The ongoing conflicts in Ukraine and the Middle East have significantly boosted the need for war risk insurance, a specialized sector that provides crucial financial protection against the consequences of war and terrorism. Unlike standard home insurance, war risk coverage is essential for protecting assets and livelihoods in conflict-affected regions or those at risk of associated threats.
Recent examples highlight the value of this specialized insurance. In one instance, a Ukrainian family’s apartment in Kyiv sustained damage from a Russian missile impact. Fortunately, the resident had the foresight to purchase war risk insurance, which covered the repair costs for her balcony, windows, and interior. The annual premium for this coverage was a modest $52, while the payout for the repairs amounted to $1,000, demonstrating the significant benefit of such policies.
Similarly, a car owner in Odesa had her vehicle damaged by Russian shrapnel shortly after extending her comprehensive insurance to include war risk. The timely decision proved invaluable, as the insurance covered substantial repair costs for the shrapnel-damaged vehicle.
War risk insurance, which also covers terrorism, has seen substantial growth since the September 11th attacks in 2001. While individuals can obtain this coverage, the majority of policies are purchased by businesses to protect their global operations, facilities, and employees, particularly in high-risk areas. Industry estimates suggest the global market for war risk insurance now accounts for approximately $1 billion annually, with the City of London serving as the central hub for this sector, handling nearly 80% of these specialized policies.
Specialist underwriters in London, such as Westfield Specialty, manage portfolios of war risk insurance. The pricing for these policies varies significantly depending on the geopolitical climate and the specific risks involved. For instance, companies operating in volatile Middle Eastern regions like Lebanon or Israel might face premiums between 0.5% and 2% of their total cover, translating to substantial annual costs for high-value assets. These rates are subject to change due to the volatile nature of regional conflicts. In contrast, premiums in more stable Gulf states are considerably lower, ranging from 0.025% to 0.05%.
War risk policies can cover a range of perils, including kidnappings, ransoms, serious injuries, and costs associated with ‘active assailant’ situations. Experts note a growing demand across various coverage types, including those related to strikes and riots. The specialized nature of this market means that pricing is complex, often influenced by unique events that are difficult to predict. However, the increasing frequency and intensity of global conflicts underscore the critical role war risk insurance plays in providing financial security and enabling continued operations in an uncertain world.