Hostilities between the United States and Iran have taken centre stage in airline insurance negotiations, with WTW warning that the Iran conflict is reshaping how underwriters price risk across the Middle East heading into 2026.

In its Airline Insurance Market Renewal Outlook for Q2 2026, WTW flagged three pressure points: immediate operational disruption, the squeeze on insurance capacity, and longer-term consequences for the aviation sector.

Carriers flying within, into and out of the region grounded aircraft and tore up schedules when fighting erupted. Law firm Kennedys has described the impact as severe, with closures hitting many of the region's main airports.

Insurers, brokers and airlines worked in lockstep to share intelligence, assess exposure and keep policies live, including for repatriation flights, WTW said.

Despite military activity close to commercial airports, no major civilian claims have surfaced. A ceasefire has since cooled tensions and trimmed some of the surcharges levied on regional operators. Even so, airlines are now grappling with softer passenger demand and pricier jet fuel as supply chains wobble.

The response reached the heart of the London market. Lloyd's activated its major event response group to stress-test syndicates across aviation, marine, energy and political violence, leaning on its Realistic Disaster Scenarios framework. The corporation conceded it was "too early to draw conclusions while the situation continues to evolve."

John Rooley, Willis's chief executive of global aviation and space, said no cancelation notices went out because aircraft in the region already sat within the existing "grip of peril."

Russia-Ukraine still casts a shadow

A 2025 London High Court ruling on the same doctrine has shaped insurer behaviour, WTW said, helping explain why carriers have leaned on additional premiums rather than geographic exclusions to keep cover intact.

The restraint also draws on hard lessons from Russia-Ukraine. That conflict drove hull war rates up by as much as 100% after Western sanctions stranded hundreds of airliners in Russia, worth an estimated USUS$12 billion (a long-running exposure first surfaced in earlier market cycles).

Kennedys has pointed out that the Butcher judgment covered only a handful of lessors and a fraction of the trapped fleet, leaving plenty of unfinished business.

Hull war is the line to watch. Rates had slid to historic lows before Russia-Ukraine forced a reset, WTW said, and while capacity is still plentiful, fresh geopolitical strain is expected to stiffen negotiations through 2026.

Hull and liability tells a similar story. Capacity is there, but thin 2024 underwriting margins and heavy 2025 losses have shifted the mood. WTW has indicated insurers are eyeing increases from around 10% for clean risks, with steeper hikes for distressed accounts. "Widespread rating increases should be expected," the broker said.

The Iran conflict is sharpening that trajectory. Kennedys reports rises of 10%+ for lower-risk carriers and far higher numbers for airline insurance buyers running Middle East routes.

WTW added that 2025 North American claims are still developing, with reserves potentially due a fresh look. The broker described insurer behaviour as "measured," targeting sustainable pricing without drawing in new capacity.