War risks are problems and damages that come up as a result of a war. This includes issues like property damage from a battle, ransom payments for employees who have been kidnapped by rebel groups, property that is stolen by insurgents in a war zone, etc. Since 9/11, insurers have begun classifying damage from terrorism as a war risk as well.
Most insurance policies don’t cover damages from war risks. Insurance companies exclude these risks because they have the potential to cause so much damage in a short period of time, which could easily bankrupt an insurance company.
Some private insurance companies sell war insurance policies specifically designed to cover war risks. This coverage can be useful for people and companies who need to go to countries that are at war. However, there are some war risks that the private sector just won’t cover. In these cases, the government sells insurance for these risks. For example, private insurance companies won’t insure commercial airlines for terrorism so the Federal Aviation Administration sells this coverage.
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