Kennedys has warned that the escalation of the 2026 Iran conflict is creating “immediate and structural implications for the aviation insurance market globally, including for Australian insurers underwriting airlines, airports, and aviation risks,” drawing war-risk cover into sharper focus in underwriting, pricing, and accumulation management.
In its aviation war-risk commentary, Kennedys said insurers are reassessing exposure to aircraft operating in or near conflict zones and reviewing risk appetite across fleets, routes, and hubs. Premiums for aviation risks are already rising, with more than 10% increases reported for lower-risk carriers and higher rate movements for airlines operating Middle East routes. Aircraft based in countries subject to military strikes may require additional war-risk premiums to maintain cover. This environment is contributing to a reassessment of portfolio volatility, pressure on reinsurance arrangements, and closer monitoring of accumulations at specific airports and along high-traffic corridors. Kennedys’ analysis points to questions for Australian insurers around the interaction between hull, liability, and war-risk layers, as well as how aggregation is measured where multiple aircraft, airports, and lessors may be exposed to the same regional conflict dynamics.
Kennedys also highlighted a continuing gap between operational disruption and insurable loss. Flight cancellations, diversions, and airspace closures can generate material revenue impacts for airlines, but many such losses fall outside standard aviation hull and liability wordings when no physical damage has occurred. Industry observers cited by the firm have noted that a significant portion of conflict-related revenue impacts remains uninsured. This raises the prospect of disputes about policy triggers, exclusions, and causation, and may prompt further consideration of wordings or optional extensions that address non-damage business interruption linked to war or political events. Claims teams are likely to face questions about the extent to which disruption arising from route changes, extended flight times, or schedule reductions can be linked to insured perils under existing policy structures.
The Iran conflict has contributed to widespread aviation route adjustments as several Middle Eastern states have restricted or closed airspace, leading to large numbers of cancellations and diversions. Airlines are rerouting to avoid Iranian and Iraqi airspace, sometimes increasing flight distances, fuel consumption, and operating costs, and in some cases shifting Europe-Asia services to alternative paths, including via North America. These developments complicate assessments of proximate cause. Insurers must distinguish between losses arising directly from war-risk perils, broader political risk, regulatory action, or routine operational decisions. Those distinctions will influence how delay, cancellation, and passenger claims are treated, and may also shape discussions with aviation regulators and consumer authorities about obligations to passengers when disruption is connected to conflict zones.
Kennedys reported that retaliatory strikes have damaged aviation infrastructure in parts of the Gulf, including aircraft on the ground and airport facilities, and that military action has destroyed aircraft at airfields and unmanned aircraft in flight. Potential consequences include major hull claims, property losses at airports, and complex subrogation and recovery questions under war-risk and reinsurance programs.
Kennedys characterised the current situation as the most significant aviation insurance stress event since the Russia-Ukraine conflict, prompting a renewed focus on aggregation across fleets, hubs, and leasing portfolios with exposure to, or proximity to, conflict-affected regions. This is driving more detailed mapping of geographic accumulations, scrutiny of reinsurer appetite for war and terror layers, and review of how war exclusions, buy-backs, and reinstatement provisions operate from primary through to reinsurance contracts.
Although the conflict is geographically distant from Australia, Kennedys noted that domestic exposure can arise through Australian-based insurers writing international airline and airport risks, aircraft leasing interests, and APAC carriers that have historically used Middle East hubs on Europe-Asia routes and are now considering or adopting alternative routings, including via the US, as a “route of choice.” Travel and aviation liability claims involving Australian passengers may also emerge where itineraries intersect affected airspace or infrastructure, even when flights originate or terminate outside Australia. This links the aviation war-risk discussion to developments in the Australian travel insurance market.
On the retail side, Australian travel insurers have put in place additional resources for customers affected by the Middle East conflict, according to the Insurance Council of Australia (ICA). Measures include 24/7 assistance lines, support in arranging medical care, and focused handling of cases involving policyholders in affected locations. ICA members providing travel cover have indicated that, in some situations, policy coverage dates will be extended for customers impacted by airport or airspace closures. The ICA has said that policyholders who have suffered a loss are encouraged to lodge a claim, even if they are uncertain about their coverage position.
War and conflict exclusions remain standard across most travel insurance products, but losses not related to war and conflict, including many medical and other benefits, are generally assessed under usual policy terms on a case-by-case basis. To support industry coordination, the ICA has declared the Middle East conflict a Significant Event. The declaration has been accompanied by the formation of a taskforce, the start of aggregated claims data collection and analysis, and engagement with federal government agencies on issues affecting Australians overseas.
