What is War Risk Coverage
In the world of international commerce, particularly in the maritime and aviation sectors, a standard insurance policy is designed to cover "perils of the sea or air" or operational accidents—storms, collisions, and mechanical failures. However, these policies almost universally contain a War Risk Exclusion Clause. To protect assets against man-made geopolitical violence, owners must secure specialized War Risk Insurance. This coverage is not a static product; it is a dynamic, highly responsive financial tool that bridges the gap between peacetime operations and active conflict.
The coverage is specialized, volatile, and governed by a unique set of operational rules:
- Listed Areas: Underwriters maintain a list of "Listed Areas" (designated by the Joint War Committee in London) where the risk is considered higher than normal. The Persian Gulf and the Gulf of Oman are currently at the top of this list.Other areas include parts of the Black Sea due to the Russia/Ukraine conflict and high risk piracy areas.
- Notice of Cancellation Unlike annual standard policies, war risk underwriters have the right to cancel coverage with just 7 days' notice for Lloyds and 48 hours in US policy wordings. As of March 1, 2026, major P&I Clubs like Gard, Skuld, and NorthStandard issued formal cancellation notices for the Persian Gulf.Cargo insurers have also sent 48 hour or 7 days War Notice of Cancellation.
- Breach Premiums (AP): When a vessel enters a listed danger zone, the annual war risk policy is "suspended," and the owner must pay an Additional Premium (AP) to maintain coverage for that specific transit. In the current crisis, these APs have spiked from 0.2% of vessel value to over 1.0% in just 48 hours. For a hull value of $150 million (Typical LNG carrier), this adds $1.5 million in insurance costs for a single voyage. Cargo rates for cover, if you can find it, have also spiked to as much as 1% adding significant costs to deliveries or pickups in these areas. Other coverages are not affected for trade outside of the listed areas but damages due to war in the listed areas would not be covered by the standard policy unless endorsed.For example, a typical cargo rate for worldwide transit could be between .05 and .20% so a 1,000,000 shipment would pay between 500 and 2,000 dollars. The war premium on top of that if needed would be 10,000 dollars.
War risk insurance is typically separated into categories to ensure that both the physical asset and the legal liabilities of the owner are protected:
- War Risk Hull: This covers physical loss or damage to the vessel or aircraft itself. It includes damage from missiles, shells, mines, torpedoes, and sabotage. Crucially, it also covers "Capture and Seizure"—situations where a sovereign state or rebel group detains a vessel, even if no physical damage occurs.
- War Risk Liability (P&I): While standard Protection & Indemnity (P&I) clubs cover third-party liabilities (like oil spills or crew injury), they exclude those arising from war. War Risk Liability fills this void, covering crew fatalities, hostage situations, and pollution caused by an act of war.
- Blocking and Trapping: A unique feature of maritime war risk, this pays out the full value of the ship if it becomes "trapped" in a port or canal due to a conflict (e.g., a blocked waterway) for a continuous period, usually six or twelve months.
- Cargo: Cargo cover is separate from the Hull and P and I listed above – it is a physical Damage First party cover for the goods carried on the vessel.The vessel is only liable to the cargo owner if the vessel is at fault for a loss.In this case, the cargo owner would also have to purchase war cover for the cargo or take the chance of not being covered as the P and I might not cover damages to cargo in the event the ship is damaged due to a war peril.
Joint War Committee (JWC)
The global market for war risk is largely governed by the Joint War Committee in London, comprising underwriters from the Lloyd's of London and International Underwriting Association of London markets. The JWC maintains the "Listed Areas"—a frequently updated roster of geographic regions where the risk of war, terrorism, or piracy is deemed elevated.
When a region is "listed," it does not mean insurance is cancelled; rather, it triggers a change in how the policy is administered. For a vessel to enter a Listed Area, the owner must notify the underwriter and pay an Additional Premium (AP) for that specific transit.
Pricing and the "Breach" Mechanism
War risk insurance operates on a "breach of warranty" system. An owner pays a relatively low annual premium for "peacetime" coverage globally, excluding the Listed Areas.When a ship's route requires it to enter a Listed Area, it "breaches" its trading warranty. To maintain coverage, the owner must:
- Notify the insurer (usually 48 to 72 hours in advance).
- Negotiate a rate for the specific duration of the stay (e.g., 7 days).
- Pay the AP, which is calculated as a percentage of the ship's total insured value.
