Political Violence

The Broadest Category

Political violence is the umbrella term used in the insurance and reinsurance market to describe the full spectrum of intentional violence motivated by political objectives — from civil unrest and terrorism at one end, through armed insurgency and civil war, to interstate conflict and war at the other. It is the most expansive of the three man-made peril categories covered in this module, and in many ways the most complex to underwrite and model.

Where terrorism is defined by intent (ideological motivation, deliberate targeting) and SRCC by collective behaviour (crowds, spontaneous disorder), political violence encompasses all forms of organised, intentional violence that arise from or are directed at political power. Understanding where terrorism and SRCC end and broader political violence begins — and where political violence ends and war begins — is not merely an academic exercise. These distinctions determine which insurance coverage responds, what exclusions apply, and how losses are modelled and priced.

The Political Violence Spectrum

Political violence exists on a spectrum of intensity and organisation. Understanding where on this spectrum a given event falls is essential for both coverage determination and risk assessment:

Civil Unrest and Protest Violence

At the lower end of the political violence spectrum, protest movements can involve violence against property and persons motivated by political goals — overlapping significantly with SRCC. The distinction between SRCC and political violence becomes relevant when:

• The protest movement has explicit political objectives (regime change, constitutional reform) rather than merely economic grievances
• The violence is organised and directed rather than spontaneous and opportunistic
• State forces are actively engaged in suppressing protest, potentially with disproportionate or unlawful force

Venezuela's prolonged political crisis (2017–present), Belarus's post-election unrest (2020), and Iran's post-Mahsa Amini protests (2022) illustrate political violence at this boundary — clearly political in motivation, involving significant property damage and casualties, but falling short of organised armed conflict.

Terrorism

As covered in the previous lesson, terrorism is a form of political violence characterised by clandestine organisation, deliberate targeting for political effect, and typically the use of unconventional tactics against civilian or symbolic targets. It sits within the political violence spectrum but has developed its own distinct insurance market, regulatory framework, and modelling approach.

Insurgency and Guerrilla Warfare

Insurgency describes organised, armed political violence by non-state actors seeking to overthrow or destabilise a government — typically using guerrilla tactics, ambushes, and asymmetric warfare rather than conventional military engagements. Insurgencies by their nature occupy a prolonged, geographically widespread, and unpredictable territory. The insurance implications are severe:

• Sustained business disruption: Active conflict zones make normal commercial activity impossible — supply chains are severed, premises abandoned, staff evacuated
• Physical destruction: Direct damage to insured property from attacks, crossfire, IEDs, and deliberate destruction
• Confiscation and expropriation: Both insurgent groups and government forces may seize, commandeer, or destroy property
• Coverage ambiguity: Whether losses are covered depends on whether the policy covers insurgency separately from war, and whether the specific policy wording's definition of war has been met

Civil War

Civil war represents organised, large-scale armed conflict between groups within a single state — typically the government against one or more organised armed factions. It is among the most destructive events that can affect a country's insured assets, but is almost universally excluded from standard insurance policies under the war exclusion.

The legal distinction between civil war and civil commotion — which is covered — is not always clear, particularly in the early stages of a conflict. The 2011 Libyan civil war began as civil protests (broadly SRCC-like), escalated to armed clashes, and rapidly became a full-scale civil war — creating genuine ambiguity about coverage for losses sustained at different stages of the conflict. Courts in multiple jurisdictions have had to adjudicate coverage disputes arising from conflicts that evolved through multiple stages.

Interstate War

Armed conflict between sovereign states represents the extreme end of the political violence spectrum. Insurance losses from interstate war are largely uninsured under standard policies — the war exclusion is broad and well-established. However, the Russia-Ukraine conflict has generated significant discussion about the boundaries of the war exclusion, particularly for:

• Aviation assets: The stranding and ultimate loss of approximately 400 commercial aircraft leased to Russian airlines — worth USD 10+ billion — has generated complex litigation between aircraft lessors, their insurers, and reinsurers
• Cyber attacks: Russian state cyber operations accompanying the physical conflict have raised questions about whether cyber-war losses trigger war exclusions in property and cyber policies
• Third-country exposure: Companies in third countries with operations, receivables, or supply chain dependencies in conflict zones may suffer significant losses that are not clearly within or outside their insurance coverage

The War Exclusion — The Foundation of Political Violence Insurance

The war exclusion is the central concept around which political violence insurance is structured. Almost every standard property, liability, and casualty policy excludes losses arising from war, invasion, civil war, revolution, rebellion, insurrection, or military or usurped power. The war exclusion exists for fundamental underwriting reasons:

• Uninsurable accumulation: War can simultaneously destroy all insured property in a country or region — a correlation so extreme that no private insurer could bear it
• Moral hazard: Insurance against war losses could theoretically reduce the economic deterrent to conflict initiation
• Unquantifiable risk: The probability and consequences of war are extremely difficult to model with any reliability, making pricing essentially impossible

The war exclusion creates the market for specialist political violence insurance — standalone policies that, for an additional premium, provide coverage for some or all of the risks excluded from standard policies. This specialist market is concentrated in the London market, particularly Lloyd's of London, and with a small number of specialist insurers and reinsurers.

