What it means
Federal law gives a precise example. Under 46 USC 53901, war risks include, to the extent the Secretary of Transportation determines, any part of a loss excluded from marine insurance under a free of capture or seizure clause or a similar clause.
They also include any other loss from a hostile act, including confiscation, expropriation, nationalization or deprivation. So the idea is a split.
Normal marine cover leaves war losses out, and war risk cover fills that gap for an extra premium. Under 46 USC 53902, the Secretary may provide insurance and reinsurance against war risk loss only when it appears that adequate insurance for the waterborne commerce of the United States cannot be obtained on reasonable terms from authorized insurers.
Coverage is based, as far as practicable, on consideration of the risk. A vessel insured this way must be available to the government in war or national emergency.
Section 53903 lists what can be insured. It covers American vessels, certain foreign vessels, cargo shipped on insurable vessels, disbursements and freight, personal effects, and statutory or contractual liabilities of a vessel or its owner.
For some individual-related risks, it allows cover for non-war risks as the Secretary considers advisable. The Maritime Administration's rules at 46 CFR Part 308 say that an eligible vessel is not insured unless and until an application is submitted and the Maritime Administrator approves it.
Eligible vessels include those registered or licensed under US law and US citizen-owned tugs, barges and fishing watercraft. Other vessels may qualify if the Administrator finds they serve national defence or the national economy under a contract of commitment.
This is one program for US commerce, and private markets set their own terms elsewhere. For a shipper or owner, the practical point is simple.
Check whether the normal policy excludes war risks and what cover is available for an additional premium.
In practice
Real-world examples.
Example
A fictional importer ships cargo worth $2,000,000 through a region with hostile activity. Its marine policy excludes war risks. It buys separate war risk cover for an assumed premium of 0.25%, or $5,000.
Example
A fictional shipowner finds that adequate cover cannot be had on reasonable terms in the private market. Under the federal program described in 46 USC 53902, the government may provide insurance if it meets the conditions. The vessel must be available to the government in a national emergency.
Example
A fictional cargo owner believes its marine policy covers confiscation by a foreign government. The policy's war exclusion removes it. Because the owner had no war risk cover, the loss is uninsured.
Formula
Calculation
War risk premium = insured value x premium rate.
Worked example with assumed figures: insured cargo value $2,000,000 and an assumed premium rate of 0.25% per voyage.
Premium = $2,000,000 x 0.0025 = $5,000.
If the rate doubles to 0.50% because the risk rises, the premium is $2,000,000 x 0.005 = $10,000, an increase of $5,000 for the same cargo and voyage. If the voyage takes place twice in a year at the lower rate, the annual war risk cost is 2 x $5,000 = $10,000.
Premium rates depend on the risk and the market. The rates here are assumptions, not quotes.Case study
Seen in the real world.
This case study is fictional and illustrative. An importer ships equipment worth $2,000,000. The marine policy covers ordinary perils but excludes war risks through a free of capture or seizure clause. The broker explains that war risks include losses excluded by such a clause and other hostile-act losses such as confiscation.
The importer buys war risk cover at an assumed 0.25% for the voyage, for a premium of $5,000. The importer also checks the contract of sale. It confirms who bears the risk of loss by war and who must provide the insurance. The voyage passes without incident.
The cost of $5,000 bought protection against a loss of up to $2,000,000, and the importer notes that the rate can change with conditions. The importer's finance team then adds the war risk premium to its landed-cost calculation for the shipment, so the product is priced with the true cost of moving it. For the next voyage the broker quotes a different rate, and the team compares it with the potential loss before deciding to ship.
Watch out
Common mistakes.
- Assuming standard marine cover includes war losses, when exclusion clauses often remove them.
- Leaving war risk cover out of a sale contract, when the contract may decide who must insure.
- Assuming government insurance is always available. The federal statute allows it only when adequate private cover cannot be had on reasonable terms.
Questions
People also ask.
What is war risk insurance?
It is cover for loss or damage from war and hostile acts that standard marine or property policies exclude.
What counts as a war risk under US law?
46 USC 53901 includes losses excluded by a free of capture or seizure clause and other hostile-act losses, including confiscation, expropriation and nationalization.
Does the US government provide it?
In limited cases. 46 USC 53902 lets the Secretary of Transportation provide it when adequate cover cannot be obtained on reasonable terms from authorized insurers.
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