Property capacity down, Liability and Political Violence capacity up Capacity for Property Terrorism within the global insurance market has seen a decline in 2019 and 2020 to circa US$3.5 billion, driven primarily by mergers and acquisitions as well as the AIG remediation coinciding with their acquisition of Validus/Talbot. However, in the last few years market capacity for the additional perils of Terrorism Liability and Political Violence has seen growth to circa US$2.4 billion, driven primarily by new entrants to the market such as Convex. However, “realistic” global capacity is likely to be lower than theoretical figures, as new entrants are cautious in deploying capacity for emerging risks. Further marginal growth in capacity has been witnessed for Chemical, Biological, Radiological and Nuclear Terrorism coverage to circa US$625 million, whilst Cyber Terrorism physical damage has risen to circa US$1.9 billion. We would not anticipate any further capacity growth in these lines of business.
Terrorism and Political Violence activity: shift to low capability attack 2020 has already seen the passing of a seven year ‘clean’ reauthorization of Terrorism Risk Insurance Act (TRIA) in the United States of America, taking effect from January 1 2021 until December 31 2027, which keeps the program elements unchanged. It will continue to provide a backstop for insurers in relation to claims from Acts of Terrorism under all commercial Property & Casualty policies. We are seeing increased instability across the globe as a result of public unrest around issues such as climate change and the environment, social activism, unequal distribution of wealth, price rises of essential commodities as well as a slowdown in growth and increase of economic hardship. There has been a notable shift of incidents within the Terrorism and Political Violence market, from major catastrophic property-focused attacks to randomized, ‘low capability’ attacks which target the general public and are carried out by extremists or ‘lone wolves’ being supported by the proliferation of propaganda inciting violence. Furthermore, there is a growing threat from weaponised drones being used for targeted attacks on the energy sector which have been deemed an act of Terrorism.
Enhanced use of social media in low level attacks This is being aided by the global reach and interconnectivity of social media which is being utilised with increasing success to organise and manage public protests, contrary to the central committee-led activities of the past; so we are seeing the appearance of ‘leaderless’ movements. As such, more attritional losses are being witnessed within the Terrorism and Political Violence market, requiring more detailed underwriting and management of the risk. Strikes etc. threat remains Along with terrorist attacks and both global and localised conflicts, the threat of Strikes, Riots, Civil Commotions, Mmalicious Damage and protests remain as a real risk to the energy industry. Furthermore, many new construction projects around the world will continue to face environmental activism and local opposition, including those where land disputes and population displacement may arise.
No dramatic changes Rating and pricing levels are not expected to see any dramatic changes through 2020. Generally, reductions are being seen in western world placements but only to about 5%; however, rates are increasing in line with the heightened risk in volatile and emerging market territories such as Chile and Hong Kong, where there is a key emphasis on understanding the underlying socio-economic issues and local capacity is constricting. In addition, there is potential for wider regional implications expected to arise from the US-Iran standoff.
Increased demand for BI coverage The Terrorism and Political Violence market continues to experience losses in the Energy sector, although the majority are still deemed small and not catastrophic. However, we are seeing an increased demand for Business Interruption (BI) coverages such as Impairment of Access, which in turn are giving rises to losses within this sector. While losses continue to be paid, with some impact on renewals for those directly affected insurance buyers, this is not expected to have any major impact on general market capacity or pricing, any further than the changes otherwise caused by any shift in the security environment in those regions.
Is the coverage currently purchased still appropriate? The energy industry is vital for infrastructure globally and remains a key target for Terrorism and Political Violence. As the Terrorism and Political Violence market and the risk landscape continue to change, it is imperative that the energy industry considers whether the coverage they currently purchase is appropriate; for example, whether obtaining coverage through government pools provides sufficient coverage for their level of exposure, or whether a full stand-alone Terrorism and Political Violence policy or Difference In Conditions/Difference In Limits/Excess policy would provide more appropriate coverage.
Challenges securing Strikes, Riots & Civil Commotion cover It is of upmost importance that insurance buyers also consider whether the perils currently provided by their insurance policies are appropriate for the changing risk landscapes in which they operate. For example, the civil protests taking place throughout Chile in 2019–2020 highlighted how insurance needs and buying habits can change rapidly. Many buyers in Chile have faced difficulties renewing - or even buying new insurance policies - due to local capacity being harder to obtain and insurance carriers not having the appetite to provide perils of Strikes, Riots and Civil Commotion rather than just Sabotage and Terrorism.
Time to consider Impairment of Access cover? While the threat of Strikes, Riots, Civil Commotion and protests remains a clear and ever-present risk, it is important that insurance buyers fully understand what coverage they may or may not have. Whilst many may have some form of coverage in their “All Risk” Property policy or a stand-alone Terrorism and Political Violence policy, this is unlikely to include any coverage for Business Interruption due to site access being prevented or hindered by strikers or protestors in the absence of Physical Damage. As such, a policy wording has been created by our team in London which provides for Impairment of Access. This Impairment of Access coverage uniquely responds whether or not Physical Damage has occurred from an act of Protestors, Riot, Strike, Civil Commotion, Malicious Damage, Sabotage and/or Terrorism and whether or not the Impairment Of Access was due to an act at the Insured’s site or within a pre-agreed radius or access route even if the Insured was not the intended target of such act.
Finally, whilst the Terrorism and Political Violence market capacity has rapidly grown and evolved for Cyber coverage, it is still not as readily available or as broad in coverage as insurance buyers would hope. In general, insurers will only cover a cyber-attack that fits the standard market definition of Terrorism in that it has to be politically, religiously or ideologically motivated, with no coverage for other malicious cyber-attack. In line with other classes of business, there have been new cyber exclusion and limited buy-back clauses introduced to the Terrorism market, which aim to replace the CL380 but with potentially broader exclusions as insurers are continuously considering how and where to best manage their exposure and provide appropriate coverage levels.
Amelie Keeble-Buckle is Associate Director, Financial Solutions – Terrorism & Political Violence Practice, Willis Towers Watson.
