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.

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