Document Type : Original Research Paper

Author

• Saeed Asadi gharagoz

Department of Economic Sciences, Allameh Askari International University, Tehran, IranSenior Expert Market development/karafarin insuran 

Abstract

BACKGROUND AND OBJECTIVES: War, as a catastrophic systemic risk, destroys physical and human infrastructure and inflicts deep, persistent shocks on macroeconomic variables and financial markets, including the insurance industry. The "The Iran-Israel-US war (June 2025 – April 2026)"caused widespread destruction, with over 115,000 civilian units damaged and preliminary damage estimates of approximately USD 270 billion. This study aims to quantify the direct and indirect impacts of war on the loss ratio and insurance penetration in Iran by leveraging the experiences of three war-affected countries: Syria (civil war since 2011), Ukraine (Russian invasion since 2022), and Lebanon (Israel-Hezbollah conflict since 2024, compounded by an economic crisis since 2019). The main research question is: what quantitative effects does war have on the Iranian insurance industry, and what challenges will the fire insurance group face in the post-war years?

METHODOLOGY: This applied econometric study used a country‑specific time‑series approach (not panel data, due to non‑uniform conflict timelines). Model 1 (ARIMAX) estimated the direct impact of war (with a one‑year lag) on the fire insurance loss ratio, incorporating autoregressive components to capture persistence in claims. Model 2 (Two‑Stage Least Squares – 2SLS) estimated the indirect impact of war on insurance penetration through GDP, using lagged war as an instrumental variable to address endogeneity concerns. The first stage examined how lagged war affects GDP growth; the second stage used instrumented GDP to explain insurance penetration. Data were extracted from the World Bank Open Data, IMF World Economic Outlook, Swiss Re Sigma Explorer, and national insurance supervisory reports (Central Insurance of Iran, SISC for Syria, NAIU for Ukraine, ICC Lebanon). Diagnostic tests included ADF for stationarity, VIF for multicollinearity, White/Breusch‑Pagan for heteroscedasticity, Durbin‑Watson/Ljung‑Box for autocorrelation. For the 2SLS model, the F‑statistic (weak instruments) and Sargan test (overidentification) were applied. All estimations were performed using EViews. For Iran, a weighted‑average simulation based on the three countries was conducted because final war data for 2025‑2026 have not yet been published; weights were assigned according to economic similarities (Ukraine 0.35, Lebanon 0.30, Syria 0.25).

FINDINGS: The direct effect (sum of WAR_t and WAR_{t-1}) increased the loss ratio by 40.6 percentage points in Syria, 38.3 in Ukraine, and 46.9 in Lebanon. The indirect effect (elasticity of insurance penetration to GDP) ranged from 0.072 to 0.093 across the three countries. For Iran, using a weighted average simulation, the fire insurance loss ratio is projected to rise from 86.7% (2024) to 106.7% in the first year of war (2025), and insurance penetration is projected to fall from 2.12% (2024) to 1.08% in the second year of war (2026). Solvency ratios are expected to drop below the regulatory threshold of 100% without government intervention. All models passed diagnostic tests: ADF p<0.05, VIF<5, DW≈2, Sargan p>0.05. The Iranian fire insurance group in 2024, despite having only 3.4% of total premiums, experienced an 83.3% increase in claims paid and a loss ratio of 61.8% (up from 47.2%). In the 12 day war of June 2025, the government pressured insurers – especially Iran Insurance Company – to pay war related claims even for policies without a war clause. This intervention violated technical insurance principles (including the principle of indemnity and the war exclusion) and eroded insurers’ solvency without any pre funded backing.

CONCLUSION: War exerts significant upward pressure on loss ratios and downward pressure on insurance penetration through both direct and indirect channels. For Iran, based on the experiences of Syria, Ukraine, and Lebanon, the following policy measures are essential: (1) establishing a national war risk pool (modelled on the UK’s Pool Re and the US TRIA) with mandatory participation of all fire insurers and a government backstop; (2) drafting a transparent and standardized war exclusion clause with clear sub limits, deductibles, and definitions of “war” and “hostile acts”; (3) developing parametric insurance products triggered by satellite confirmed destruction or blast radius to enable rapid payouts without costly on ground assessment; (4) requiring annual stress testing of solvency under low, medium, and high war intensity scenarios (15%, 30%, and 50% increases in loss ratio); (5) building a GIS based accumulation risk database for insured properties; and (6) revising premium tariffs based on regional war risk (border areas, near military facilities, major industrial zones). Without these measures, the bankruptcy of several small and medium sized insurers is likely. Immediate action by the Central Insurance of Iran and the Insurance Research Center is strongly recommended to prevent a systemic collapse of the fire insurance market.

Keywords

• Fire Insurance
• War Risk
• Loss Ratio
• Insurance Penetration
• 2SLS Regression
• Time Series Analysis

Main Subjects

• Risk assessment in insurance