The escalating threat of international conflict and emerging forms of hostile engagement are forcing insurers to redefine their traditional definitions of war. A review of the 'Five Powers' exclusion, a standard clause in many policies, is underway, with a potential update to encompass modern threats such as subsea attacks and hostile drone incursions.
This re-evaluation reflects the insurance sector's recognition that traditional declarations of war no longer adequately capture the complexities of contemporary geopolitical tensions. Incidents like pipeline sabotage or cyber-attacks on critical infrastructure are prompting insurers to clarify what constitutes an uninsured act of war or a covered act of terrorism or malicious damage, resulting in uncertainty for UK businesses operating in sectors vulnerable to these evolving threats.
The implications of such a redefinition could be far-reaching, with potential changes to marine insurance, energy infrastructure, and property policies. For example, a subsea cable attack disrupting internet and communication services across the UK might currently fall into a grey area regarding war exclusions, leading to higher premiums or more limited coverage for certain risks.
The UK Government will closely monitor these developments, as changes could influence risk assessments for British companies operating abroad and have ramifications for national security policy and the protection of critical national infrastructure within the UK. The Foreign Office's comprehensive travel advice already considers geopolitical risks, and clearer insurance definitions could align with these assessments.
Experts attribute this initiative to a perceived increase in global instability, including conflicts in Ukraine, tensions in the South China Sea, and concerns over hybrid warfare tactics. Insurers are seeking to adapt to a landscape where peace and conflict are increasingly blurred, and non-state actors or covert state actions can inflict damage associated with conventional warfare.
The outcome of this review will be crucial for UK businesses insuring against risks such as supply chain disruptions and direct asset damage. It will also influence how risk is priced and managed across the global economy, impacting insurance costs and availability for operations deemed to be in high-risk zones or sectors.