Can 1906 Insurance Laws Cover Modern Maritime Conflicts?

The Insurance Industry's Outdated Risk Framework

The marine insurance industry faces a crisis of relevance. As geopolitical tensions simmer in the Persian Gulf and vessels navigate increasingly hazardous waters, supply chain professionals are discovering that the insurance instruments protecting their cargo rely on legal and policy frameworks written a century ago—or more. An attorney reviewing a client's open cover policy recently confronted a troubling reality: the Institute War Clauses Cargo from 2009, Hull clauses stretching back to 1983, and the foundational Marine Insurance Act of 1906 remain the market standard. These documents predate modern asymmetric conflicts, drone strikes, cyber warfare, complex sanctions regimes, and the interconnected geopolitical volatility that now defines maritime commerce.

The gap between policy language and operational reality creates systemic risk. When a vessel is stranded in contested waters or navigation becomes restricted due to geopolitical events, the question "Is this covered?" becomes dangerously ambiguous. Traditional war clauses define coverage narrowly around state-to-state conflict. They struggle with scenarios like regional proxy conflicts, designated shipping zones, or cumulative delays caused by geopolitical uncertainty rather than direct military action. Shippers and underwriters end up in protracted disputes over whether a loss qualifies as war-related (and thus excludable) or falls under force majeure, business interruption, or delay provisions. During a claims crisis, ambiguity is catastrophic.

Operational Implications for Supply Chain Leaders

This insurance gap directly impacts supply chain strategy and cost. When coverage is uncertain or incomplete, companies face three bad options: accept uninsured risk, pay higher premiums for add-on coverage or clarifications, or reroute shipments to avoid high-risk corridors entirely. Each option erodes competitiveness.

Rerouting around high-conflict zones adds weeks to transit times and significant cost premiums. A shipment diverted from the Persian Gulf or Strait of Malacca to alternative routes—such as around Africa or via northern passages—faces 2-4 week delays and 15-25% cost increases. For time-sensitive cargo like electronics, pharmaceuticals, or perishables, this may make routes uneconomical. For capital-intensive inventory, extended transit times force larger safety stocks and working capital strain.

Higher insurance costs are another hidden tax. Geopolitical risk premiums are rising, particularly for routes through chokepoints. When insurers lack clear policy language to assess risk or manage claims, they price defensively—adding 20-30% or more to premiums in volatile regions. These costs get passed to shippers, compressing margins and affecting competitive positioning, especially for lower-margin commodities or emerging-market players with less bargaining power.

The worst scenario: a major loss occurs, coverage is disputed, and the claim is denied or significantly underpaid. A shipper loses both the cargo value and faces customer penalties, damaging cash flow and reputation. In an industry where margins are thin and relationships are critical, such an event can be existential for smaller players.

The Path Forward: Proactive Risk Management

Supply chain professionals cannot wait for the insurance industry to update its foundational documents—that process will take years. Instead, companies should immediately take three concrete steps.

First, conduct a comprehensive policy audit. Review your open cover policies with legal counsel specializing in marine insurance. Identify explicit exclusions, coverage gaps, and ambiguous language around geopolitical risks. Understand exactly what your insurer will and will not cover in specific conflict scenarios. This clarity is the foundation for all subsequent decisions.

Second, layer additional coverage strategically. Supplementary war clauses, political risk insurance, or cyber-marine riders may close gaps in standard policies. Yes, they cost more, but the protection is precise and clearly defined. For high-value or time-sensitive cargo on risky routes, this is a business decision, not a luxury.

Third, stress-test routing assumptions and build contingencies. Map your high-risk corridors. Identify alternative routes for each lane, understand the cost and time premiums, and evaluate whether certain routes should be deprioritized or reserved for less time-sensitive cargo. Build inventory buffers for critical inputs that may experience geopolitical delays. Communicate these scenarios to your sales and customer service teams so expectations are managed and pricing reflects true risk.

The marine insurance market will eventually modernize its clauses to address 21st-century geopolitical realities. Until then, supply chain teams must treat outdated insurance as a known risk and build operational resilience around it. The companies that do will compete more effectively and protect themselves against the next crisis.