Global conflicts reshape insurance risks for South Africa

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Once considered a niche concern for political-risk specialists, global tensions now sit at the heart of mainstream insurance. Wars in Ukraine and the Middle East, escalating Persian Gulf hostilities, and military confrontations involving the United States, Israel, and Iran, alongside evolving sanctions regimes, are reshaping the risk landscape.

For South African insurers, geopolitical risk may appear geographically distant. However, South Africa's deep integration into global trade flows, its reliance on international reinsurance capacity, and its exposure to commodity price volatility mean that these conflicts carry real and material consequences for local insurers, their policyholders, and the broader financial-services sector.

Interconnected risk threats

Geopolitical conflict creates insurance risk in two principal ways: directly, through physical damage to assets and infrastructure, and indirectly, through the economic dislocations it produces, including supply-chain disruption, commodity price volatility, as already seen in the rise in oil prices following the closure of the Strait of Hormuz, currency instability, sanctions exposure, and the withdrawal of reinsurance capacity from affected regions.

Historically, the insurance industry managed geopolitical risk through geographic segmentation. War exclusions, political risk policies, and specialist markets such as Lloyd's of London provided a structured way of ring-fencing conflict exposure.

That model is increasingly under strain. Today's conflicts are characterised by their interconnectedness – for example, a missile strike in the Red Sea affects freight rates in Durban; sanctions on Russia affect the reinsurance of South African cargo; Iranian drone attacks on United States' naval assets trigger cyber countermeasures that cascade into civilian infrastructure.

The Lloyd's of London market and reinsurers have publicly acknowledged a material repricing of geopolitical risk since 2022. Global commercial insurance rates in war-exposed lines have increased substantially, and in some instances, capacity has simply been withdrawn.

Marine and logistical insurance

One of the most immediate insurance implications of the conflict between the United States and Iran is the threat posed to maritime trade routes in the Gulf region. The Strait of Hormuz, a narrow shipping corridor linking the Persian Gulf to global markets and through which a significant share of the world's oil passes, remains one of the world's most strategically significant maritime chokepoints.

A substantial portion of the world's oil and liquefied natural gas exports transits this passage daily, making it highly sensitive to geopolitical disruption.

For marine insurers, any escalation of hostilities in the region can rapidly translate into increased exposure. Incidents such as the seizure of commercial vessels, drone or missile attacks on shipping, or the mining of maritime routes can trigger claims under marine hull, cargo and war-risk policies.

Rising war risks

Underwriters have responded by invoking listed areas under the London Market's Joint War Committee (JWC) listings, which allows underwriters to charge additional premiums for vessels entering designated high-risk areas. The Red Sea, Gulf of Aden and parts of the Arabian Sea have been designated, substantially increasing the cost of war risk cover for vessels operating in these waters. Some underwriters have declined to offer cover entirely, creating capacity shortfalls in the market.

South Africa's trade exposure to conflict-affected routes is substantial. Approximately 90% of South Africa's trade by volume moves by sea. Key commodity exports such as coal, iron ore, manganese, chrome, and agricultural products, traverse routes affected by geopolitical disruption. South African importers of fuel, manufactured goods, and consumer products are similarly exposed.

South African marine underwriters should consider the increased frequency and severity of delay and General Average claims; the need for proactive management of war risk exclusion clauses; the risk of inadvertent sanctions exposure through cargo policies covering goods with dual-use potential or origin in sanctioned jurisdictions; and the opportunity and risk presented by elevated vessel traffic around the Cape of Good Hope.

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Political risk and war exclusions

The conflict has renewed focus on standard war exclusions in property and casualty policies, which typically exclude losses caused by war, invasion, or hostilities between sovereign states. The classification of Houthi attacks, as acts of war, terrorism, or neither, has significant implications for whether losses are covered under standard property and casualty policies or require specialist war/terrorism cover.

Similarly, the Israel-Iran exchanges raise questions about whether cyber-attacks or physical attacks by state-sponsored actors and proxies would trigger war exclusions in commercial property policies. For property underwriters, the defining characteristic of modern conflict is the scale and speed of physical destruction. According to estimates from the World Bank, the Ukraine conflict has reportedly caused an estimated $500bn in infrastructure damage.

The destruction of some cities in the Ukraine represents an almost total loss of insured and uninsured property. Gaza has experienced comparable levels of physical destruction, with the United Nations estimating that over 60% of buildings in the Gaza Strip have been damaged or destroyed.

In both cases, the direct insurance consequences were largely contained by war exclusions. However, the indirect consequences for property and casualty underwriters are significant. For example:

Supply-chain disruption affects business interruption (BI) claims, even where the triggering event occurs in a conflict zone. Post-COVID BI litigation expanded the interpretation of BI triggers, and some policyholders have sought to test whether conflict-induced supply chain failures fall within BI policy coverage.

Commodity price inflation driven by conflict, particularly in steel, aluminium, cement, and timber, has materially increased property reinstatement costs, creating underinsurance risk across commercial and industrial property books. South African construction material costs have also been affected by these global pressures.

Energy price volatility, directly caused by the Russia-Ukraine conflict and the potential disruption of Persian Gulf oil flows, affects the operating costs of insured businesses and the values at risk in energy sector property policies.

Cyber risk and insurance

Geopolitical conflict has fundamentally altered the cyber risk landscape. State and state-sponsored actors and proxies have developed and deployed sophisticated cyber capabilities that are used as instruments of warfare, espionage, and economic coercion. The interconnectedness of global digital infrastructure means that cyber weapons deployed in one conflict can cause collateral or deliberate damage to commercial and civilian targets far from the theatre of war.

