What Is War Risk Insurance?
War risk insurance is an insurance policy that offers financial protection against losses from events such as invasions, insurrections, riots, strikes, revolutions, military coups, and terrorism.
Auto, homeowners, renters, commercial property, fire, and life insurance policies often contain exclusions for war-related events. With these exclusions, standard policies will not compensate for losses resulting from such conflicts. It is sometimes possible to add a separate war risk insurance rider to cover these exceptions.
Key Benefits
- Comprehensive Coverage: War risk insurance covers losses from war-related events, invasions, insurrections, riots, strikes, and terrorism.
- Standalone Policies: Due to the high risks involved, war risk insurance is typically offered as a separate policy from standard insurance.
- Targeted Protection: Ideal for businesses and individuals operating in politically unstable regions or countries.
- Focus on High-Risk Areas: Provides security where traditional insurance fails due to the unpredictability of war-related damages.
In-Depth Look: War Risk Insurance
Entities exposed to the risk of sudden violent political changes are prime candidates for war risk insurance. Companies in politically unstable areas face higher risks of losses due to war. Coverage often includes acts like kidnappings, ransoms, sabotage, emergency evacuations, worker injuries, long-term disability, and property/cargo damage.
Some policies even cover event cancellations due to war. While some policies categorize terrorism separately from war perils, others lump them together. Some nations mandate airlines to have war risk insurance to operate within their airspace or use their airports.
Industries like aviation and maritime have specific war insurance options tailored to their needs. For instance, maritime war risk insurance could compensate a ship’s owner for a vessel if a government seizes it, or cover temporary detention due to war activities.
A specialized form of excess liability insurance, the Bumbershoot policy, specifically targets the maritime industry, offering added protection.
Challenges with War Risk Insurance
The September 11, 2001, terrorist attacks highlighted the war exclusion clause’s significance, with insurance losses estimated at $40 billion. Post-9/11, the insurance industry hesitated to issue new war risk policies. Consequently, the Federal Aviation Administration (FAA) expanded its Aviation War Risk Insurance Program, requiring U.S. airlines to implement war risk insurance at pre-9/11 premium costs. This program ended in 2014 as private insurers expanded capacity and reduced rates.
Calculating accurate premiums for war risk insurance is inherently difficult due to the unpredictable and potentially catastrophic nature of war-related damages. Even with higher premiums, insurance companies might find it challenging to cover monumental losses, potentially risking insolvency.
Related Terms: liability insurance, disability insurance, property insurance, aviation insurance, maritime insurance, war exclusion clause.
