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War Risk Insurance is a type of insurance which covers damage due to acts of war, including invasion, insurrection, rebellion and hijacking. Some policies also cover damage due to weapons of mass destruction. It is most commonly used in the shipping and aviation industries.
War risk insurance generally has two components: War Risk Liability, which covers people and items inside the craft and is calculated based on the indemnity amount; and War Risk Hull, which covers the craft itself and is calculated based on the value of the craft. The premium varies based on the expected stability of the countries to which the vessel will travel.
Private war risk insurance policies for aircraft were temporarily cancelled following the September 11, 2001 attacks and later reinstated with substantially lower indemnities. In the wake of this cancellation, the US federal government set up a terror insurance program to cover commercial airlines. The International Air Transport Association has argued that airlines operating in states which do not provide war risk insurance are at a competitive disadvantage in this area.
States continue to be concerned about how they will compensate victims of a major terrorist attack involving and airline in the absence of insurance.
Traditional War Risk Insurance provided coverage for war, hijacking and related perils a subset covers weapons of mass destruction (WMD).
The insurance market has removed WMD protection from hull coverage but postponed use of a war risk exclusion clause on the liability side.
The lack of such hull cover has not yet affected financing/leasing agreements or airlines’ ability to operate. But removal of liability coverage would place airlines out of compliance with minimum insurance levels could force States to ground aircraft or in the event of a terrorist attack, States will not be able to compensate victims on the ground. |
