The distinction between terrorism and war coverage in insurance policies is emerging as a critical issue for businesses operating in the Middle East amid ongoing hostilities linked to Iran. Companies that secured protection against sabotage or terrorist acts may face denied claims if losses are attributed to broader warlike activities, according to industry experts and reports from the region.
Many firms relied on standard property insurance as their primary safeguard, but these policies typically exclude war risks, which can encompass hostilities, invasions, rebellions and actions by sovereign powers. Separate political violence or political risk policies are needed for fuller protection, yet most businesses in the area purchased only terrorism and sabotage coverage, stopping short of comprehensive war provisions.
President Donald Trump has referred to the situation as "hostilities" rather than a formal war, including in notifications to Congress this month stating that "the hostilities that began on February 28 have terminated." This phrasing carries political and legal weight under the War Powers Resolution but holds less influence over insurance determinations, which hinge on policy language and the facts of each loss.
Insurers are closely examining incidents such as the 22 ships attacked in the Strait of Hormuz since the conflict's start through mid-April, based on ship tracking data cited by Al-Jazeera. Commercial vessels have reported fires, hull damage and cargo losses from missile strikes, prompting war risk insurers to sharply increase premiums and leading some shipping firms to reroute around Africa via longer voyages that add weeks and substantial fuel costs.
"Many companies that have operated in the Middle East for a long time have become accustomed to the relative stability in the region and may have under-appreciated how quickly geopolitical risk can escalate," said David Kinzel, Aon's U.S. Practice Leader for Political Risk, in comments to CNBC.
On land, strikes have impacted areas near data centers and manufacturing facilities in countries including the UAE and Oman, raising complications for both property and cyber insurance claims. Brokers note that full political violence policies can address damage and business interruption from events like riots, insurrections and war, but uptake of the broadest options remains limited.
In marine insurance, standard hull policies often include a "Free of Capture and Seizure" clause excluding losses from warlike operations, regardless of any formal declaration. Separate war risk coverage is available but frequently features a "Five Powers War Exclusion" that voids protection if conflict erupts among the United States, United Kingdom, France, Russia or China.
"From our perspective regarding marine insurance, 'war' speaks to perils more so than a declaration," Baxter Southern, head of Marine for Howden U.S., told CNBC.
Cyber policies present particular challenges due to varying war exclusions and carve-backs for cyber terrorism aimed at financial or ideological goals. Insurers seeking to deny claims must typically prove involvement by a sovereign government or its direct control, a high bar given reliance on proxies by nations including Iran, Russia, China and North Korea.
Industry sources indicate that cyber war exclusions have drawn significant scrutiny but have seldom been fully enforced in prior state-linked incidents, such as those during the Russia-Ukraine conflict. Disputes are expected to focus more on attribution and proof than on official descriptions from the White House.
Some insurers have paused or restricted new coverage in parts of the Middle East while tightening terms elsewhere to limit exposure. Coverage remains obtainable but at higher costs and with more conditions that can shift rapidly.
Legal experts anticipate a rise in litigation over the precise definition of war in policies, even as no major surge has occurred yet related to the current Iran-linked events. The experiences underscore how businesses that viewed the region as stable enough to forgo broader protections now confront the financial consequences of those choices.
As claims processing advances, the episode highlights that insurance definitions carry direct monetary implications for affected companies navigating the aftermath of missile strikes and maritime disruptions across the region.