Introduction
The global insurance landscape is undergoing a profound shift. Events once considered remote, such as armed conflict, sanctions regimes, and geopolitical instability, are now directly influencing mainstream insurance markets. Ongoing tensions involving Eastern Europe, the Middle East and key global powers have significantly altered how insurers assess and price risk.
For South African insurers, these developments are not merely international headlines. The country’s reliance on global trade, its dependence on international reinsurance markets, and its sensitivity to commodity and energy price fluctuations mean that geopolitical events increasingly have local consequences.
How Geopolitical Conflict Impacts Insurance
Conflict risk affects insurers in two fundamental ways.
First, there is direct exposure through physical damage to insured assets, infrastructure, and supply chains. Second, there are indirect effects, often more widespread, including economic disruption, sanctions exposure, currency volatility, and reduced availability of reinsurance capacity.
For example, disruptions in key shipping corridors or sudden increases in oil prices can have ripple effects across underwriting portfolios, even where no physical loss has occurred locally.
The Changing Nature of Risk Allocation
Traditionally, insurers managed geopolitical risk through clearly defined mechanisms such as war exclusions, political risk cover, and specialised underwriting markets like Lloyd’s of London.
However, modern conflicts are no longer confined to specific territories. They are interconnected, multi-dimensional, and capable of affecting global systems simultaneously. A single incident in a strategic region can disrupt shipping costs, reinsurance arrangements, or digital infrastructure across continents.
This interconnectedness has prompted a global reassessment of risk. Since 2022, insurers and reinsurers have significantly adjusted pricing in conflict-sensitive sectors, and in some cases, have withdrawn capacity altogether.
Marine and Trade Insurance Exposure
One of the most immediate pressure points lies in marine and cargo insurance. Strategic routes such as the Strait of Hormuz and the Red Sea remain highly vulnerable to geopolitical escalation.
Any disruption, whether through vessel seizures, missile strikes, or maritime blockades, can trigger claims under marine hull, cargo, and war risk policies. Insurers have responded by designating high-risk zones, which allows for increased premiums or the restriction of cover.
This is particularly relevant for South Africa, where approximately 90% of trade by volume is transported by sea. Key exports such as minerals and agricultural goods, as well as imports of fuel and manufactured products, depend on routes that may be affected by geopolitical instability.
As a result, local insurers must prepare for:
- Increased claims relating to delays and general average events
- Greater scrutiny of war risk exclusions
- Potential sanctions-related exposure in cross-border transactions
- Shifts in shipping patterns, including increased traffic around the Cape of Good Hope
War Exclusions and Coverage Disputes
Geopolitical tensions have also reignited debate around the scope of war exclusions in insurance policies. These clauses typically exclude losses arising from acts of war, invasion, or hostilities between states.
However, modern conflict often blurs traditional definitions. Questions arise where attacks are carried out by non-state actors, proxies, or through cyber means. The classification of such events, whether as terrorism, war, or something else, can determine whether a claim is covered.
Although large-scale destruction in conflict zones is often excluded from standard cover, the indirect consequences are more complex. Supply chain disruptions, for example, may give rise to business interruption claims, particularly where policy wording is broad or ambiguous.
Rising Costs and Underinsurance Risk
Another significant consequence of global conflict is the increase in construction and repair costs. Price volatility in materials such as steel, cement and timber has led to higher reinstatement values for insured property.
For South African insurers, this creates a growing risk of underinsurance, where policy limits no longer reflect the true replacement cost of assets. In addition, energy price fluctuations continue to impact operational costs and insured values, particularly in energy-intensive sectors.
Cyber Risk in a Geopolitical Context
Cyber threats have become a central feature of modern geopolitical conflict. State-sponsored cyber operations are now routinely deployed as tools of disruption, espionage and economic pressure.
A well-known example is the NotPetya attack, which caused widespread global damage despite being initially targeted at a specific region. Since then, cyber activity linked to geopolitical tensions has increased significantly.
South Africa is not immune. Critical infrastructure, including ports, energy systems and telecommunications networks, remains vulnerable to cyber incidents, whether directly targeted or affected as collateral damage.
This evolving threat landscape has prompted insurers to reassess cyber policy wording, particularly in relation to war exclusions and state-sponsored attacks.
Liability Risks Across Casualty Lines
Geopolitical instability also affects liability insurance, although in more indirect ways.
Directors and officers (D&O) liability exposure is increasing as boards face scrutiny over their handling of geopolitical risks, sanctions compliance and supply chain decisions.
Product liability risks may arise where companies shift sourcing to alternative jurisdictions with weaker regulatory oversight, increasing the likelihood of defective goods.
Environmental liability is another area of concern, particularly where unregulated shipping activities increase the risk of pollution incidents.
Why Geopolitical Risk Matters for South Africa
Despite the geographic distance from many conflict zones, South Africa remains closely connected to global economic systems.
This means that geopolitical developments can influence:
- Insurance premiums and underwriting conditions
- Availability and pricing of reinsurance
- Claims frequency and severity
- Financial stability of policyholders
Ignoring these risks is no longer a viable option.
Practical Risk Management Strategies for Insurers
To navigate this evolving landscape, South African insurers should adopt a proactive and structured approach. Key considerations include:
Portfolio assessment
Conduct detailed reviews of exposure across marine, property, cyber and political risk lines, with particular attention to supply chain dependencies.
Policy wording review
Ensure that war exclusions and related clauses are clearly defined and aligned with modern conflict scenarios, including cyber warfare and hybrid threats.
Reinsurance planning
Engage with reinsurers to confirm the scope of coverage and identify any gaps, particularly in relation to geopolitical and cyber risks.
Sanctions compliance
Implement robust screening processes to avoid exposure to restricted entities and jurisdictions, taking guidance from bodies such as the Financial Intelligence Centre.
Client engagement
Work closely with policyholders to assess their exposure to geopolitical risk and encourage resilience measures such as supply chain diversification and business continuity planning.
Product innovation
Explore opportunities to develop specialised insurance products addressing trade disruption and geopolitical risk, particularly for exporters and importers.
Conclusion
Geopolitical risk is no longer a niche concern within the insurance sector. It has become a central factor shaping underwriting, pricing and claims across multiple lines of business.
For South African insurers, the challenge lies in recognising the local impact of global events and responding with informed, forward-looking strategies. Those who invest in understanding these risks, refining their policy frameworks, and strengthening their reinsurance and compliance structures will be best positioned to operate in this increasingly complex environment.
