Welcome to Liga Asuransi which specifically discusses various topics around risk management and insurance. In the midst of increasingly uncertain global dynamics, understanding and managing risk has become an important need for the business world, governments and individuals. On this occasion, we will review one of the biggest and most complex risks in the world of insurance, namely the risk of war – which has recently come to the surface again due to increasing tensions in various parts of the world, including the latest conflict between India and Pakistan.
This article will discuss in depth how the risk of war impacts the industry, how insurance can provide protection, and the strategic role of brokers in the mitigation process. If you find this information useful, don’t hesitate to share it with your colleagues, business partners or colleagues. Also find hundreds of other informative and applicable articles on this blog to broaden your knowledge in the field of insurance and risk management.
In the midst of increasing global uncertainty, the world is facing an escalation in geopolitical tensions that has not occurred since the Cold War era. Conflicts in various regions such as Eastern Europe, the Middle East, the South China Sea and South Asia have created an environment that is very vulnerable to the outbreak of open war. One of the conflicts that has emerged again and is attracting international attention is the long-standing conflict between India and Pakistan. In May 2025, tensions peaked following a terrorist attack in the Kashmir region, triggering a military response from both nuclear-armed countries.
For the business world and financial sector, including the insurance industry, this development is not only a political issue, but also a source of real risk that can have a direct impact on assets, operations and business continuity. The risk of war not only threatens physical safety but can also disrupt supply chains, damage critical infrastructure, and cause major financial losses.
Through this article, we will explore how the risk of war is understood and managed from an insurance perspective. By taking a case study of the recent India–Pakistan conflict, this article aims to provide in-depth insight into the importance of mitigating war risks through appropriate and professional insurance protection mechanisms.
Understanding War Risk in Insurance
In the insurance context, war risk refers to potential loss or damage caused by armed action between countries, invasion, military hostilities, armed rebellion, or other similar actions. This risk is considered a form of extraordinary risk—that is, a risk beyond normal control that is systemic, broad and unpredictable. Therefore, war risks have very different characteristics compared to general risks in business activities.
An important distinction must be made between the risk of war and political risk or civil unrest. Political risks include actions such as nationalization, confiscation of assets, restrictions on currency conversion, or cancellation of contracts by the government. Meanwhile, civil unrest refers to acts of violence committed by groups of society against authorities or other groups, such as large demonstrations, strikes, or riots. The risk of war, on the other hand, is military in nature and involves armed forces between countries or large factions.
Types of risks included in the war risk category include:
- Invasion or occupation by a foreign country
- Declaration of war or open armed conflict
- Air strikes, missiles or military bombing
- Military-scale acts of sabotage and terrorism
- Coups and armed uprisings
Most standard insurance policies explicitly exclude war risks. This was done because the scale of losses resulting from war was very broad and difficult to quantify. In addition, war creates uncontrollable force majeure conditions and causes the potential for accumulation of claims that could shake the stability of insurance companies. Therefore, the risk of war can only be guaranteed through special policies or the addition of certain clauses with much more complex premiums and conditions.
Case Study: India–Pakistan Conflict May 2025
Tensions between India and Pakistan peaked again in May 2025, triggered by a terrorist attack in the tourist town of Pahalgam, Kashmir. In this tragic incident, at least 26 Hindu tourists were reportedly killed after a group of armed militants attacked a bus convoy carrying Amarnath Yatra pilgrims. Government of India immediately accused militant group Jaish-e-Mohammed (JeM) as the main perpetrator of the attack, which is believed to be operating from Pakistani territory or Pakistan-Administered Kashmir (Pakistan-Administered Kashmir).
In response, India launched a military operation called Operation Sindoor. In this operation, the Indian Air Force (IAF) launched precision air strikes on nine strategic locations suspected of being training bases and logistics centers belonging to militant groups. Key targets include infrastructure belonging to JeM and Lashkar-e-Taiba (LeT), two organizations that have previously been categorized as international terrorist groups by the UN. This attack involved air-to-surface missiles and advanced fighter aircraft such as the Rafale and Sukhoi Su-30MKI.
Pakistan is not remaining silent. The Pakistani government considered the Indian attack a violation of its sovereign territory and retaliated by shooting down five Indian fighter jets that it claimed had entered its airspace. In response, the Pakistani Air Force also launched artillery attacks on a number of military points in Indian-controlled Kashmir, causing tensions to escalate.
As a result of this conflict, thousands of civilians along the Line of Control (LoC) were forced to flee. A report from the International Red Cross said that at least 80 civilians were killed and more than 300 people were injured during the first week of the escalation. Infrastructure such as schools, hospitals and other public facilities also suffered serious damage.
International reactions emerged. Countries such as the United States, Russia, China and the European Union issued official statements urging both parties to exercise restraint and resolve the dispute through diplomacy. The UN held an emergency Security Council meeting, considering the potential for large-scale conflict that could shake the stability of the South Asian region and the world.
This case is a clear example of how political tensions can turn into open conflict that causes widespread human, economic and geopolitical losses.
Impact of Conflict on Industry and Assets
Armed conflict, such as the one between India and Pakistan in May 2025, has a direct and systemic impact on world industry and business assets. One of the most significant impacts is disruption to regional supply chains and logistics. Goods distribution routes—whether land, air, or sea—are hampered due to regional closures, strict inspections, or even physical damage to infrastructure. This causes delays in the delivery of raw materials and finished products, which greatly affects the manufacturing, trade and import-export sectors.
Conflict also causes damage to critical infrastructure, such as factories, warehouses, ports, railways and major road networks. Air and artillery strikes directed at sensitive areas have the potential to destroy a company’s physical assets, including energy installations and logistics facilities. Not a few businesses have had to stop operations because their location is in a conflict zone or has been directly affected.