In stable times, an AP might be as low as 0.01%. In times of active conflict, this can rocket to 1.0% or higher, meaning a single week of insurance can cost more than the entire annual policy.
Cancellation and "Short Notice" Volatility
Perhaps the most distinct feature of war risk insurance is the Cancellation Clause. Unlike a car or home policy that lasts a year, war risk underwriters reserve the right to cancel a policy on just 7 days' notice in UK wordings and 48 hours in US wordings.
This allows insurers to react instantly to a sudden outbreak of war. When a notice of cancellation is issued, the old policy is terminated, and a new one is offered—typically with much higher premiums and stricter geographical exclusions. This mechanism ensures the insurance market remains solvent even when risks escalate overnight.
Key Perils Covered in the War Risk Policy
| Peril | Description |
| War / Civil War | Direct combat damage from recognized or unrecognized belligerents. |
| Piracy | Often moved between War and H&M policies depending on the region. |
| Terrorism & Sabotage | Damage from non-state actors or political extremists. |
| Mines & Torpedoes | Coverage for "derelict" weapons left over from previous conflicts. |
| Confiscation | Nationalization or illegal seizure by a government entity. |
Following the U.S. and Israeli strikes against Iranian nuclear and military infrastructure on February 28, 2026, the global maritime insurance market has entered a state of emergency. As Iran retaliates with drone and missile strikes across the Persian Gulf—damaging multiple tankers and resulting in seafarer fatalities—the "invisible" infrastructure of global trade, war risk insurance, is undergoing a radical shift.
Impact of the 2026 Escalation
The current conflict has introduced a rare phenomenon: a de facto market closure. While the Strait of Hormuz remains physically open, it is becoming "uninsurable" for many. This is due to the geography of the region with Iran (see visual below) controlling the north side or the Straits of Hormuz as well as the Perian Gulf and Gulf of Oman.
The straits are a chokepoint for about 25% of the seaborne oil trade and 20% of the seaborne Liquified Natural Gas (LNG).At 104 miles long and at the narrowest point – 24 miles wide, ships within these zones are all easily in range of the missiles and drones from Iran.
Following the strikes on tankers (like the MKD Vyom on March 1) and other merchant vessels as well as oil platforms, Global insurers have suspended underwriting new policies for the region entirely. As of March 18, this number is about 20 vessels damaged and at least 6 deaths of seafarers. Without insurance, financiers (banks) typically forbid ships from entering the area, effectively halting at least 20% of the world's oil flow. This has also heavily impacted the Aviation industry with closures of many of the major airports in the region.
The primary Hull insurers (physical Damage)and the Protection And Indemnity Clubs (P&I Clubs) (casualty) are canceling because their reinsurers—the massive firms that backstop the market—have pulled out. This "top-down" collapse of capacity means even owners willing to pay exorbitant rates may find no one willing to take the risk.
Reports of widespread GPS spoofing and jamming near the Iranian coast have introduced a "non-kinetic" war risk. Insurers are now scrutinizing "Loss of Hire" claims, as vessels are forced to anchor in the Gulf of Oman (where over 150 ships are currently drifting) to wait for safety, leading to massive contractual disputes over who pays for the delay. Many of these costs are not insured but will be sources of dispute for many months to come.
Economic and Contractual Fallout
The insurance crisis is directly translating to consumer costs. Shipping giant Hapag-Lloyd implemented a War Risk Surcharge of up to $3,500 per container as of March 2, 2026. From a legal standpoint, the situation is triggering "War Risk Clauses" in charter agreements (such as BIMCO's CONWARTIME). These allow captains to refuse orders to enter the Persian Gulf if the risk to crew and vessel is "too high." With the Strait of Hormuz effectively a combat zone, the maritime industry is bracing for a prolonged period of "frustrated" contracts and record-high energy prices, as the cost of "insuring the uninsurable" becomes the new global tax on oil.
In summary, the global shipping and aviation market are upended in the Persian Gulf due to the De Facto closure of the Straits of Hormuz. Iran has and continues to attack merchant shipping and until such time as this is sorted, the straits are unlikely to fully reopen. This affects global oil markets and will potentially have a long tail effect on cargo markets as standard cargo policies may be on the hook for getting goods that were discharged short of the destination to their destination after the situation clears up in the region.
This article originally appeared on FC&S Expert Coverage Interpretation and may not be reprinted.
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