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Back in focus: terrorism insurance

Terror-related and political risks are increasingly in the spotlight – in the eyes of companies and their risk managers, as well as from an insurance point of view.

On January 1st this year, AGCS appointed Christof Bentele as Head of Crisis Management, under whose leadership issues such as terrorism, political unrest and product contamination are brought together on a global level. Bentele has been dealing with terror-related risks and how companies can take appropriate precautions against them for over 20 years. As Bentele sees it, the most recent changes in terrorism and political violence demand innovative solutions from the insurer. Read more in the following interview.

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Political/social upheaval is a much bigger concern for businesses in the 2015 Allianz Risk Barometer, rising nine positions to 9th overall compared with last year’s survey (Picture: Shutterstock)

agcs.momentum: Mr. Bentele, over the last 25 years you have worked for brokers, companies and reinsurers. This means that you're well acquainted with the needs of all market participants - especially when it comes to "your topic" of crisis management. A huge advantage in the industry...

Christof Bentele: That's right. The market has changed a great deal over the last few years. It's not just that market participants have appeared on the scene, and sometimes also disappeared from it; above all, the risks have changed. The geopolitical situation today is completely different than it was just 10, let alone 20 years ago. This applies to both country risks and the factors behind these risks. International terrorism, in particular the type driven by Islam, has blazed a trail through the Middle East into Africa and Europe. The risk of kidnapping has increased drastically in terms of frequency and brutality. While the focus was on Central and South America in the past, new hot spots have now emerged, such as the Sahel zone, Nigeria, India and the Middle East, to name just a few examples.

The area of product risks, such as product contamination, has also seen phenomenal changes. New sales markets, new suppliers, globally interconnected supply chains and the further development of official measures aiming to protect consumers lead to significant changes when it comes to risks. This is where the major advantage of having in-depth knowledge of all sides of the market lies; it means that you're more likely to be able to identify all the different customers' needs and offer suitable solutions.

You are considered an established expert in the area of crisis management, which was still regarded as a niche or specialist topic when you first started focusing on it years ago. How did you come to work in that area? What attracted you to it?

After my degree I actually wanted to go back to working in liability, which I had done directly after my Abitur (German university entrance qualification). During a job interview the chief authorized representative of an American insurer talked to me about crisis management. I found it incredibly exciting, not just because it offered me the opportunity to advance in an area where there were no competitors - at least, this was the case in continental Europe back then - but also because as a young man it gave me the chance to get into discussion with leading companies and the owners of international brands, and to do business with them.

It was only later, after I had gained an insight into a number of different businesses' situations and been exposed to the relevant insurance and service products, that I actually realized how interesting crisis management. Above all, I became aware of how it changes over the years, and that my job would retain an incredibly dynamic nature because of that. This dynamism doesn't leave any room for boredom and makes my career both exciting and challenging.

At AGCS, areas such as product recall and contamination, terrorism and political risks are now all categorized under the term "Crisis Management". Why?

We recognized that the issue of crisis management concerns companies in all lines of business. In certain sectors our products and solutions have already been on the market for quite some time. We're now taking the next step and attributing strategic importance to the area through more targeted consolidation of topics, by developing products, and by advancing solutions, together with our customers, that can cope with the approaching challenges. In order to lend more substance to the whole thing and be better able to tackle our customers' wishes, we launched the Crisis Management profit center within the Liability segment of AGCS, with a global management position and responsibility for its own results.

On the global risk-perception scale, fear of political instability has shifted upwards a considerable amount over the last few months: to 9th place on the Allianz Risk Barometer (which reflects the assessments of risk managers) and as high as first place in the WEF global risk report (which expresses the evaluations of economic decision-makers). Are top executives more pessimistic or more forward-looking than risk managers when it comes to political unrest?

Neither. Risk managers have recognized that political instability constitutes a growing threat for companies. It's their task to assess these risks, and all others, and to rank them individually for their respective company. They prepare this information for the top-level management.

For all those who don't concern themselves with this topic professionally, the risks may be perceived differently. To put it simply we are bombarded by the press with stories of new atrocities especially in connection with terrorist attacks -Ukraine, Paris, Copenhagen, the Islamic State, Boko Haram, etc., etc. Not a day goes by when we aren't confronted with this issue. This is then reflected in our awareness of risks. For managers who lead global companies and are responsible for employees, company assets and workplaces, news of this nature leaves a particularly long-lasting and unsettling impression. Perhaps this is one of the reasons for the difference in perception.

"Civil commotions" are generally covered under property policies in Germany? How does your coverage apply?

Abroad - and this is where our terrorism insurance comes in - civil commotion is generally excluded, in particular when it comes to politically instable countries. Terrorism insurance can include a component called SRCC, which stands for "strike, riot and civil commotion". For all intents and purposes these are civil commotions. Furthermore, a "political violence" component can be incorporated. This covers the risk of war and civil war, revolution, rebellion, insurrection and coups.