The defining case remains NotPetya (2017), a destructive malware attack attributed to the Russian GRU. Although initially targeted at Ukrainian systems, it rapidly spread globally, causing an estimated USD 10bn in damages to companies including Maersk, Merck, Mondelez, and FedEx (see a previous article here). Since 2022, the Russia-Ukraine conflict has been accompanied by an unprecedented level of cyber activity.

The Iran-Israel-US confrontation has similarly been accompanied by significant cyber dimensions, including reported Iranian attacks on Israeli water infrastructure, US and Israeli cyber operations against Iranian nuclear programme systems, and Iranian-affiliated groups targeting US financial institutions.

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South Africa is not insulated from conflict-related cyber risk. The country's financial services sector, ports, energy infrastructure (particularly Eskom and Transnet), and telecommunications networks are all potential targets or collateral victims of state-sponsored cyber activity. Transnet experienced a significant ransomware attack in July 2021, which paralysed port operations for several days. While that attack was attributed to criminal actors, it demonstrated the vulnerability of critical logistics infrastructure.

Casualty lines and liability exposure

Conflict-related geopolitical risk also affects casualty lines, albeit less directly. In directors' and officers' (D&O) liability, boards of companies with operations in conflict zones or exposed to sanctions risk face increasing scrutiny over their risk management decisions. Class action litigation against corporate directors for inadequate sanctions compliance or failure to disclose geopolitical risk exposure is an emerging risk.

Product-liability risks are heightened when supply chains are diverted through alternative jurisdictions, including those with less rigorous quality control regimes and security, increasing the risk of defective product claims. Environmental liability is also affected as the use of the shadow fleet of Russian oil tankers, operating outside Western insurance and regulatory structures, increases the risk of major oil spills with attendant environmental liability consequences.

The Russia-Ukraine war, the Middle East conflict, and the direct military confrontation between Iran and the US-Israel alliance have collectively demonstrated that conflict risk is systemic, interconnected, and capable of producing losses across multiple lines of business simultaneously and in jurisdictions far removed from the theatre of operations.

For South African insurers, the challenge is to resist the temptation to regard these conflicts as distant events with limited local relevance. South Africa's trade-dependent economy, its integration into global reinsurance markets, its exposure to commodity and energy price volatility, and its vulnerability to conflict-related cyber activity all ensure that the consequences of geopolitical conflict are felt locally through premium rates, reinsurance capacity, claims experience, and policyholder financial stress.

South African insurers should consider several mitigation measures. First, portfolio review and exposure mapping, where a thorough review of existing portfolios is conducted to identify and quantify exposure to conflict-related risks across all lines, including marine cargo, property BI, cyber, and political risk; mapping geographic concentrations of risk, with a particular attention to supply chain dependencies passing through the Red Sea, Black Sea, Persian Gulf, and Strait of Hormuz; and identify policyholders with direct or indirect operations in conflict-affected jurisdictions.

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Second, review policy, particularly war exclusion clauses across all lines to ensure they are current, legally robust, and clearly drafted in light of modern conflict characteristics (hybrid warfare, cyber, drone attacks); and consider adopting updated market standard clauses that provide greater definitional clarity around "war," "cyber war," "state-sponsored attack," and "hostile act"; and ensure that war risk is either clearly excluded or specifically covered by endorsed coverage.

Third, formulate a reinsurance strategy by engaging proactively with reinsurers to ensure that war risk and political risk exposures are adequately protected under treaty and facultative arrangements. Be aware of reinsurance treaty exclusions that may leave South African cedants exposed, particularly regarding cyber, political violence, and marine war risk.

Businesses should also consider the use of specialist political risk and war risk reinsurance capacity, including Lloyd's market and captive arrangements; and monitor the potential impact of global reinsurance capacity withdrawals from conflict-exposed lines on the pricing and availability of South African reinsurance protection.

Fourth, sanctions compliance. South African insurers with international reinsurance arrangements are exposed to US, EU, and UK secondary sanctions risk. Inadvertent exposure to sanctioned entities can result in significant legal, reputational and financial consequences. Local insurers should implement robust sanctions screening processes for all counterparties, including policyholders, reinsurers, brokers, and service providers and engage with the South African Insurance Association (SAIA) and the Financial Intelligence Centre (FIC) for guidance on domestic compliance obligations.

Fifth, proactively engage with key commercial policyholders, particularly those in trade, logistics, mining, agriculture, and financial services on their geopolitical risk exposure and risk management practices and encourage policyholders to diversify supply chains, maintain appropriate safety stocks, and develop business continuity plans that account for geopolitical disruption scenarios.

Finally, consider product development and market positioning for those with the risk appetite, evaluate the development or distribution of trade disruption insurance products for South African exporters and importers who are currently underinsured for geopolitical risk and position cyber insurance products appropriately, with clear and transparent war exclusion communication to policyholders, and invest in policyholder education regarding state-sponsored cyber risk.

The insurers that will navigate this environment successfully are those that invest in understanding geopolitical risk at a granular level, that ensure their policy language is fit for the modern conflict environment, that maintain robust reinsurance and capital management disciplines, and that build genuine expertise in the intersection of geopolitical events and insurance outcomes.

In this context, the Webber Wentzel team works closely with insurers and reinsurers to support frontline risk management and help safeguard reputational and commercial outcomes. The era of geopolitical risk as a peripheral concern is over. For the insurance industry, it has moved firmly to the centre of the risk map.