From a human resources perspective, risks to employee safety are a major concern. Many companies were forced to temporarily suspend operations to protect staff, or even evacuate employees from dangerous zones. This operational disruption certainly has an impact on business continuity, productivity and contract continuity.
The aviation sector was not spared from the impact. The closure of airspace, especially in the Jammu & Kashmir and Punjab regions, caused many airlines to cancel or divert flights. This has a major impact on business mobility and tourism, as well as causing financial losses for the transportation sector.
At a macro level, conflict triggers economic instability, including exchange rate fluctuations, decreased investor confidence, and postponement or cancellation of foreign direct investment (FDI). The risk of war is a major consideration for multinational companies and institutional investors in making business expansion or relocation decisions.
The Role of Insurance in Mitigating War Risks
In the face of geopolitical uncertainty such as the India–Pakistan conflict in May 2025, insurance plays an important role as a financial mitigation tool against difficult to predict but highly destructive risks. War risks—which include damage from invasion, armed conflict, and terrorist attacks—require a special protection approach through specifically designed insurance products.
The main product in this context is War Risk Insurance, which is a policy that provides insurance against loss or damage caused by acts of war. Apart from that, there is also Political Violence Insurance, which covers politically motivated violence such as riots, rebellions, coups and revolutions. For more specific risks, Terrorism Coverage is provided to cover losses due to acts of terrorism, both to property and business interruption.
One of the sectors most affected by the risk of war is the maritime industry, especially because goods are shipped across conflict-prone areas. This is where the importance of War Risk in Marine Cargo and Marine Hull. This type of insurance covers losses to ships and cargo due to military action, mines, seizure or sabotage. Many global shipping and logistics companies require war insurance as part of shipping provisions in high-risk regions.
For companies that already have standard insurance policies (eg Property All Risks or Industrial All Risks), the risk of war is usually excluded. However, additional endorsements can be added to include this risk, of course with additional premiums and strict conditions. Some common endorsements include Strikes, Riots, and Civil Commotion (SRCC) and Political Risk Extensions.
War risk coverage providers usually come from international insurance markets such as Lloyd’s of London, or from national pools set up by government and industry. There are also special reinsurers that handle high risk portfolios, including war and terrorism, such as Swiss Re, Munich Re, or African Trade Insurance.
In this context, insurance brokers play a strategic role. Brokers not only bridge between clients and insurance companies, but also assess risk exposure, develop appropriate protection designs, and negotiate policy conditions and rates. With insight into global markets and technical expertise, brokers can provide comprehensive solutions that enable clients to continue operating with confidence, even in unstable geopolitical conditions.
Challenges and Limitations in Insuring War Risks
While insurance can be an important mitigation tool against war risks, the reality is that there are a number of challenges and limitations that mean this coverage is not easily accessible or does not fully cover business needs. One of the main challenges is the high premiums. Because the nature of war risks is large-scale, unpredictable, and can cause very high aggregate losses in a short time, insurance companies charge premiums that are much more expensive than ordinary commercial risks. In some cases, premiums can even be a major barrier for small or medium-sized companies to obtain such protection.
On the other hand, there is the issue of limited market capacity. Not all insurance or reinsurance companies have the ability to cover war risks. Most of these risks must be pooled in global risk pools or covered by specialized marketplaces such as Lloyd’s. This causes limitations in product availability and high dependence on international markets.
War insurance also faces the problem of moral hazard, namely the potential for misuse of claims or taking excessive risks by the insured because they feel protected. In addition, the loss assessment process due to armed conflict is very complex, especially if it occurs in an active war zone with destroyed infrastructure and limited access for surveyors.
Another very important thing is the limitation of the guarantee area. Many insurance policies will exclude certain areas that have been designated as active conflict zones, such as parts of Kashmir, the Middle East, or the Red Sea. This means that even if you purchase war risk protection, the coverage is still limited by the geopolitical conditions at the time the policy was issued.
In general, war risks almost always fall into the excluded perils category in standard policies, unless specifically requested and agreed to with strict additional conditions. This emphasizes that protection against the risks of war requires a special approach and adequate technical support.
The Important Role of Insurance Brokers
Insurance broker plays a vital role in modern risk management systems, especially in the context of complex risks such as war, major disasters or international legal responsibility. As an independent party, the broker is not tied to one insurance company, so it can act objectively and fully represent the client’s interests.
A broker’s primary role is to help clients identify the risks they face, assess their potential impact, and design insurance protection solutions that suit specific needs. In the case of war risk, for example, brokers play an important role in finding a market that is able to provide war risk coverage, negotiating the best terms and premiums, and ensuring that coverage does not overlap or have holes.
Apart from that, brokers also provide education and strategic consultation regarding policy clauses, coverage limits and claim procedures. When a claim occurs, the broker accompanies the client from reporting, preparing documents, to settling the claim to ensure fairness and speed of the process.
In an era of increasing geopolitical risk, insurance brokers are irreplaceable strategic partners for companies that want to maintain sustainable and well-protected business continuity.
Conclusions and Recommendations
The India–Pakistan conflict in May 2025 is a stark reminder that the risk of war is no longer a distant threat, but a reality that can disrupt business and economic stability at any time. Therefore, it is important for business actors to carry out risk mapping and implement comprehensive risk management, including considering protection against geopolitical exposure. Insurance, especially war risk protection, must be part of a business continuity strategy. Insurance brokers play an important role as strategic partners in designing the right protection solutions. The government and multinational companies in Indonesia should learn from this case to improve their readiness to face similar risks in the future.
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