for major risks, including reinsurance companies that themselves depend on retrocession with global reinsurers. If international rates rise 10-20%, domestic underwriting margins could be eroded. A return to a hardening reinsurance market would certainly not be favourable for either local insurance or reinsurance companies.
Fourth, investment volatility and RBC. Geopolitical conflicts typically trigger risk-off sentiment in financial markets. If stock and bond markets weaken, the value of insurance company investments can decline, impacting Risk Based Capital (RBC) calculations.
This occurs because investment assets are a main component forming net capital (net assets) used to cover risks. A decline in investment asset values resulting from market losses will automatically reduce capital, thus lowering the RBC ratio and indicating deteriorating financial health for insurance companies.