How does war risk insurance shape geopolitics?

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This is the script for my video posted on October 22, 2026. Watch it on TikTok.

We all know that wars cost money and damage economies. But you probably don’t know that insurance has a shocking amount of influence on conflicts. Imagine if your car insurance charged you extra every time you drove through a dangerous neighborhood, and could raise that charge overnight or refuse to cover you there at all. That’s roughly how ships are insured in war zones, and it can decide whether a shipping company sails through a conflict or goes around it. But how exactly does this influence geopolitics?

Insurance is a topic most people do not care about, but it’s a hugely important factor in how the world works. Sticking with the shipping example, the newest ultra-large container ships can cost more than 250m dollars. If one of those ships were damaged without insurance coverage, the company would be liable for the full cost of repairs and any impact to operations.

So naturally, companies have a lot of insurance coverage, partly because paying premiums is cheaper than risking a loss like that, and partly because banks, charterers, and ports won’t work with a ship that isn’t insured. But standard ship insurance excludes war, so war risk is bought as a separate policy, and insurers can reprice or cancel it on just a few days’ notice if a conflict kicks off.

Marine insurance traces back to Italian merchants in the 1300s, but the modern insurance market traces back to London in the late 17th century. A man named Edward Lloyd ran a coffee house, and he was known for providing reliable news about the shipping industry, which made the coffee house a trusted meeting place for people to talk about maritime risks.

Merchants brought proposals for voyages there, and wealthy patrons would sign their names at the bottom to commit to covering a portion of the risk in exchange for a fee. That practice of signing under the risk is where the term “underwriting” comes from.

In time, the underwriters who gathered there formed their own organization, and Lloyd’s of London was born. Lloyd’s isn’t actually an insurance company. It’s a marketplace where independent underwriters compete to take on risk. Its standard Ship and Goods policy, adopted in 1779, insured ships against pirates, enemy warships, and countless other threats, and its wording was eventually copied around the world.

The natural consequence of this though was that the more likely a ship was to encounter a threat, the greater the likelihood it would need to activate its coverage. Eventually insurers split war out of the standard policy and priced it separately, so war risk premiums rose and fell with conflicts. When that coverage became too expensive, companies would pay it and pass on the cost downstream, take a longer route, move their ships to a neutral country’s flag, or, as a last resort, avoid the area entirely.

During the US Civil War, when Confederate raiders began targeting Union ships, war risk surcharges on those ships tripled or quadrupled, and merchants started sending their cargo on foreign ships instead. Roughly a thousand US ships were sold to foreign owners, mostly British, so they could keep sailing under a neutral flag.

Early in WWI when the US was still neutral, the US government passed the War Risk Insurance Act to establish a new bureau in the Department of the Treasury that would provide government-backed insurance to US merchant vessels and cargo, specifically to keep them operating despite the risks of war.

War risk insurance was a major consideration in many maritime conflicts of the 20th century, from the Falklands War to the Iran-Iraq War and the Gulf War. During the Iran-Iraq War, both sides attacked oil tankers in the Persian Gulf, and premiums for ships calling at Iran’s Kharg Island oil terminal reached seven and a half percent of the ship’s value. Even so, tanker traffic through the Strait of Hormuz never stopped for long, which will be very relevant later.

9/11 also had a massive impact on war risk insurance. Insurers around the world cancelled airlines’ third-party war liability coverage on a week’s notice and sharply raised the cost of other war coverage, which prompted the US government to expand an existing war risk insurance program run by the Federal Aviation Administration.

But “war” doesn’t necessarily have a clear definition in insurance. In 2017, for example, the pharma company Merck had about 40,000 computers hit by malware attributed to Russian military intelligence. Merck claimed about 1.4b dollars in damage, but several of its insurers refused to pay because the policy excluded hostile or warlike action. A New Jersey court ruled that the exclusion only applied to traditional military action, an appeals court agreed, and the two sides settled in early 2024. Lloyd’s now requires cyber policies written in its market to exclude the most damaging state-backed cyber attacks.

Insurance has played a role in the war in Ukraine too. After Russia’s full-scale invasion, premiums skyrocketed, but the bigger problem was that Russia’s navy blockaded Ukraine’s ports, and the surrounding waters were mined, which nearly stopped grain exports and rippled into the global food supply.

The Black Sea Grain Initiative, a deal brokered by the UN and Turkey in 2022, reopened a shipping corridor, and London insurers set up a special facility so ships using it could get coverage. When Russia pulled out of that deal in 2023, Ukraine kept shipping through its own corridor, and the Ukrainian government helped launch another insurance facility to bring costs down for ships willing to make the trip.

At the same time, the Houthis in Yemen have attacked shipping in the Red Sea on and off since late 2023. They mostly target ships they consider linked to Israel, the US, and the UK, and more recently Saudi Arabia, but plenty of ships with no real connection have been hit too.

And since the US and Israel went to war with Iran in February 2026, Iran has repeatedly attacked ships in the Strait of Hormuz, at times choking off traffic almost entirely. That puts both of the Arabian Peninsula’s major shipping chokepoints under threat at once, and in July, war risk premiums for the Strait of Hormuz reached as much as 10% of a ship’s value, on par with the worst of the Tanker War of the 1980s.

War risk coverage never disappeared entirely around the Strait of Hormuz after the war kicked off, but it was badly disrupted. Within days of the war starting, several major marine insurers gave just 72 hours’ notice that they were cancelling some of their war coverage in the Gulf, and reinsurers pulled back as well. The London insurance market argues that coverage was always available and that the real reason ships stayed away was the risk to their crews, and seafarer unions did give crews the right to refuse to sail into the Gulf. The US tried to get ships moving again with a 40b dollar government-backed insurance facility, but as of May it hadn’t written a single policy.

Insurers have the ability to directly influence the global economy via their coverage. If coverage is priced out of reach or fully withdrawn for a particular kind of vessel, the commercial effect is similar to an economic sanction, but made without government involvement. That’s why governments so often step in with insurance of their own to keep trade moving when the market won’t.

But governments also use insurance as a weapon. Since 2022, the G7, the EU, and Australia have barred their insurers from covering Russian oil sold above a set price cap, and Russia responded by building a shadow fleet of aging tankers with murky ownership and insurance. Now countries like India are building their own war risk insurance pools, partly so they don’t have to depend on Western insurers. Ultimately, whoever controls the insurance has a lot of say over who gets to trade at all.

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