By bizn_fun 
War risk cover is organised in seven “buckets” spanning different severities of conflict. Sabotage and terrorism are considered to be the lowest, while civil and interstate war are the highest.
“Many insurers try to offer all this coverage, since often it’s not clear where a situation has moved from risk of terrorism, to civil war, to even interstate war,” says Raveem Ismail, founder of specialist insurance firm London-based Trigger Parametric.
The war risk sector is centred on London due to the continuing strength of Lloyds of London, which has been a specialist insurance market since 1689.
Lloyds is also home to war risk insurance reinsurers – firms who buy and sell the cover.
Ms Cousins says this spreads out the possible exposure. “Each [reinsurer] covers a certain percentage of the risk, of anywhere between one and 10%,” she says.
Constantin Gurdgiev, a finance professor at the University of Northern Colorado, and an expert in the study of risk and conflict finance, says the challenge for the war risk sector is to work out what premium to charge for cover.
“Wars and conflicts more generally represent black swan [very rare] events,” he says. Because of this rarity, he adds that “historical data tends to be a weak basis for establishing any priceable insights”.
Yet Mr Ismail points out that war risk insurance can be very profitable, something he contrasts with the car insurance sector.
“As a car insurer, for every £1 of premiums you take in, you pay back almost £1.05 in claims,” he says. You might think that the maths doesn’t add up there, but Dr Ismail says that the car insurers make the 5p and more from investment income.
By contrast, war risk insurance funds can pay out as little as 2%, external. Put simply, car crashes remain far more common than war damage.