Conflict in the Middle East is adding fresh pressure to inflation and global supply chains, with knock‑on effects on energy, transport and insurance costs. Disruption across the Red Sea and Strait of Hormuz has pushed fuel and freight prices higher, and those increases quickly filter into both day‑to‑day operating expenses and the cost of restarting after a disruption, including labour, energy, logistics, outsourced services and temporary relocation among them. These are the same cost lines that drive Business Interruption (BI) losses.
We can already see this in the data. As of March 2026, Eurozone inflation rose to 2.5%[1] from 1.9% in February, driven largely by energy and logistics, while US markets are pricing in a sharp month‑on‑month Consumer Price Index (CPI) increase. Recent history also shows why these matters: after mid‑2020, global inflation surged as supply chains struggled and many underlying cost items did not return to pre‑crisis levels. The practical takeaway is that disruption‑driven price rises can arrive quickly and persist.
These are important for companies buying BI insurance cover because values are tested at the point of loss, using prices and lead times that apply then, not at last renewal. If the BI declared values are rolled forward using pre‑loss assumptions or simple uplifts, even a relatively modest incident can expose significant underinsurance once higher post‑loss costs and longer recovery periods are factored in.
Supply chain disruption magnifies business interruption severity
Supply chain disruption can make BI losses more severe by extending the time it takes to recover. Security risks linked to instability in the Middle East have forced many vessels to re-route around the Cape of Good Hope, typically adding 10 to 14 days to transit. Longer routes also absorb capacity and reduce schedule reliability, increasing freight, fuel and cargo insurance costs.
When logistics slow down and inputs become harder to source, downtime lasts longer and the cost of workarounds rises. In practice, this can mean:
- Longer lead times for critical parts and equipment, delaying repairs.
- Less availability of specialist contractors and spares, creating recovery bottlenecks.
- Higher operating and recovering costs during downtime.
- Fewer viable alternatives when suppliers fail, slowing continuity plans.
These constraints often persist well beyond the initial shock. If lead times and capacity stay tight, recovery from even a contained physical damage can take materially longer, stretching the interruption period and increasing total BI loss.
This is why BI assumptions such as rapid repairs, expedited procurement or easy supplier substitution can be out of step with today’s reality. Often the constraint is not the damage, but the time needed to source equipment, secure specialist labour and move goods through a disrupted logistics system.
Why business interruption declared values are especially exposed
BI is highly inflation‑sensitive because it depends on real‑world revenue, costs and recovery time at the point of loss. In geopolitical disruption, those inputs can move faster than annual renewal cycles, so declared values are exposed when they are rolled forward without reassessing whether the business could still recover within the same time and cost assumptions.
In practice, under‑declaration tends to come from a small set of assumptions that no longer hold once costs rise and supply chains slow. The most common pressure points are:
- Outdated revenue and cost assumptions, understating profit at risk and continuing expenses.
- Recovery time assumptions based on stable logistics and supplier access.
- Higher energy/transport costs and more expensive workarounds than budgeted.
- FX volatility raising the local‑currency cost of imported goods and services.
Studies cited by the Chartered Institute of Loss Adjusters suggest around 40% of BI declarations are undervalued, with average under‑declarations of about 45%. In volatile periods, those gaps can widen, making it more likely that average (underinsurance) clauses reduce claim payments when cash flow and continuity matter most.
Why ‘last year plus a percentage’ no longer works
Too many BI declared values are still built by taking last year’s numbers and applying a blanket uplift. In a world of uneven inflation and fragile logistics, that breaks down because disruption costs (workarounds, overtime, expedited freight, scarce contractors) do not move in a smooth line.
The gap widens fastest where recovery depends on external capacity and cross‑border supply, including energy‑intensive operations, imported machinery, complex supply chains or limited redundancy in suppliers and routes. For these businesses, the question is not whether values are ‘conservative’, but whether they reflect how the organization would operate under stress.
A more resilient approach to BI value declaration
A more resilient approach is to treat BI values as living assumptions, tested against disruption scenarios, updated when cost drivers move and jointly owned by finance, operations and risk. This is more robust as:
- Scenario‑based BI modelling is used, incorporating repair timelines and constrained logistics.
- Indemnity periods are reassessed to reflect realistic recovery durations.
- Close collaboration between finance, operations and risk teams so forecast values reflect operational reality during disruption.
- More frequent reviews during volatile periods, not just at annual renewal.
Done well, this reduces surprise at claim time and shifts renewal conversations with insurers from a spreadsheet exercise to a practical discussion of recovery capability.
BI accuracy is now a resilience issue
The current Middle East conflict is a timely reminder that disruption can reprice downtime quickly. When inflation is pushed by energy and logistics shocks, and when lead times lengthen at the same time, BI losses rise through a double effect: higher costs during the interruption and an extended recovery period back to normal operations.
In that context, BI declared values are less a static insurance input and more a resilience measure. They show whether the organization has realistically priced its own recovery plan.
The practical takeaway for buyers of BI insurance is to move beyond ‘last year plus a percentage’ value. And key to that is whether they are accurate enough to respond when disruption occurs and the operating environment shifts.
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