Airlines Face Massive Uninsured Losses as Middle East Conflict Disrupts Travel

The escalating U.S.-Israeli conflict with Iran has disrupted airline operations for three consecutive days, causing billions in market losses. Insurance experts reveal that most airlines lack coverage for war-related revenue losses, leaving carriers to absorb the financial impact themselves.

The ongoing U.S.-Israeli military action against Iran entered its third day Monday, creating widespread disruption across the aviation industry with carriers facing significant financial losses that insurance policies won’t cover, according to industry analysts and insurance experts.

Aviation stocks plummeted from Asian markets to Wall Street, erasing billions in market capitalization as the escalating conflict forced the cancellation of thousands of flights globally, closed major Middle Eastern aviation centers, and drove oil prices sharply higher.

Insurance industry professionals and market analysts provided insight into how the crisis affects coverage:

Jefferies analysts noted that commercial property insurance policies “almost always” contain exclusions for war-related damages, and unlike marine and aviation coverage, separate war insurance isn’t readily obtainable for most businesses.

The investment firm warned that significant commercial property damage, including potential harm to Dubai’s famous Palm Jumeirah development, would likely fall outside standard insurance protection.

According to Jefferies, aviation war insurance policies contain provisions allowing insurers to terminate coverage, while standard non-war aviation policies typically contain war exclusions either through direct language or force majeure clauses.

However, one industry insider informed Reuters that aviation insurers routinely handle such situations and noted that no insurance companies have issued cancellation notices thus far.

A second industry source explained that while airlines maintain aviation war coverage protecting their aircraft fleets from physical damage and liability claims, operational disruption losses typically fall under business interruption policies that exclude war-related events, forcing airlines to absorb these costs directly.

Credit rating agency Morningstar DBRS stated the conflict presents major underwriting and investment obstacles across marine, aviation, property, travel, and supply chain insurance sectors.

“From an aviation-hull perspective, insurers must consider the risk that missiles or air-defence interceptors could result in large hull and liability claims,” the agency explained in its analysis.

Morningstar DBRS further warned that if the Gulf conflict expands, it could drive up pricing while reducing available capacity in terrorism and political violence insurance markets.

The cost of insuring cargo shipments through Middle Eastern waters has jumped as much as five times normal rates over the past two days, with most underwriters refusing to provide coverage for vessels transiting the Strait of Hormuz, Reuters reported Monday citing industry sources.