Insight 2:Insurance Exposure in Wartime Conditions
How Geopolitical Conflict Translates into Insurance Risk
Geopolitical conflict affects insurance markets in ways that are both immediate and complex.
When tensions escalate between states, the most visible impacts often appear in energy markets, financial markets or global trade flows. Beneath these shifts sits another layer of consequence: the way conflict reshapes insurance exposure, underwriting appetite and the availability of risk transfer.
Insurance markets play a critical role in enabling global economic activity. Shipping routes, energy infrastructure, aviation fleets and international trade all depend on insurance coverage to operate.
When geopolitical conditions deteriorate, insurers must reassess whether certain risks remain insurable under existing terms.
This reassessment can unfold quickly. Premiums may rise, exclusions become more prominent and insurers may withdraw coverage from certain geographies or sectors entirely. These responses reflect not only the probability of loss, but also the potential for correlated losses across multiple industries and regions.
Understanding these dynamics is increasingly important for insurers operating in a more contested global environment.
War Risk Insurance: The First Market to Move
Marine insurance markets are often among the first to respond to geopolitical conflict.
This reflects the central role of maritime trade in the global economy. According to UNCTAD, more than 80 percent of global trade by volume moves by sea, making shipping routes particularly sensitive to geopolitical disruption.
War-risk insurance is designed to cover losses arising from acts of war, including missile strikes, naval conflict, sabotage or the seizure of vessels. These policies are typically written separately from standard marine hull and cargo coverage.
When geopolitical tensions increase in strategic regions, insurers reassess both pricing and coverage conditions.
For example, following attacks on commercial vessels in the Red Sea during 2024 and 2025, marine war-risk premiums for some voyages increased several-fold within days as underwriters reassessed exposure.
Similarly, tensions affecting the Strait of Hormuz often lead insurers to reconsider risk levels in one of the world’s most strategically important energy corridors.
The Strait carries roughly 20 percent of global seaborne oil and liquefied natural gas trade, according to the U.S. Energy Information Administration. Even the possibility of disruption can lead to significant increases in marine war-risk premiums.
For insurers, these adjustments reflect the scale of potential losses should commercial shipping become a target during geopolitical conflict.
Policy Triggers and Coverage Boundaries
Determining when insurance policies respond to geopolitical conflict is often complex.
Most commercial insurance policies contain war exclusions, which remove coverage for losses directly caused by acts of war or warlike activities.
However, modern geopolitical conflicts frequently blur the boundaries between several types of risk, including:
conventional warfare
terrorism
cyber attacks
sabotage
proxy militia activity
This ambiguity can create uncertainty around whether certain losses fall within policy coverage or within war exclusions.
Cyber risk provides a clear example. Several major cyber incidents in recent years have been attributed to state-sponsored actors. These incidents have prompted insurers to reconsider how cyber policies address geopolitical conflict.
In response, the Lloyd’s market introduced new requirements in 2023 requiring many cyber insurance policies to exclude losses arising from state-backed cyber warfare. The aim was to clarify coverage boundaries and prevent systemic losses that could affect multiple industries simultaneously.
As geopolitical competition increasingly includes cyber operations and hybrid warfare tactics, defining the boundaries of insurance coverage will remain a significant challenge for insurers.
Sanctions, Embargoes and Compliance Exposure
Geopolitical conflict often triggers sanctions regimes and trade restrictions that affect insurers long before physical losses occur.
Governments may impose sanctions or embargoes on specific countries, industries, companies or individuals. These measures can prohibit insurers from underwriting certain risks, transacting with sanctioned entities or paying claims to restricted counterparties.
As a result, insurers must rapidly assess portfolios for exposure to sanctioned jurisdictions, vessels, counterparties or supply chains.
Know-your-customer (KYC) and know-your-business (KYB) processes become particularly important in these circumstances. Insurers may need to examine beneficial ownership structures, shipping routes, cargo ownership and financial counterparties to ensure compliance with evolving regulatory requirements.
Sanctions can also affect claims payments. Even where a policy provides coverage, insurers may be legally prohibited from paying claims to sanctioned entities.
These restrictions can create operational complexity across underwriting, claims management and reinsurance recoveries.
For insurers operating internationally, compliance risk can therefore become one of the earliest operational consequences of geopolitical conflict.
Reinsurance and Aggregation Risk
Another major concern during geopolitical conflict is aggregation risk.
Insurers rely on reinsurance to protect against large or catastrophic losses. However, geopolitical events can create scenarios in which multiple insurance classes are affected simultaneously.
For example, a conflict affecting maritime trade routes could generate losses across several classes at once, including:
marine hull and cargo insurance
energy infrastructure insurance
political violence coverage
trade credit insurance
business interruption insurance
Cyber attacks linked to geopolitical conflict could also affect financial systems, logistics networks or critical infrastructure, potentially generating losses across cyber, property and business interruption policies.
Reinsurers are particularly sensitive to these scenarios because they represent systemic loss events rather than isolated claims.
Research from Lloyd’s of London has highlighted the potential scale of such risks. In one systemic risk scenario modelling geopolitical conflict, Lloyd’s estimated that global economic losses could reach US$14.5 trillion over a five-year period.
While such scenarios represent extreme outcomes, they illustrate why insurers and reinsurers closely monitor geopolitical risk signals.
Sector Impacts Across the Economy
Geopolitical conflict does not affect all industries equally.
Some sectors tend to experience increased demand for insurance coverage as geopolitical risk rises. These often include industries linked to strategic infrastructure or national security.
Examples include:
energy production and transport
shipping and logistics infrastructure
defence manufacturing and supply chains
cybersecurity and digital infrastructure
These sectors may see increased insurance demand as organisations seek protection against physical damage, cyber threats or political violence.
At the same time, other industries may face greater volatility.
Industries reliant on global mobility or discretionary spending can be particularly sensitive to geopolitical instability. These include:
aviation and airline operations
tourism and hospitality
international education
conference and events sectors
In Australia, the international education sector alone generated more than A$53 billion in export earnings in 2023, according to the Australian Bureau of Statistics.
Any disruption to international travel or geopolitical stability can therefore have significant implications for both the economy and the insurers supporting these industries.
Strategic Considerations for Insurers
For insurers operating in a more volatile geopolitical environment, several strategic questions become increasingly relevant.
These include:
Are policy wordings sufficiently clear regarding war exclusions and geopolitical events?
Where might aggregation risk emerge across multiple lines of business?
How exposed are underwriting portfolios to geopolitical hotspots or strategic trade corridors?
How might sanctions regimes affect underwriting, claims and reinsurance arrangements?
Addressing these questions requires insurers to integrate geopolitical monitoring into enterprise risk management and underwriting strategy.
Looking Ahead
Geopolitical risk is becoming a more visible feature of the global economic environment.
Competition between major powers, strategic resource pressures and technological rivalry are increasingly shaping international relations.
For insurers, this environment presents both challenges and opportunities.
Insurance markets will continue to play a central role in enabling global commerce, even as geopolitical tensions introduce new uncertainties.
Understanding how conflict translates into underwriting exposure, compliance obligations and portfolio risk will be an increasingly important capability for insurers operating in a more contested world.
