WHAT IS 'War Risk Insurance'

War risk insurance is an insurance policy that provides financial protection against losses from events such as invasions, insurrections, riots, strikes, revolutions, military coups and terrorism. Auto, homeowners, renters, commercial property and life insurance policies often have act-of-war exclusions, meaning they will not pay for losses that war-related events cause. Because a basic insurance policy may specifically exclude war risk, it is sometimes possible to purchase a separate war risk insurance policy.

BREAKING DOWN 'War Risk Insurance'

War risk insurance makes the most sense for entities that are particularly exposed to the possibility of sudden and violent political upheavals. For example, companies operating in politically unstable parts of the world are exposed to an elevated risk of loss from acts of war. War risk insurance can cover perils such as kidnapping and ransom, sabotage, emergency evacuation, worker injury, long-term disability and loss or damage of property and cargo. Some policies may cover event cancellations due to war. Some war insurance policies also cover acts of terrorism, but others consider terrorism and war to be two separate categories of peril. Certain countries may require airlines to have war risk insurance before they can operate in their airspace or use their airports.

Certain industries, particularly the aviation and maritime industries, may have more specific war insurance options tailored to meet their specific needs. For example, war risk insurance may compensate a ship’s owner for the full cost of a ship if the government of a foreign entity seizes the ship. If war activities force a ship into temporary detention, war risk insurance may cover that loss of time.

Concerns with War Risk Insurance

War risk insurance became extremely difficult for airlines to purchase from private insurers after the terrorist attacks of September 11, 2001. The attacks cause an estimated $5.6 billion in damage and liability costs, adjusted for inflation. The threat of further terrorist attacks or hijackings made the insurance industry leery of issuing war risk policies to airlines. Many third-party policies were canceled, and those policies that were offered involved extremely high premiums. In response, Congress voted to amend and expand the Federal Aviation Administration (FAA) Aviation War Risk Insurance Program. The law required the FAA to offer war risk insurance to U.S.-based airlines. It also required the premiums for this coverage to be based on the pre-9/11 cost of coverage. The program was in place until 2014, at which point the private industry had increased capacity and lowered prices for war risk insurance.

RELATED TERMS
  1. War Damage Insurance Corporation

    A government financial protection arm created during World War ...
  2. All Risks

    All risks is a type of insurance coverage that automatically ...
  3. Property Insurance

    Property insurance provides financial reimbursement to the owner ...
  4. Named Perils Insurance Policy

    A named perils insurance policy is a home insurance policy that ...
  5. Homeowner's Insurance

    Homeowner's insurance is a form of property insurance that covers ...
  6. Commercial Lines Insurance

    Commercial lines insurance helps keep the economy running smoothly ...
Related Articles
  1. Insurance

    6 Good Reasons To Get Renter's Insurance

    If you rent, you still need insurance for personal property and if anyone is injured at your place. The good news: It also covers losses when you travel.
  2. Insurance

    Renter's Insurance: A Comprehensive Guide

    Everything you need to know about renter's insurance.
  3. Insurance

    4 Common Misconceptions About Homeowners Insurance

    There are many misconceptions about homeowners insurance. These are the most common.
  4. Insurance

    Homeowner's Insurance Guide: A Beginner's Overview

    Everything new homeowners need to know about homeowner's insurance to protect their residence.
  5. Insurance

    Insurance Coverage: A Business Necessity

    Don't go to work without this policy in place - especially if your work is in your home.
  6. Insurance

    The History Of Insurance In America

    Insurance was a latecomer to the American landscape, largely due to the country's unknown risks.
  7. Insurance

    Understanding Your Insurance Contract

    Learn how to read one of the most important documents you own, your insurance contract.
  8. Financial Advisor

    Getting Life Insurance in Your 20s Pays Off

    Find out how Americans in their 20s can benefit from a well-thought-out life insurance policy, especially if they are able to build cash value for retirement.
RELATED FAQS
  1. What are some examples of industries that practice price discrimination?

    Understand the various types of insurance coverage offered in the insurance marketplace, and learn why each policy should ... Read Answer >>
  2. What is the average return on total revenue for the insurance sector?

    Learn about the three main segments of the insurance industry, and find out what the average return on revenues is for the ... Read Answer >>
  3. Does renters insurance cover jewelry?

    Learn what kind of coverage renters insurance provides for your jewelry, and find out what steps you can take to optimize ... Read Answer >>
Hot Definitions
  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing a company that measures its current share price relative ...
  2. Internal Rate of Return - IRR

    Internal Rate of Return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.
  3. Limit Order

    An order placed with a brokerage to buy or sell a set number of shares at a specified price or better.
  4. Current Ratio

    The current ratio is a liquidity ratio that measures a company's ability to pay short-term and long-term obligations.
  5. Return on Investment (ROI)

    Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency ...
  6. Interest Coverage Ratio

    The interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a company can pay interest ...
Trading Center