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The cost of insuring everything from energy infrastructure to hotels to data centers against war damages has skyrocketed in the Middle East.
A $100 million policy covering damage from war and terrorism that would have cost $250,000 per year before the outbreak of hostilities costs $5 million today, said Joe Peiser, CEO of Risk Capital at Aon, the giant insurance brokerage.
Before the war, data-center developers could purchase up to $3 billion of coverage for a single property, he said; “Today the max we could probably do is $100 million.”
Iranian drones struck two Amazon Web Services data centers in the United Arab Emirates in the early days of the war. Dubai’s luxury Fairmount hotel was set on fire by debris from an Iranian missile. Iran’s Revolutionary Guard warned on Tuesday that the Middle East facilities of 18 US companies, including Microsoft, Google, and JPMorgan, would be considered “legitimate targets.”
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Traditional commercial insurance policies don’t cover armed conflict, sending property owners and developers to the specialty war market. Peiser estimated that global insurers like Lloyd’s of London have $50 billion of those policies active in the Middle East, locked in at lower premiums than today’s risks would command. (Marine tanker insurance, in contrast, re-prices during conflict; tankers, as Peiser points out, can also be moved, which is “not an option with data centers.“)
Estimated insurance losses from the Ukraine war, where insurers were “orders of magnitude” less active, are $750 million after four years of war, he said.
“The early read is that the losses in the Middle East, if the conflicts stop today, will exceed that,” Peiser said.
Notable
- “Tech assets are now treated as part of the conflict, not peripheral to it,” one corporate risk-management expert told CNBC.