How Iran war may change client conversations

Stock markets have swung wildly over the past two weeks as traders attempt to digest the implications of U.S. and Israeli military action against Iran, and resulting counterstrikes that spread the conflict across the Middle East.

Chief among concerns is the lock-up of tanker traffic in the Strait of Hormuz. As the chokepoint for 20% of global oil and natural gas traffic, its closure sent prices for Brent Crude briefly past US$100 a barrel on March 9, before settling around US$85 later that day. Oil markets continue to roil and some analysts predict prices of US$150 per barrel if hostilities persist.

Recent attacks on vessels and evidence Iran has been trying to mine the Strait are expected to make crews reluctant to transit the waterway. While Canada produces large quantities of crude oil, pricing here is impacted by global trading markets.

And, while International Energy Agency member countries announced plans to release record amounts from their petroleum reserves to cover shortfalls, market watchers are saying benefits won’t materialize soon enough to offset impacts from the Strait’s closure.

Related: Will U.S. political risk insurance help restart oil traffic?

That’s bad news for interest rates, as shortages are already pushing up prices for motor fuels and home heating gas and oil. If consumer inflation re-manifests, even if somewhat short lived, central banks in North America and globally will be reluctant to lower interest rates.

Further, damage to supply chains could renew consumer goods inflation that was finally easing post-pandemic. And, reports from ratings agencies say flight cancellations and re-routings are disrupting air traffic and raising costs for airlines serving the Middle East – while noting business interruption and damage coverages normally exclude war risks.

In Canada, resurgent inflation could collide with Ontario’s auto insurance reforms that are set to go live July 1. The changes introduce optionality, which allows auto insurance customers to forgo certain coverages to save money. Most accident benefits, except for medical/rehabilitation and attendant care benefits, will become optional. Consumers will need to opt in to coverages like income replacement benefits, non-earner benefits, caregiver expenses, and death and funeral benefits.

While there’s been much discussion about the risk of drivers dropping necessary coverages just to save a few dollars, persistent or rising inflation rates could amplify negative outcomes for customers who feel cash-strapped. Many in the industry are now asserting the reforms appear to leave pedestrians, cyclists, and even children whose parents or guardians don’t carry auto insurance, without benefits if they’re injured in auto accidents.

The potential risks suggest a need for robust conversations between brokers and new or renewing auto insurance clients leading up to July 1.

Related: Optionality could leave passengers, even children, without auto coverage

Rebounding inflation could also further cool Canada’s softening housing markets. That’s of particular concern for condominium developers in Toronto and Vancouver that are struggling to find buyers – and in some cases converting from ‘for sale’ to ‘for rent.’ Those shifts will alter the needs of some residential insurance buyers from owner to renter, and change coverage dynamics for developers and building owners.

A February report from Morningstar DBRS says a “confluence of weak demand, oversupply, and increasing construction costs is placing considerable pressure on condo developers, particularly smaller developers with weaker balance sheets.” It adds, “Given weak buyer and investor demand, developers are struggling to meet the 70% presale levels typically required to secure construction financing, resulting in an increase in cancelled projects and plummeting condo starts.”

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Related: Will new construction dispute options change coverage needs?

A late-February report from Fitch Ratings says delinquencies for Canadian property owners should remain stable in 2026, “despite upward repricing of roughly 30% [totalling 1.2 million home loans] of outstanding mortgages.” But the ratings agency says rising mortgage payments (6% overall, with some households seeing up to 20%) could lead to delinquencies for loans that consumers consider lower priorities – such as auto loans and credit cards.

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.