The insurance market is expected to continue developing new forms of cover for war risks throughout 2024, according to analysts from international insurance law firm, DAC Beachcroft.
In a report released by the firm, analysts highlighted how insurance of war risks has been confined predominantly to marine and aviation hull, however there are classes which may be viewed as adjacent, such as political risk, political violence and terrorism.
At the same time, cyber underwriters within the Lloyd’s market have been directed not to write state-backed cyber-attacks. While this is not an absolute ban, participation and engagement with Lloyd’s is required for such risks to be written, the firm noted.
Analysts explained that there are a number of different ways to approach this area, with one option being to develop a simple buy-back for policies which otherwise exclude war.
Another option they highlighted, is to adopt a parametric trigger, based, for example, on disruption to critical national infrastructure.
Looking back at 2023, the year witnessed further ideological and national instability, which resulted in various violent acts. As a result, it is often difficult to identify the appropriate classification of such acts, analysts explained.
The law firm noted that this is particularly relevant to reinsurers that may exclude terrorism losses but not war.
An important factor to remember, is that political violence designations under a local insurance contract may not be the same under the corresponding reinsurance contract and contracts may include aggregation language for acts of terrorism but not for acts of war.
DAC Beachcroft explained that because of this, we are likely to see increased reinsurance disputes activity around differentiating terrorism and an act of war.
Moving forward, the law firm also tackles the topic of whether there is scope for parametric triggers in cyber re/insurance.
Analysts predict that a cyber loss index is only viable with cross-border co-operation and government imposed reporting obligations, however there would need to be wide agreement that data should be submitted to a single entity, they noted.
Ultimately, this would require an obligation to participate, rapid responses, processing and publication of consolidated data. But, in light of these obstacles, another model that analysts highlight is for a single company to assess whether cover has been triggered, based on agreed objective standards and its own metrics.
Another major issue that the firm mentions, is whether a cyber loss index could trigger exclusions rather than cover, which they explained could potentially be part of the solution to alleviating regulators’ concerns about state-backed cyber-attacks.
