Political violence and terrorism: Taking a new view
Howden Re’s global head of terrorism and political violence Sandy Warne on how the industry must respond to shifts in the global risk landscape.
The political violence and terrorism (PV&T) landscape has changed. Why hasn’t our approach to reinsuring it?
The landscape for risk has changed. From losses stemming from the cancellation of Taylor Swift concerts in Vienna, to widespread UK rioting, violent breakouts in Kenya and political unrest in Bangladesh, the threat of terrorism and global civil unrest is now a constant theme to (re)insurance and an ever-changing challenge that our clients and business must face. The PV&T global landscape has undergone significant changes, yet our approach to providing (re)insurance remains unchallenged and, at times, outdated. Recent events highlight critical lessons the industry must adapt to in order to improve client outcomes and protect value.
PV&T’s widened scope – SRCC remains key concern
These threats are not isolated to specific regions or sectors, but are global, frequent and – importantly – affect multiple product lines within the industry. Strikes, riots and civil commotion (SRCC) are no longer an issue simply facing the PV&T market.
We have been bound by traditional, now myopic, views of terrorism and it is time that we all take a new view. Geopolitical instability and global civil unrest are “the new terrorism”, posing more regular, material commercial risks than previously seen.
It is not enough to simply acknowledge that the risk facing businesses has changed, so too must the industry in its assessment, response and coverage.
Our industry’s challenges
Loss distribution complexity and impact
Increased net retentions being taken by carriers, combined with a significant increase in smaller, more attritional losses, can be the difference between a company’s profit and loss for this product line.
Pricing the unknown
As exemplified by the New Caledonia protests, which are projected to cause industry losses of $2bn, modern SRCC losses and threats are highly unpredictable.
The seeming inability to predict these losses, however, should not account for a failure to adequately underwrite and provide solutions for such events. We must revisit our policy wordings and pricing strategies to better account for risks, not just within the PV&T market but wherever this coverage is afforded to our clients. Property portfolios, marine, and cargo and specie covers all typically extend cover to include elements of SRCC. Quite often we see cover on a non-affirmative or silent basis, meaning that the peril in play is often not priced for, aggregated or monitored.
The biggest concern we have is that there is seemingly an increased risk of claims being challenged where carriers do not deem coverage to have been given. Lengthy litigation will rarely obtain the best result and outcome for many other than the lawyers appointed. Clients need confirmation of cover and clarity in what they have bought, rather than increasingly relying on non-affirmative cover.
Industry-wide standards needed
Establishing clear market standards across all business lines, combined with best practices, is essential to ensure that (re)insurers can effectively underwrite these risks. I urge industry collaboration to provide the best outcomes for our clients.
Never has the need for focus on (re)insurance of the SRCC peril been more in the spotlight. Industry losses are only getting larger. By modelling, managing and pricing for cover, we can solve the problems our clients are facing in such challenging times.
What are our solutions?
We must use data
Whilst no event is identical, the increased scale and frequency of SRCC events provides baseline data. Historical data from events like the Arab Spring, South African riots and recent UK unrest should inform enhanced risk assessment and policy wording development.
(Re)insurers must adopt proactive strategies to mitigate risks. At Howden Re, we have made progress on historic event modelling and mapping, enabling us to provide more nuanced perspectives when advising clients.