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ACQ 2016-1

Introduction of War Risk

The Difference of War Risk Cover between China and International Market

What is War Risk Insurance?
War Risk Insurance is a type of insurance which covers damage due to acts of war including invasion, insurrection, rebellion and hijacking, which is commonly used in the shipping industry.

Why buy War Risk Insurance?
Marine Insurance as a concept includes both ordinary marine perils and war risks, over the passage of time, risks and exclusions were added on an ad hoc basis and war risks were among those that were commonly.

War risk insurance thus is designed to cover the gap left by exclusions in the Hull and Machinery or P&I insurances. Although, war risks excluded from the standard P&I cover are included as insured perils in the respective rules of the mutual marine war risks underwriters, owners must carefully study the wording of the respective rules, since minor differences of wording may leave gaps in the cover.

The excluded war risks could then be insured under a separate policy, which provides cover for those specifically excluded war risks.

What does War Risk Insurance cover?
War Risk Insurance covers loss of or damage to the vessel caused by perils set out as below:

a) war civil war revolution rebellion insurrection, or civil strife arising therefrom, or any hostile act by or against a belligerent power
b) capture seizure arrest restraint or detainment, and the consequences thereof or any attempt thereat
c) derelict mines torpedoes bombs or other derelict weapons of war
d) strikers, locked-out workmen, or persons taking part in labour disturbances, riots or civil commotions
e) any terrorist or any person acting maliciously or from a political motive
f)  confiscation or expropriation

Piracy, add piracy risk to the war risk cover no need to prove the motive of perpetrators and also no deductible for piracy claim.

What is JWC excluded area?
It appear harsh that the insurance cover may be withdrawn during the agreed period of the policy, but the explanation lies in the fact that the war risks cover ordinarily offered is for the risks that occur during peacetime and this cover can be provided at a relatively moderate cost of premium for the owners. When vessels operate in actual active war zones the risks are dramatically increased and require a considerably higher premium. For this purpose, the Joint War Committee (JWC) in the London insurance market maintains a list of areas, which are excluded from the ordinary war risks cover and when a vessel enters one of the excluded areas it is deemed to breach the War Risk Trading Warranties unless the owners agree to pay an additional premium, which is based on the degree of perceived risk in that particular area.

The Institute War and Clauses provides the mechanism whereby the war risks insurance can be terminated on short notice when there is an increased risk of war or warlike activities in a new area so that this new area can be included in the areas of perceived enhanced risk. The justification for allowing the market to cancel cover on short notice to adjust the trading limits may be said to lie in the fact that without this facility the premium that the owners would have to pay for his ordinary / annual war risk cover would have to include the possibility of the risk for warlike activities increasing somewhere in the world sometime during the policy year, a risk that may not materialize at all. It can, therefore, be said that his cancellation clause allows the market to assess the premium realistically in accordance with the actual risk. Attached please find the latest list dated 12th June 2013 (JWLA021)

How is the premium calculated?
Nowadays, war underwriters also aware there is an increasing on the War Loss of Hire and Piracy risks and they are willing to take these additional risks subject to additional annual premium.