Understanding War Risk Insurance: Coverage, Exclusions & Benefits
War risk insurance provides financial protection against losses caused by political or military violence that standard insurance policies typically exclude. It is most relevant for businesses and individuals exposed to conflict, terrorism, or political instability—particularly in aviation, maritime, and other high-risk industries.
What war risk insurance covers
War risk insurance is designed to address perils arising from violent political events, including:
War, invasion, insurrection, revolution, and military coups
Terrorism (in some policies; in others, terrorism is treated separately)
Riots, strikes, and civil commotion
Kidnapping and ransom
Sabotage and hostile acts
Emergency evacuation and political evacuation costs
Injury, long-term disability, or death resulting from covered hostile acts
Loss or damage to property and cargo
* Event cancellation triggered by war-related causes
Coverage specifics vary widely by policy. Some countries require airlines to carry war risk coverage to operate in their airspace or use their airports.
Who needs it
War risk insurance is commonly purchased by:
Airlines and aviation operators
Shipowners, charterers, and maritime operators
Companies with operations or assets in politically unstable regions
Event organizers and businesses exposed to cancellation or business-interruption risk due to political violence
Industry-specific provisions
Aviation and maritime policies are often tailored to industry risks:
Aviation policies may include hull and liability extensions for acts of war or terrorism.
Maritime war risk insurance can cover seizure, detention, piracy, and loss of time. It may reimburse full vessel value if a government seizes a ship.
* The Bumbershoot policy is an example of a specialized excess liability product used in the maritime sector.
Key challenges for insurers and buyers
Pricing and availability present major challenges:
Unpredictability: The scale and scope of war-related damage are difficult to predict, making premium-setting complex.
Potential for catastrophic losses: Large-scale events can exhaust insurers’ capacities and threaten solvency.
* Market reactions: After major events, insurers may withdraw capacity or tighten terms, reducing availability and raising costs.
Historical example: The September 11, 2001 attacks produced extremely large insured losses and prompted temporary government intervention in the U.S. aviation war risk market. The Federal Aviation Administration (FAA) extended a government-backed aviation war risk insurance program to maintain coverage availability until private markets recovered.
Exclusions and policy wording considerations
War risk policies can vary on critical points:
Terrorism vs. war: Some policies include terrorism as a covered peril; others exclude it or cover it under separate endorsements.
Geographic and temporal limits: Coverage may exclude certain areas or be limited to specific time frames or voyages.
Limits, deductibles, and sub-limits: Pay attention to caps on payouts and separate deductibles for war-related claims.
Exclusions for sanctioned entities or prohibited destinations
Carefully review policy language and ask insurers or brokers to clarify definitions (e.g., what constitutes an “act of war” versus “civil commotion”).
Practical guidance for buyers
- Assess exposure: Map assets, operations, and travel routes in unstable regions.
- Compare coverage: Evaluate limits, exclusions, and whether terrorism is included.
- Check regulatory requirements: Confirm any jurisdictional mandates for carriers or operators.
- Consider reinsurance: Insurers often transfer war risk exposure through reinsurance; buyers should understand how that affects claims handling.
- Work with specialists: Use brokers or insurers experienced in war risk and industry-specific needs.
Bottom line
War risk insurance fills a gap left by standard policies by protecting against losses from political and military violence. It is essential for entities operating in high-risk environments or industries. However, coverage terms, costs, and availability vary significantly; careful policy review and risk assessment are crucial when purchasing this specialized insurance.