Despite recent events creating volatility for terrorism and political violence insurers, there are reasons for optimism, capacity remains stable and multiple products remain available to meet insureds specific risk transfer needs, Lockton analysts said in a recent report.
Civil unrest in Chile, Hong Kong and South Africa generated significant losses. This was further compounded by the Russian invasion of Ukraine.
In response, the market hardened quickly: insurers pushed for higher rates to offset losses, imposed more restrictive terms and adjusted their risk selection approach.
Additionally, sublimits that had been available for extensions like “contingent business interruption”, “unnamed suppliers”, “service interruption” and “miscellaneous unnamed locations” were commonly excluded, as renewal negotiations became more protracted.
On January 1, 2023, the majority of carriers renewed their reinsurance programmes; and depleted reinsurance capacity and appetite culminated in significant rate rises with many insurers being forced to increase retentions.
Significant underwriting controls were also implemented on delegation beyond sabotage & terrorism perils, this in a market that was becoming more reliant on facility utilisation, analysts explained.
Converting these facility placements to the open market in many cases added cost, as insureds could no longer benefit from economies of portfolio purchasing.
Despite this uncertain period, Lockton reported that the market remains steady with capacity for sabotage and terrorism standing at approximately $3.5 billion.
According to analysts these perils have been able to “experience low levels of volatility and fewer losses, which has made underwriters to be more flexible. Something that was reflected in the rating environment, with rate increase generally being between 5%–15%.
“Underwriters have also become more amenable to the broadening of previously restricted policy terms for sabotage and terrorism perils when rated adequately.”
Regarding the strikes, riots, civil commotion and malicious damage (SRCC) space, the report found that the market has seen a greater degree of losses. An unsurprising find given the myriad social and political trends that have driven incidents across large geographic areas.
On top of these, the cost of living, social isolation since COVID-19 lockdowns and political polarisation are regrettable global currents which show little sign of abating, said analysts.
In the US the retail sector has seen property insurers impose civil unrest exclusions or restrictions, prompting many to consider standalone buyback options. In Latin America the purchasing of civil has grown in recent years, at the same time, insurers have sustained meaningful losses.
Rate increases in the region are at 25%–35% but in many cases higher, depending on occupancy and loss history.
The peril which has hardened most is political violence which includes war, civil war and coup d’état, a direct result of the invasion of Ukraine according to the report.
“Whilst this experience has prompted markets to reconsider their appetite, aggregation and pricing models for political violence coverage, it’s also contextualised other global flashpoints. These include Taiwan, Israel, and Pakistan,” analysts noted.
Finally, the active assailant market has grown significantly in the past decade, the report also stated. This has led multiple lines of insurance to meet the demand for coverage against indiscriminate acts of violence.
The report concluded: “Despite the prevalence of mass shootings this year, most notably in the United States, coverage solutions for physical damage, business interruption, liability and crisis response remain available.
“The prevalence of active assailant losses has inevitably driven rates and markets have, in some sectors like retail, hospitality and entertainment, managed their exposures via reducing limits or increased syndication.”
