Researcher: Shatha Khalil
In recent years, war risk insurance has shifted from a marginal product in the insurance sector to a market exceeding one billion dollars annually. This growth is no coincidence but a direct result of escalating conflicts worldwide, from the Russia–Ukraine war to tensions in the Middle East and the Red Sea.
What is War Risk Insurance?
This type of insurance differs from traditional policies because it covers damages caused by wars, terrorism, sabotage, or riots—risks usually excluded by ordinary insurance companies. Individuals in conflict zones can use it to protect their homes or cars, while large companies rely on it to safeguard employees, facilities, and supply chains.
High Costs in Conflict Zones
Premiums vary significantly depending on the level of risk. In countries such as Lebanon or Ukraine, the cost may reach between 0.5% and 2% of the insured value, while in relatively stable regions like some Gulf states, it may drop to as little as 0.025%. This difference reflects how sensitive the market is to geopolitical developments.
Growing Economic Importance
Financial sector growth: London is now the global hub for war risk insurance, handling about 80% of the market. This growth strengthens the insurance sector as a component of the global economy.
Business stability: Thanks to this insurance, companies can continue operating in conflict zones, ensuring the continuity of global supply chains and preventing complete trade stoppages.
Rising costs: On the other hand, operational costs for companies increase. For example, shipping companies passing through the Red Sea or the Strait of Hormuz face higher premiums, which eventually impact the prices of oil, food, and manufactured goods, contributing to global inflation.
Impact on small businesses: Even if small shop owners do not purchase this insurance, they are indirectly affected by higher import and energy costs and delays in receiving goods.
A Resilience Gap
While multinational corporations can absorb the cost of such coverage, individuals and small businesses in conflict areas remain less able to access protection. This highlights an economic justice gap and shows that the consequences of conflict are not distributed equally.
Conclusion
War risk insurance is a double-edged tool: on one hand, it provides the global economy with a safety valve that helps maintain trade and investment, but on the other, it fuels inflationary pressures through rising shipping and energy costs. With conflicts continuing, this sector appears set to keep expanding, becoming one of the most visible features of the economy in an era of turmoil.