In the past it was often the case that in specific instances it couldn't be clarified whether it was a question of terrorism, or civil war, or even war. In order to avoid insurers pinning the responsibility on each other, all of these risks should be bundled into one policy. That way it's possible to avoid being left without cover in a loss event.

How is "terrorism" defined and what exactly can be covered by terrorism insurance?

All common definitions of terrorism link terrorist acts committed by people with political, ethnic, religious or ideological motives. A definition must recognize that the objective is to spread fear and terror amongst the public with the aim of influencing a government in some way.

As a rule, physical loss or damage and business interruption are insured. Contents can also be included in the scope of cover, however, along with liability claims. In the case of project coverage, damages may arise as a result of delays, or an attack may lead to the respective building being unsuitable for occupation over a longer period of time.

Is AGCS now a competitor for EXTREMUS?

No, not at all. We offer terrorism insurance to our international customers who purchase cover of that kind abroad. We encourage companies to continue to seek additional terrorism cover from EXTREMUS for their business premises in Germany, as the risk in this country has increased rather than subsided.

Where can companies purchase cover against political unrest and terrorism for their branch offices abroad?

We will be operating this business from our underwriting centers in Munich, London, Chicago and Singapore from the beginning of May. From these locations we can organize cover for almost any location around the world. Our customers should enquire about our capacity via their brokers or their local AGCS contact.

What services are covered by crisis management in a loss event and when/why is a personal crisis advisor necessary?

We predominantly offer crisis management in damage events relating to kidnapping, evacuation and product contamination. We bring in external consultants who are well acquainted with crisis situations and who can provide our customers with valuable assistance. In the area of kidnapping the main concern is obviously to ensure the freedom of the hostage.

But there are also a number of other elements that accompany a case like this, for example strategic assistance and the preparation of information for the company management, incorporating the affected family, communication strategies, conducting negotiations, communication with public authorities, etc. In evacuation cases it's a question of providing the resources and staff for rapid evacuation from politically unstable areas. With product contamination necessary steps include providing laboratories, negotiating with public authorities, researching the causes, quality management, and last but not least, carrying out a product recall.

This is why we utilize external consultants, because companies don't  always have internal access to the relevant knowledge. These are specific subject areas for which there are companies who specialize in providing these services and who can help affected customers with the maximum professionalism and efficiency. And that's precisely what's important in a crisis, as there's one thing that's limited in every crisis: time.

In light of the threats you've named, companies are required to develop "resilience" What does this mean with respect to crisis management?

This means that companies should prepare themselves for a crisis during "peace time". Such preparation will help them to work quickly and efficiently if a crisis does occur, and also to approach crises in a more confident and robust way. Within the company simulations or exercises can be used to fix any potential discrepancies, so that certain scenarios don't have to be "endured" for the first time during an actual crisis. This can be a question of skills or processes, or simply of strategic decisions that can be made with a cooler head outside of a crisis situation than in the middle of one.

Speaking of loss prevention: what do you recommend for risk managers at companies where no internal Corporate Security department exists?

We offer our customers with crisis management coverage a preventative crisis consultation with a crisis consulting company. This is very comprehensive and often leads to our customers developing a relationship with the crisis management company that goes far beyond the areas we insure. Based on my longstanding experience in this field I can really advise companies making use of external assistance. My team and I are more than happy to talk through and clarify the various options for loss prevention.

Innovative products and services are what policyholders expect from insurance companies. Where do you see innovation with regard to coverage for product recall, terrorism and political unrest?

If nothing else, the Arab Spring has shown once again that rapid evacuation from politically unstable countries is become a growing issue. We offer innovative solutions in this area. We believe that, in light of our worldwide network, our terrorism insurance is actually something new: previously this coverage was only available in the London market, without local policies. And in the area of product recall and contamination we can offer some of the broadest terms and conditions in the market. We underpin this with expertise from our risk consulting department ARC, which allows us to make offers that are significantly more realistic and risk-adjusted than those of our competitors who don't have access to this specialist knowledge.

Innovation also thrives on experience and communication, however, and that's where our real strengths lie.

Thanks to our global network we are able to collate and analyze experiences from all corners of the globe. This enables us to develop an in-depth appreciation of both our customers' new sales markets, and of new risks. We communicate with our customers on equal terms, which leads to results that our customers understand and support, because we work together with them to develop solutions. That is the crucial step towards innovation: dialogue between experts, with the aim of producing a made-to-measure solution.

Where do you see your greatest challenge at the moment?

The greatest challenge is to provide all of our customers with an outstanding service, regardless of their location; and above all, to live up to these high standards again and again each day.

Our expert

Christof Bentele, Head of Crisis Management at AGCS since January 2015, is an internationally renowed insurance solutions specialist in the areas of terrorism, political risks, evacuation and product recall and contamination, amongst others. Before he joined Allianz, he worked in Germany, Dubai, New York and London for brokers, insurers, reinsurers and other companies (clients).