Basi described the move, which will see 543 Boeing and Airbus aircraft seized by the Russian government, as a “nightmare scenario” for the market. 

Basi said the unprecedented move had been justified by the Russian government as securing collateral for a depleted Russian aviation sector following sanctions, and will add further strain in relations between Russia and the West.

Russian companies in the aviation or space industry have also been blocked from accessing British-based insurance or reinsurance services directly or indirectly. 

The move follows a wave of sanctions issued by the UK and EU targeted at the provision of (re)insurance services for Russian companies and access to the aviation and space industry.

Increased tensions between insurers and insureds

In an interview with The Insurer TV, which took place before Russia’s aircraft seizure was confirmed, Basi warned the conflict will likely see insurers push for tighter policies and higher rates, at a time when insureds will seek more flexibility on coverage and pricing.

In addition, the sanctions imposed on Russia are likely to increase the need for more robust responses to this type of event, he added.

In the latest episode of Close Quarter, Basi described the need for insurers to compensate for the impact of the Russia-Ukraine conflict as a “big tension point”, while their clients look to cope with higher costs for their businesses.

The headwinds facing the (re)insurance industry are prompting market participants to examine how their exposures – both direct and indirect – to the conflict could affect their portfolios.

“This is one event that has highlighted and put a spotlight on the need to know cross-class exposure,” Basi said. “A key aspect is knowing how an event can interact with a portfolio and there are going to be multiple touchpoints.”

For (re)insurers, the rise in commodity prices and the potential of rising interest rates could lead to increasing hardening of rates in the sector, driven mainly by higher insured values, Basi noted.

Commodities most affected by the conflict currently include oil, gas and some raw materials, leading to price increases most pronounced in sectors using such commodities.

Knock-on effects

For (re)insurers, the knock-on effects of the conflict extend to the impact on assets from industries such as aviation, cargo and shipping, Basi explained.

(Re)insurers are therefore working to make sense of how their books could be affected by the conflict, further highlighting the need for robust data and analysis processes.

The recent sanctions imposed on Russia are creating “a demand for data and, more importantly, the analysis of that data to find one’s own exposure to that”, Basi said.

Basi also underlined the significance of current events as a warning sign for the future.

He urged the industry to be more prepared to cope with, and quickly adapt to, potential sanctions imposed on any jurisdiction.

“The sanctions issue is probably here to stay,” he added. “I see people wanting to put that in their scenario base where they can use that as a playbook for potential future issues.”