What is War Risk Insurance?
War Risk Insurance is a specialized type of insurance policy that provides financial protection against losses resulting from events such as, War, Invasion, Civil War, Terrorism, Strikes. Once more, standard insurance contracts should ideally be expected to exclude war risks expressly as most of them do but war risk insurance only insures war risks.
Why is it needed?
These events are probabilistic and plenty of losses can be sustained, war risk insurance is compulsory for traders and other people in states with volatile political situations or for those who deal with importation and exportation of goods and provision of services.
Common Industries Requiring War Risk Insurance:
- Shipping: Inclined to provide guarantee of vessels, cargo and freights against the risks of war in all the parts of the world.
- Aviation: Shielding of the aircraft as well as its passengers and crew against perils of armed conflicts.
- Energy: Protects oil rigs, pipelines and other installation in the oil and energy industry.
- Construction: Includes those from politically compromised zones.
Allow me, however, to state here that there are many types of war risk insurance policies and as a rule they are developed individually depending on a specific risk. Premiums are quite often and expensive because the perils, the policy holder is recovering for, quite often are extremely unpredictable.
The Role of Insurance Brokers in War Risk Insurance:
Insurance brokers are absolutely indispensable in the sphere of war risk insurance. They act as a link between the client and the insurers; and therefore offer services that are strategic in the management of this kind of specialized insurance market.
Key Roles of Insurance Brokers
- Risk Assessment: Brokers also consider type of risk specific to a client and this may depend on the location, kind of industry and activities carried out. It is from this that one is in a position to determine the kind of coverage that is required.
- Policy Design: As for the level of risk, professionals define very complicated war risk insurance policies consistent with the needs of the client. This consists of factors such as decision on which coverages to take, the appropriate maximum amounts and the required exclusions.
- Market Access: Brokers deal with many insurers who are conversant with war risk insurance and can ensure that some of their clients who are exposed to a wide range of choices are given the best offer.
- Negotiation: The institutes work as a channel between policyholder and insurance companies and then negotiate regarding certain terms and conditions as of premium and policy.
- Claims Handling: Underwriting, the clients are assisted by the brokers to provide the necessary documents and involving the insurer for effective claims.
- Risk Management Advice: Other services, the brokers offer advisory to the clients to mitigate against exposures on war risks in addition to the insurance placement services.
In other words, it can be concluded that insurance brokers are valuable allies for the enterprises working in conditions of high risk. They can serve their clients through their skill and expertise in the market for the defense of assets without loss occasioned by the event of the war.
Exclusions in War Risk Insurance Policies:
The great thing about war risk insurance is that it gives full coverage for many of the perils and losses but of course, as in any insurance policy, there are also those that are not covered, which are known as exclusions. These are situations within which the insurer will not extend covers for given losses.
Common Exclusions in War Risk Insurance Policies:
- Nuclear Weapons: Expenses incurred as a consequence of nuclear weapons, be in wartime or in peacetime, are usually omitted.
- Acts of War Committed by the Insured: Warlike operations, that means actions of war that are performed by the assured or their workers, are not recoverable.
- Wear and Tear: Damage resulting from ordinary use or gradual wearing out of the property is not included in war risk insurance.
- Delay or Loss of Market: Profits which may be reduced by such factors as changes in the market price or other factors occasioned by war like events are normally limited.
- Major Losses: Some of these include but are not limited to loss of property, loss of profit/ business income, and ‘other indirect losses,’ which are not covered if they stem from an event connected with a war.
- Terrorism Exclusions: Terrorism insurance coverage exclusion may also vary so that some policies may exclude particular kinds of terrorism or acts of terrorism.
One has to be extra cautious and read the policy document very well in order to understand the exclusion that have been made. Owing to the fact that war risk insurance is so sophisticated insurance policy, consulting an insurance broker is usually desirable.
Handling of War Risk Insurance for Shipping and Trade:
War risk insurance is therefore very essential in shipping and trading because of the existing and recurrent dangers in transporting goods on the seas. The meaning of this type of insurance is to provide indemnification for Losses which could be occasioned by a number of warlike risks.
Key Coverages for Shipping and Trade:
- Structure Insurance: Has the capability to safeguard the very Ship and bring it immune to all loss, damage or destruction which may be recognized to war.
- Cargo Insurance: Shield the sent goods from any dangers which can be encountered nowadays in the heat of war and as a result thereof and if it comes to that; the insurance compensates the value of the goods being transferred.
- Freight Insurance: Guarantees the interest of the insured where there is freight charges affecting the cargo in cases of loss or damage.
- Liability Insurance: A cover of ship owner’s exposure to third parties in connection with war risks and acts of terrorism.
Challenges in the Shipping Industry:
These are the changes that the world has been experiencing implying that the shipping industry is portrayed to be shaped with a constantly evolving geopolitical environment. Criminals such as pirates, terrorists and geopolitics have rendered it mandatory to opt for a full war risk cover.
- Piracy: Although piracy is not among the war risks perils, this risk is always incorporated in to the war risk insurance because piracy is violent in nature.
- Geopolitical Risks: Boycotts restriction which is considered a sanction and or trade frictions, can impact the sea-ways and even the insurance price levels.
- Terrorism: Now the vulnerability of the ships and the ports from the terrorist threats has become more concern.
