The escalating tensions in the Strait of Hormuz due to Israeli and US attacks on Iran indicate that the insurance sector has become one of the main actors in classifying the nature of conflict from an operational perspective.
The risk environment now emphasises how an event is classified rather than whether damage actually occurs. If a loss is deemed to be due to a "warlike act" under insurance law, standard policies may become invalid, and only any existing war risk coverage may be activated.
Mr Murat Ciftci, CEO of Turkiye’s IBS Insurance and Reinsurance Brokerage, said that the developments in the ongoing war went beyond a regional risk increase for the sector, and that the real turning point was that the risk has become unpredictable, reported Finans Gudem, a financial news website. The "warlike act" classification is one of the most critical thresholds in determining whether or not compensation will be paid for the damage.
He emphasised that when an event is classified as a warlike act, standard "all risk" policies become invalid, and only war risk coverage comes into play. He stated, "In cases where this coverage is absent, the damage can be completely uninsured. Therefore, the issue is no longer simply whether damage occurs, but how it is classified."
Mr Ciftci added, "Most disputes today arise in these grey areas. State-sponsored actions that haven't officially been declared war, cases where the line between sabotage and warfare is blurred, or operations conducted through third parties can lead to significant differences in interpretation on the insurance side."
He emphasised that in practice, the classification of such damages is based on a multi-layered assessment process. He said, "It is possible to say that risk analysts play the most critical role in today's practices, because they are the main party that creates the policy text and defines the risk. When this assessment is made, many factors such as the perpetrator of the incident, whether there is a state connection, the purpose and context of the action, and the general geopolitical atmosphere in the region where the incident occurred are considered together to make the final classification."
“Insurers define war"
Pointing out that, from an operational perspective, the answer to the question "Do insurers define war?" is largely "Yes," Mr Ciftci said, "Nowadays, states often don't officially declare war, but from the insurance sector's point of view, how an event is classified becomes a key factor in determining whether billions of dollars in compensation will be paid."
He said, "Therefore, an event that a state defines as 'not a war' can be assessed by insurers as a 'warlike act.' This reveals an important fact: the legal definition of war and the insurance sector's definition of risk may not always perfectly coincide."