Terrorist attacks and political unrest are jeopardizing the feeling of security in many parts of the world - including in our European home. Companies are giving more and more thought to the implications being affected by terrorist attacks and acts of violence could have for them.
Björn Reusswig, executive underwriter for terrorism at AGCS in Munich, has noticed a growing interest in terrorism insurance.
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The dreadful attacks on the Brussels Airport and the local metro (March 2016) served as an additional reminder that transnational terrorism, in this case embodied by the so-called Islamic State, has moved one step closer to Europe. We've grown accustomed to seeing photos of crisis regions in the Near and Middle East pained by devastation, which is sad in its own right. But it also means seeing photos of similar events occurring in Brussels, the heart of Europe, hits us even harder.
The consequences of this don't go unnoticed. A lot of people already think twice before going into the city center or attending events, or even just taking the train to work. Individuals responsible for corporate security also ask themselves whether they've taken all the necessary measures to protect their colleagues, material property, supply chains, sales channels and operational revenue in the best possible way. This doesn't just include continuously assessing and re-evaluating the physical, organizational and electronic security measures that are already in place, but also considering transferring the risk into the insurance market.
The insurance sector has been experiencing a noticeable increase in the demand for conventional terrorism insurance and for general protection against political violence for several months now. Companies operating in Europe, in particular, are increasingly seeking to enter into a dialogue with insurers because they want to gain a better understanding of their individual threat scenario and the possible damage that could arise.
Within this framework, what different companies need varies considerably. An example would be whether limited access as a result of an act of terrorism or political violence is eligible for insurance. Insurance for large-scale events in case of terrorist attacks or terrorism warnings, which may result in an event being called off or interrupted, is also in high demand.
What many companies are especially worried about is the extent to which cover can be extended to cross-border interdependencies within the company. As a concept in itself, this is hardly revolutionary. And still, as soon as one of the insurance locations affected is insured via the terrorism pool, regardless of whether it is a location where physical loss or damage occurs as a result of an act or terrorism or where said act of terorrism results in business interruption loss or damage, things can get complicated.
Why is that the case? In their scope of application, many terrorism insurance solutions offered or supported by governments worldwide are limited to the countries from which they originate. This makes sense - after all, most of the time the costs for these pool solutions are borne by the state, and therefore the taxpayer. If a policyholder, i.e. a company, wants to close this gap, the insurance program in question has to be designed in a way that offers cover for both the "internal" impact on the respective countries and the "external" impact emanating beyond their borders.
Modern-day local and regional crises quickly wreak havoc on the geopolitical environment as a whole - just look at the Arab Spring or the conflict in eastern Ukraine. The speed with which they make themselves felt is only surpassed by the pace of development within the global economy, which is increasingly interconnected. Supply chains, trade relationships and production sites transcend geographical borders, stretching far into regions political violence hits hardest. Companies are increasingly faced with the decision of whether they should transfer the associated economic risks, and how they should go about it.
The concept of cover for "political violence" has taken hold of the insurance market. This solution offers universal insurance cover whose scope ranges from acts of terrorism all the way to civil commotion and war, thereby encompassing all escalation levels. Key advantage: insurance cover is provided regardless of how far the conflict in the country in question has escalated. If, furthermore, the company seeks help from the local police to adapt the cover to suit the legal framework and market conditions, as managed under a primary policy, it will have taken all possible measures to insure itself against the risk.
Insurers are placing more and more emphasis on support from crisis consultancy companies that specialize in collecting, evaluating and processing information on all countries and regions across the globe on a daily basis. Said information is often provided by local employees and forms an important part of the insurers' risk evaluation process. It has now become a prevalent standard in the business of insuring political violence that unless premiums are not paid, the insurer has no right to termination, which renders a thorough preliminary inspection in advance indispensable.
This kind of country-specific information is also increasingly available to companies, for whom it is just as relevant as for insurers. This provides an opportunity for companies to review their own risk evaluation process and, where necessary, adjust said process to reflect the latest developments.
Björn Reußwig is an executive underwriter in terrorism at Allianz Global Corporate & Specialty. He has been focusing on politically motivated violence and suitable solutions to insure against it for over 12 years.