It has been more than three years since the civil uprising in Syria first erupted. With the effects spilling into neighbouring countries, how has the market for political violence insurance in the region kept up? Experts weigh in on the issue.
Since the Syrian unrest broke out in 2011, contagion across the region has led to a rise in sectarian violence, most notably in Iraq and in Lebanon. Along with the uncertainty in the security situation is a growing demand among private and commercial clients for political violence and war products, and a developing regional market to cater to the needs.
“Aside from the EU or US sanctions, there is a market both locally and in London, where political violence and war covers are available on a subscription basis,” said Mr Kit Welsh, Senior Underwriter – Terrorism & War, MENA, Liberty Specialty Markets. “Historically, all capacity for these specialist covers has been held in London, but over the past three years we have been seeing large reinsurers move capacity into the region to be closer to the clients, and benefit from local knowledge and the ability to make decisions quickly on the ground.”
Meeting the needs
Overall, the industry is “much better prepared” to respond to the increase in demand for more robust political violence and terrorism cover, said Mr Piers Gregory, Terrorism Underwriting Manager with ACE Overseas General.
He noted: “During the last five years, the market has moved from the stand-alone, rather narrow terrorism policies that emerged post the 9/11 attacks. Today, political violence and terrorism policies provide comprehensive cover against political violence that extends to protection against strikes, riots and civil commotion (SRCC), civil war and war. The market is therefore in a good position to respond effectively to the challenges posed by the events in the Middle East and elsewhere in the world.”
Cover is not always available
Demand for cover in the Levant has been “consistently high” in the past few years, and “pricing has tended to be higher here than in other regions due to the volatility and delicate nature of the territories involved,” noted Mr David Cheales, Unit Manager and broker of War and Terrorism, Lockton Companies.
He added: “Since the Arab Spring and the start of the Syrian conflict, capacity has reduced and premiums have risen. Political violence cover can no longer be bought for every case.”
This is understandably true in high-risk areas like Syria, where “only a limited number of underwriters are willing to participate” in the market due to the sanctions and the inability to assess risks, as well as the difficulty in getting the right claims adjusters, said Mr Zuhair Al Atout, CEO of Amman-based reinsurance brokerage APEX Insurance.
Underwriters will also not provide covers such as war on land for goods either going into Syria or crossing the country, he added.
Even in Lebanon where there has been an increase in demand, “cover is available, but insurers are rather more conservative when it comes to risk ratings,” said Mr Gregory.
Uncertainty in rating levels
Overall rating in the Levant region is fairly flat but is subject to some volatility, commented Mr Welsh. “We have seen some new capacity come into the market over the last three years adding pressure to rates, but this has been met with a deterioration in the political and security environment, along with some fairly sizeable losses, which has resulted in some reinsurers cutting capacity back slightly.
“There is still a tendency for markets to start writing business in the region aggressively, but then cutting right back as soon as there is an incident, which can create some uncertainty for brokers and clients, and cause rating levels to jump around a bit from quarter to quarter. A consistent approach in rating and appetite is key for both buyers and sellers alike.”
Alluding to the same sort of fluctuation, Mr Al Atout observed that demand for political violence “drastically increased for a short period during and after Arab Spring, but went back to the old numbers as memories in this area tend to be short”.
Even with the increase in demand, rates for such covers have been seen plummeting due to the claims situation as well as new capacities entering the market, he said. However, rates could jump with any action in the area and with capacity becoming limited and expensive.
There is a “definite disconnect” in rates between the local and London markets, said Mr Cheales. “This difference is between what local markets are doing in order to remain competitive and what London markets require for the risk, particularly due to limited aggregate restraints.”
The advantage of proximity
In underwriting the risks, proximity to the business is a significant advantage, said Mr Gregory. Location is therefore a challenge, “especially for London-based insurers who do not have good knowledge of different regions and the actual levels of risk on the ground”.
Having people on the ground with local knowledge to assess levels of risk, he added, “is particularly important in a region like MENA where, for example, government ownership of a hotel can make it a target for terrorism or political violence. Only local presence can give you this depth of knowledge.”
Still, the London market is well-prepared to deal with claims resulting from the Syrian crisis, said Mr Cheales. “Assuming that an insured has the requisite cover, the London market always prepares for any eventuality. The benefit of London is the ability to draw on a wealth of knowledge and expertise, both within the market and provided by third-party providers such as adjusters, so as to properly consider any claims presented.”
Need for clarity in wordings
Even though the unrest in Egypt following the Arab Spring led to stricter conditions and less ambiguous wordings in SRCC contracts, underwriters continue to emphasise the need for clear and straightforward policy wordings.
“[Wordings] have to provide clients with clarity and certainty on the level of cover they are getting,” said Mr Gregory.
“Insurers are always striving to improve wording further, but political violence and terrorism risk is constantly evolving and changing. Precedents are not always there, and this sometimes creates frustration for clients. There are plenty of examples of poorly constructed wordings that have given rise to gaps in cover, so this is not an area for inexperienced insurers looking to ‘dabble’ in this marketplace.”
Wordings also need to include factors such as the situation the affected area is in and what needs to be done if sanctions are imposed, said Mr Al Atout. “Claims cooperation clauses need to be studied in depth, and local insurers should be a lot more involved. Wordings should reflect that,” he added.
A maturing market
In spite of the increased demand for political violence covers, penetration levels across the region are still considered relatively low. “Although progress has been made, the MENA market is still maturing, and the education process is ongoing,” said Mr Gregory.
The Arab Spring revolts in Tunisia and Egypt have so far proven to be more of game changers in the regional political violence market, compared to the conflict in Syria and its effects on its neighbours. Nonetheless, the fluidity of the political environment and the demand for coverage requires the market to continue evolving to be better prepared in mitigating the risks.