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War risks
Excluded from standard contracts for so long, “war risks” which have been historically associated with marine transport, were deemed uninsurable because they could not be pooled, thus resulting most likely in insurer’s bankruptcy.
Since then, the concept of “war risks” has evolved, shifting from localized to systemic risks that both insurers and reinsurers have to reckon with and manage.
In view of recent developments, the Russia-Ukraine war and the armed conflict in the Middle East, insurers are facing a new situation that is no longer consistent with traditional coverage designed for conventional conflicts. Hence, the need to redefine the risk, set rates, and provide capacity.
The first challenge, therefore, is to precisely define the structure of a war risk, since warfare today is hybrid, economic, and cyber-based. The boundaries between these risks are becoming increasingly blurred: terrorism, traditional military conflict, sabotage, cyberattacks, riots, aircraft hijackings, confiscation of property, etc.
The second challenge pertains to the pricing of war risk, with insurers and reinsurers henceforth relying on conflict scenarios to rate this risk.
Faced with these limitations, leading reinsurers, the true gatekeepers of the market are imposing new policy wording discarding vague terms, thereby removing any legal ambiguity. In terms of capacity, these same leaders are introducing limit and sublimit clauses to their commitments.
Finally, recognizing the stakes involved, governments, through public or semi-public entities, are partnering with private insurers to provide solutions for this type of risk, whose systemic nature is now well established.
