War Risk Insurance: Definition, Policy, Act (Explained)

War Risk Insurance Definition Policy Act (Explained)

War Risk Insurance is a type of insurance policy that protects the policyholder financially if there is invasion, riots, terrorism, military coups, or revolution. Usually, the marine, aviation industry, and the individuals working in high-risk zones purchase this type of insurance policy. The reason behind the purchase is to avoid themselves from huge losses if war arises.



War Risk Insurance Act

In 1914 the United States Congress passed legislation of the War Risk Insurance Act. After passing the legislation the Congress established a Bureau of War Risk within their Treasury Department. The main job of the Bureau is to provide policy to those who need it and pay if there is any claim. At first, the insurance policy only covered the goods and shipping vessels. But after the amendment in 1917, it also started to provide life insurance policies to the sailors working in the Merchant Marine.

During World War I this insurance policy gave coverage to all the shipping vessels and the sailors sailing in the sea.

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The reasons for purchasing war risk insurance policy

The other insurance policies like commercial property insurance, auto insurance, fire insurance, homeowners insurance, and life insurance policies usually have a war exclusion clause in their policy. So they won’t give you coverage if there is damage to property or life due to war. You either have to buy an additional rider with the insurance policy that covers war risks or you have to buy the war insurance policy. The reason the standard insurance policies avoid war insurance because of the inability to calculate the amount of risk and the rate of premiums.



Who purchases War Risk Insurance Policy?

The business organizations that work in parts of the world where there is no political stability often purchase this type of insurance policy. The places that are not stable politically and face violent clashes occasionally. There is a risk of kidnapping, sabotage, risk of injury to the workers. Sometimes they need emergency evacuation. There can be loss of cargo and property of the organization. So it is a good option for them to have a war risk insurance policy. It helps them to recover from the losses they suffer while working in those conditions.



The type of situations the War Risk Insurance covers

The companies working in dangerous places in the world often purchase War Risk Insurance to protect their properties and workers. There can be incidents like:


Loss of Cargo:

Mainly war risk insurance covers shipping vessels. From the time of World War I, till today shipping vessels who work in difficult areas of the world purchase this type of insurance policy. There is always a risk of piracy in the sea. There is a risk of torpedo if the vessels are passing near enemy territory. So especially the oil tankers and cargo ships do this type of war risk insurance to protect their goods and ships.



Sometimes the terrorist organizations kidnap employees of companies and ask for ransom. In this type of situation the employee’s life is in danger. So to protect them for these types of situations the companies purchase war risk insurance. It helps them to come out of these types of situations.


Emergency Evacuation:

There is always a risk of war in a politically unstable environment. Sometimes companies have to evacuate their employees within a short notice. But such kind of evacuation has a huge cost. So to protect their interest the companies choose to buy insurance policies. Otherwise, the company will face a huge amount of loss, if it tries to evacuate its workers on its own.


Injury or death of worker:

Working in those deadly situations often lead to injuries of the workers or even death. So to protect the interest of the employees, companies working there buy risk insurance policies. This type of policy pays the nominee of the worker a lump sum in case of death or pays the employee if there is a permanent disability due to war.


Loss of property:

The companies face damage of property and cargo due to war. Their installations or types of machinery face the risk of damage all the time in a hostile environment. So to protect their installations, inventory, and machinery form the risk of war the companies buy war insurance. It covers the damages the company faces due to war.


Cancellation of the event:

Sometimes cancellation of events is also protected by war risk insurance. If there is a big event and the organizer cancels the event due to war they may face huge losses. For this type of situation, the organizers can buy a war risk insurance policy. The policy will cover for the damage the organizers may face if there is a cancellation of the event.


Attack on Airlines:

There is a risk of hijacking for ransom or a threat of missile if it is flying over a war-torn country. Airline companies in some countries have to purchase a war risk insurance policy before they can operate.

After the terrorist attack on the USA on September 11, 2001, the FAA made some changes in the aviation industries and now it is mandatory to have war risk insurance to the airline companies operating in the USA.

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Final Words

War Risk Insurance is a difficult sector to manage. As we cannot access the damages it becomes hard for the companies to fix a premium rate. Even a high insurance premium may not be enough to cover the losses. Though there are many types of War Risk Insurance companies in the insurance sector choose the policy according to your need. Read the policy paper carefully and see what types of protection the policy is providing. You can consult with your insurance advisor if you fail to understand certain clauses. If you like this article share it with your friends. If you want to know more comment in our comment box below.

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