Article / Risk Management
‘Significant Increase’ in Standalone Terrorism Policies

David Cheales provides an update of the War & Terrorism market for Insurance Day.

The softening rates in the terrorism arena continue unabated, with new capacity coming into the marketplace and healthy competition for business and market share between insurers and reinsurers alike.

This enhances the desire to purchase a product that is becoming more and more affordable to potential buyers of this insurance peril, who, in previous years, have been reluctant to do so. Much of the drive towards selling terrorism insurance currently is not only the competitiveness of the terms available, but also the need to satisfy lenders and financial officers of corporations, with the ever-present scenario that if there were to be a loss, why, if cover was offered, was it not bought?

In many circumstances, risk managers have been made aware it may not necessarily be their company that is the target of a terrorism event, but the situation where they are located or the business to which they are next door. To the layman, this could be referred to as “cheap sleep at night insurance”, covering a totally unforeseen potential crisis.

As regards UK terrorism insurance, we are at the moment seeing a radical and constant move away by companies opting to buy standalone cover, as opposed to the Pool Re scheme with which they have been familiar and used to buying over the years, ever since the UK government scheme was initiated in 1993, following a sequence of terrorism incidents in the early-1990s in London and elsewhere on mainland Britain, directly related to the situation in Northern Ireland at the time.

With the ever-increasing desire to compete with the Pool, underwriters are offering bespoke tailor-made products that mirror or, in some cases, improve current policy structures and forms and, in most cases, dramatically reduce premium spend. The only difference is that nuclear, chemical, biological and radioactive is only available for smaller limits than the Pool is able to offer.

To summarise, there is a significant increase in competitive non-Pool Re policies underwritten in London, and a much more direct emphasis on insureds that have opted not to buy any terrorism insurance at all. If the unexpected were to happen, unpalatable and unwelcome questions, such as why terrorism insurance was not purchased when offered, would be avoided.

The world in which we live continues to throw up unprecedented and unexpected hostile events and atrocities with random abandon. This, of course, produces great tension, fragility and threat being experienced across the globe.

Areas of Concern

In Iraq, with US troops pulling out of the country in December 2011, the last stage of transferring sovereignty back into the hands of Iraqi authorities began. Oil production boomed and foreign countries scrambled for lucrative contracts.

However, political divisions, in combination with a weak state and high unemployment, make Iraq one of the most unstable countries in the Middle East, with great uncertainty as to its future.

US secretary of state, John Kerry, has arrived in Iraq’s capital Baghdad, as Sunni insurgents expand their control of towns across northwestern Iraq. On June 22, rebels, spearheaded by the Islamic State in Iraq and the Levant (ISIS) militants, captured border crossings to Syria and Jordan.

The Iraqi government is battling to push back ISIS and its Sunni militia allies in Diyala and Salahuddin provinces, with the strategically important northern Tal Afar having fallen. The Iraqi key oil refinery at Baiji, north of Baghdad, has also now been fully captured.

In Syria, the uprising began in March 2011 with anti-government protests occurring in provincial areas.

The government of president, Bashar al-Assad, responded with a bloody and barbaric crackdown on initially peaceful gatherings, demanding democratic reform and the end of abject repression, escalating in the deaths of more than 100,000 people and the displacement of an estimated two million others to surrounding countries.

The capital, Damascus, continues to be embroiled in the civil war, with government forces trading fire in the suburbs. There are some local ceasefires, but the Syrian army has so far been strong enough to stop the rebel forces breaking through into central Damascus.

However, the army has not been resilient enough to push back into areas that are often an interwoven labyrinth of alleys and rubble. This has ensured local truce agreements have been put in place.

With much to report in other areas of the world, Syria remains relatively unscathed at the moment in journalistic rhetoric, but the problems still exist without liberty or democratic licence.

In the Ukraine, US president, Barack Obama, has urged his Russian counterpart, Vladimir Putin, to support peace instead of allowing the provision of arms and material across the border and continuing support for militants and separatists who are further destabilising the situation in Ukraine.

White House spokesman, Josh Earnest, told reporters: “Russia will face additional costs if we do not see concrete actions to de-escalate the situation.”

To conclude, terrorism insurance is a product with a long future, given what is happening in the Middle East and particularly in Iraq, and we stand at the precipice of possible jihadi acts of terrorism in the UK due in part to the large number of Muslim citizens now following the ISIS beliefs in Iraq, and many other terrorism hotspots not mentioned in this article.

The political instability of some of the countries mentioned here remains very much a hot topic on the agenda in corporate boardrooms across the globe.

The new and existing capacity and wealth of experienced underwriting within the London market continues to provide an affordable solution to the growing problems.

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