The Political Violence Insurance Market

What Political Violence Policies Cover

Specialist political violence policies can be structured to cover a wide range of the political violence spectrum — with the specific scope defined precisely in the policy wording. Common coverage triggers include:

• Terrorism: Acts of terrorism as defined (often requiring government certification or meeting specific criteria of political motivation and clandestine organisation)
• Sabotage: Deliberate destruction of property for political or ideological purposes
• Strikes, riots, and civil commotion: As described in the previous lesson
• Malicious damage: Property damage with a politically motivated dimension
• Insurrection and rebellion: Organised armed uprising against the state
• Revolution and coup d'état: Forcible overthrow of government
• Civil war: Large-scale armed internal conflict
• War: Some specialist policies — particularly those written for multinational companies operating in conflict-prone regions — extend to cover even interstate war losses

Lloyd's of London and the Specialist Market

The Lloyd's of London market is the global centre for specialist political violence insurance. Lloyd's syndicates have underwritten political violence risk since the market's founding in the 17th century — marine war risk was among the earliest forms of insurance Lloyd's developed. Today, dedicated political violence syndicates at Lloyd's provide capacity for the full range of political violence coverage, from SRCC extensions on standard property programmes to bespoke war risk covers for multinational corporations operating in active conflict zones.

The specialist political violence market is characterised by:

• Manuscripted wordings: Unlike standard lines where policies follow established wordings, political violence policies are frequently manuscripted — individually negotiated between underwriter and broker — to precisely define the scope of covered and excluded events
• Intelligence-led underwriting: Leading political violence underwriters maintain their own political risk intelligence functions or subscribe to specialist services (Control Risks, Verisk Maplecroft, Oxford Analytica) to inform their underwriting judgments
• Country-specific pricing: Political violence premiums vary enormously by country — from negligible loadings for stable developed markets to very high rates for active conflict zones
• Aggregate limits: Underwriters carefully manage their aggregate exposure in any single country or region, setting maximum aggregate limits to prevent catastrophic accumulation in high-risk territories

Political Violence Cat Modelling

Political violence is the most challenging of the man-made perils to model quantitatively. The combination of human intent, political contingency, and the full spectrum from riot to war creates a risk landscape that resists the statistical approaches used for natural perils. Nevertheless, the industry has developed several approaches to quantifying political violence risk:

Country Risk Scoring

The foundation of political violence risk assessment is country risk scoring — assigning each country a quantitative score reflecting its political violence vulnerability. Key inputs include:

• Governance indicators: World Bank Governance Indicators, Freedom House scores, Transparency International Corruption Perceptions Index
• Conflict databases: The Armed Conflict Location and Event Data Project (ACLED) tracks political violence events globally in near-real time — providing both historical data for model calibration and current situational awareness
• Economic vulnerability: GDP per capita, inequality (Gini coefficient), unemployment, food security, inflation
• Fragility indices: The Fragile States Index (Fund for Peace), the State Fragility Index (George Mason University) combine multiple indicators into overall country fragility assessments
• Political stability: Government stability, constitutional legitimacy, electoral competitiveness, institutional strength

Scenario-Based Loss Modelling

Given the limitations of purely statistical approaches, political violence cat models typically use a scenario library — a collection of plausible political violence scenarios for each country or region, each with an estimated probability and a loss footprint based on historical analogues. For example:

• A "Chile-style" urban unrest scenario for a Latin American capital — calibrated to the 2019 Chile protest loss data
• A "Nairobi election violence" scenario for an East African city with contested election history
• An "armed insurgency in the Sahel" scenario for a West African country with active jihadist activity
• A "coup d'état" scenario for a country with a history of military intervention in politics

Each scenario defines the geographic footprint of the event, the types of property affected, the damage mechanisms involved, and the duration of disruption. Applied to the insurer's exposure data, these scenarios produce loss estimates that can be aggregated into an EP curve for political violence risk.

Aggregation and Correlation

A distinctive feature of political violence risk — particularly relevant for reinsurers with global portfolios — is the potential for correlated losses across multiple countries. Regional political violence spillovers (conflicts spreading across borders), global protest contagion (as seen in the Arab Spring), and simultaneous pressure on multiple fragile states from shared drivers (commodity price shocks, climate-driven food insecurity, global recession) can create correlation across country risks that is difficult to capture in country-by-country modelling. The most sophisticated political violence models attempt to capture this regional and global correlation through factor models that link country risks to common underlying drivers.

Emerging Political Violence Risks

Climate-Conflict Nexus

A growing body of research links climate change to increased political violence risk through several pathways: resource competition (water, arable land) exacerbated by climate stress; food insecurity from drought and crop failure driving social instability; and forced migration creating political tensions in receiving communities. The Sahel region — where desertification is advancing, agricultural livelihoods are collapsing, and jihadist insurgencies are expanding — is the most prominent current example of this climate-conflict nexus. For political violence cat modellers, climate change represents not only a direct physical peril but an indirect driver of the man-made perils covered in this module.

Hybrid Warfare and Grey Zone Conflict

Hybrid warfare — the combination of conventional military force, cyber operations, information warfare, economic coercion, and proxy forces to achieve political objectives while maintaining plausible deniability — creates profound challenges for insurance coverage determination. When a state sponsors a cyber attack that causes physical damage to another state's infrastructure, or when proxy forces conduct operations that could be attributed to either a terrorist group or a state sponsor, the application of war exclusions and terrorism coverage becomes genuinely ambiguous. The Russia-Ukraine conflict has demonstrated multiple dimensions of this hybrid approach — from the 2015–2016 cyber attacks on Ukrainian infrastructure to the use of proxy forces in eastern Ukraine before the 2022 full-scale invasion.

State Fragility and the Expanding Conflict Belt

The number of countries experiencing active armed conflict has increased significantly over the past decade. The Sahel belt across West Africa, the Horn of Africa, the Middle East arc from Yemen through Syria to Iraq, and parts of Central Asia represent an expanding geography of instability. As insurance markets develop in these regions — driven by infrastructure investment, development finance, and multinational corporate activity — the need for political violence cat models covering these markets grows correspondingly. The mismatch between the geographic expansion of insured exposure and the relative immaturity of political violence modelling in these regions is one of the most significant underwriting challenges facing the specialist political violence market.