Conflict – the new normal?

By Resolve Editor Kate Tilley

War and conflict might seem easily definable concepts – but they’re not.

That was a clear message from participants in the conflict stream at WICA2023. The stream consisted of four sessions across topics covering the international security outlook and insurance implications, insurance responses to risk of conflict, conflict as ‘the new normal’, and a wrap up session. Each session had an array of panellists who shared their views on the topics.

Cyber crime has changed the nature of global disputes. As Lander & Rogers partner Melissa Tan, from Sydney, said: “Cyber has upended our thoughts on conflict. Anyone with an internet-connected device can be a soldier and create conflict.”

She said the concept of conflict was now blurred. There was no longer just peace or war, but a state of ‘unpeace’.

Be free thinking

Moderator Craig Marvinney, who is president of the US Federation of Defence & Corporate Counsel, said: “We must innovate and ask what we can do to be more resilient. We must be as free thinking as those that seek to undermine us. Think like the bad guys to fight them on all levels.”

He said artificial intelligence (AI) had the ability to “transform our lives in ways we haven’t even contemplated”.

Martin Zapiola Guerrico, founding partner of law firm Zapiola Guerrico & Asociados, from Argentina, said cyber attacks were “a big risk in Latin America and we’re ill prepared and have no access to cyber insurance”. Initially Latin America thought it was immune from cyber attacks and they were confined to wealthier nations, but the region was now in a “digital pandemic” and just learning to cope with it.

He said the nation must develop digital safety rules and they must be taught, in the same way that road safety lessons are taught in schools.

Shades of grey

Jesse McNeilly, a former Australian Army paratrooper and war veteran from Perth, Western Australia, cofounded Frontier Expeditionary Services and uses his military, diplomatic security and remote medical skills to help people operating in conflict and disaster zones.

He said there were “shades of grey” in all wars. Despite the ongoing conflict, life continued almost as normal for many in Ukraine. “It’s safe in most of the big cities but tension lifts as you get closer to the frontline.

“It’s unlike other wars I’ve been in. In Kyiv, people are still going to shopping centres and theatres.” He said Russia had underestimated Ukraine when it invaded in 2022. Both nations were now resorting to drone attacks and critical infrastructure was at risk.

The combatants also were engaging in electronic warfare. “As you approach the frontline, the phone signal disappears because of jamming, but devices can still be intercepted.” Mr McNeilly solved that by buying local SIM cards, changing them regularly, and tethering his phone through a virtual private network (VPN). “VPNs are good practice, but how many of you do it?”

Mr Marvinney said the British experience in World War Two was similar to Ukraine’s. “London’s civilian population continued with their lives during the blitz, until catastrophe landed in their laps.”

Semiconductor shortage

Professor Johnny Chang, from Taiwan’s CTBC Business School, warned that any escalation of the tension between China and Taiwan could have serious ramifications for the global economy. Taiwan has 68% of the global semiconductor manufacturing market, including some advanced chips that are only manufactured there.

Mr Marvinney said despite war exclusions in many insurance policies, business interruption claims were likely if semiconductors were unavailable.

Christof Gaudig, who heads energy and infrastructure at German law firm Oppenhof & Partner, said in “hybrid conflicts” it was difficult to know when a war exclusion kicked in. “It’s clear the insurance industry can’t insure war risks, but the insurer must prove war exists to use the exclusion.”

Professor Rob Merkin, from the University of Reading in England, said reinsurance was largely about war risks until 1815. Originally war risks were covered, with no exclusions, as such, but there were other protections for underwriters like requirements that vessels travelled in conveys with warships guarding them.

The shipping industry’s major hazards were pirates and privateers that interrupted trade. Standard war exclusions began in World War Two. Marine insurance concepts like total constructive loss were based on early war scenarios.

Constructive total loss

Peter MacDonald Eggers KC, appearing at WICA2023 via video link from the United Kingdom, said the UK’s Marine Insurance Act defined actual and constructive total losses. A constructive total loss (CTL) was one that was commercially impractical to repair or recover, even if it were possible to do so.

The doctrine of CTL was not included in non-marine insurance, and the law struggled to define total losses in non-marine cases, so decisions were inconsistent.

Ozlem Gurses, Professor of Law at King's College London, asked panellists to define war. Mr Chang said there was no universal definition. Insurance policies contained broad and narrow views, but the narrow view was more traditional, basically countries trying to settle their differences by force.

However, he queried the status of the ongoing China-India border conflict. “There are no guns, so is it war?”

Mr Eggers said war risks generally involved armed conflict but, in “the new world” weapons may be something else, like cyber warfare.

Political risks were commonly defined by events like captures, seizures and arrests.

Risks not exclusive

A 1999 UK court case, Kuwait Airways v Kuwait Insurance, found political and war risk were not mutually exclusive.

Mr Eggers said it was difficult to apply definitions to war risk and political risk. “Was the 2001 World Trade Centre attack war?”

Professor Chang said the Taiwanese insurance market insured war risks in life, health, annuity and investment-linked insurance policies, but not casualty, auto, home or commercial lines, except aviation where airlines could purchase a “war risk rider”.

Professor Merkin outlined a case, which is now headed to the Appeal Court, where the University of Exeter found an unexploded German bomb, dropped in 1942, near its grounds. A “controlled explosion” to defuse the bomb damaged the halls of residence and blew out windows in nearby homes.

German insurer Allianz was successful in the first instance, with High Court Judge Nigel Bird ruling: “Dropping the bomb is an act of war and so the loss suffered is excluded from cover.”

Professor Merkin said under UK law, the war exclusion took priority, so there was no coverage.

War risk applied

Mr Gaudig shared a personal story, ironically involving the same insurer, Allianz. He purchased a home in Cologne in 2006 and three years later the ceiling caved in.

The home had been hit by a bomb in 1944 and, unbeknown to him, the beams had been damaged and weakened over time. The insurer said the damage was a direct consequence of war and therefore the war risk exclusion applied, so no claim.

Ms Tan returned to the cyber warfare theme, warned of the danger of deep fakes, which undermined cyber awareness. “Cyber attacking is cheap; defence is expensive.”

Mr McNeilly said there was always a lot of disinformation on battlefields, including fake war crimes being reported which was “really scary”, because that had the ability to reshape a war.