Is Your Property Safe? The Rising Tide of War Risk Insurance Amid Global Conflicts

Amid ongoing conflicts in Ukraine and the Middle East, the war risk insurance market is experiencing unprecedented demand. This specialized insurance sector covers damages caused by conflicts, including terrorism, providing peace of mind for individuals and businesses alike.

Take the case of Natalia Grishko, whose apartment in Kyiv was struck by a Russian missile. Thankfully uninjured, she benefited from the $1,000 payout from her war risk insurance, which was a mere $52 annually. This foresight proved invaluable, especially as general home insurance often excludes conflict-related damages. Another Ukrainian, Ekaterina Vasylieva, similarly secured a policy for her car, which was damaged just a day later in Odesa, showcasing the market’s relevance in high-risk areas.

This insurance landscape has dramatically expanded since the September 11 attacks, with global expenditures reaching $1 billion annually. A significant portion, approximately 80% or £621 million, is funneled to specialist insurers in London, a hub for this industry. For companies operating in perilous regions, such as a Western-owned energy facility in Iraq, comprehensive war risk coverage, potentially over £100 million, can be crucial for operational continuity.

Costs for such insurance can vary significantly, typically ranging from 0.5% to 2% of the total insured amount, influenced by the specific geopolitical climate. Policies can also cover kidnappings, ransoms, and various violent incidents, structured in terms of risk severity like sabotage, terrorism, civil war, and interstate conflict.

Insurers face the complex challenge of determining appropriate premiums due to the unpredictable nature of war, often relying on limited historical data for pricing. However, the war risk sector can be lucrative with payouts generally much lower (as little as 2%) compared to sectors like car insurance, where claims often exceed premiums. Expertise in risk assessment and strategic pricing is essential in navigating this unique and growing insurance market.