What Is War Risk Insurance?
Let me explain war risk insurance directly to you: it's a policy that gives you financial protection against losses from events like invasions, insurrections, riots, strikes, revolutions, military coups, and terrorism.
You should know that standard policies such as auto, homeowners, renters, commercial property, fire, and life insurance often exclude war-related events, meaning they won't cover those losses. If your regular policy has such an exclusion, you can sometimes buy a separate war risk insurance rider to fill that gap.
Key Takeaways
Here's what you need to grasp: war risk insurance covers losses from war, invasions, insurrections, riots, strikes, and terrorism. It's provided as a separate policy because standard insurance excludes it due to the high risks. If you or your business operates in high-risk countries, you're a prime candidate for this coverage. Insurers exclude it from standard policies since they can't accurately predict damages and set appropriate premiums.
Understanding War Risk Insurance
If your operations expose you to sudden and violent political upheavals, war risk insurance is something you should consider. For instance, companies in politically unstable regions face higher risks of loss from acts of war. This insurance can cover perils like kidnappings and ransom, sabotage, emergency evacuations, worker injuries, long-term disabilities, and damage to property or cargo.
Some policies even cover event cancellations caused by war. Note that while certain policies include terrorism under war risks, others treat them as separate categories. In some countries, airlines must have war risk insurance to fly in their airspace or use their airports.
Industries like aviation and maritime often have specialized war insurance options. For example, it might fully compensate a ship's owner if a government seizes the vessel, or cover losses from temporary detention due to war activities. There's also the Bumbershoot policy, which is a form of excess liability insurance specifically for the maritime sector.
Concerns With War Risk Insurance
The war exclusion clause became a major issue after the September 11, 2001, terrorist attacks on New York City and Washington D.C., which led to about $40 billion in insurance losses. The ongoing threat of terrorism or hijackings made insurers hesitant to issue war risk policies.
Many insurers canceled third-party policies and coverage in response. Congress then amended and expanded the Federal Aviation Administration's Aviation War Risk Insurance Program, requiring the FAA to provide this insurance to U.S.-based airlines at pre-9/11 premium rates. This program lasted until 2014, when private insurers increased capacity and lowered prices.
The core problem with war risk insurance is that companies can't accurately assess potential damages to calculate fair premiums. Damages from war can be vast and unpredictable, so even high premiums might not cover liabilities, potentially driving insurers into insolvency. This makes war insurance a high-risk product for them.
