Political Unrest Affecting Insurer Appetites

As political unrest envelops North Africa and the Middle East, a global-insurance broker says insurers are reviewing their appetites for political coverage—at a time when multinational companies are being encouraged by events to perform their own risk review.

In its report titled “Political Risk Insurance: Mind The Gap,” insurance broker Willis Group says that while “[multinational companies may be able to assess and manage technical and even commercial risks, it is extremely difficult to deal with or indeed predict political events.”

In a statement, Bob Peilow, managing director of Willis Global Solutions (International) and lead author of the report, says: “What shocks a lot of people about the latest wave of political unrest is the unpredictability around where it will happen next, and the fact that today's stable or 'investor-friendly' regime can very easily become tomorrow's hot spot. This is why it is so important that companies have the right coverage in place should the unthinkable happen.”

Willis says there are three main types of insurance coverage that companies concerned about political unrest should consider:

• Strikes, riots and civil commotions (SRCC) insurance
• Terrorism coverage, which Willis says is known as the Lloyd's sabotage-and-terrorism-only form
• Full political-violence coverage

Of the three, full political-violence coverage is the most comprehensive, dealing with a full range of civil unrest including revolution and coup d'état. Premiums are fixed at inception and will cover abandonment of property without physical damage.

Exclusions exist for wars between the five great powers; nuclear, chemical and biological attacks; expropriation; and theft. However, chemical and biological attacks can be included under endorsement.

While insurers have not pulled coverage in unstable territories, they are reviewing their risk appetites to determine their “ability and desire to continue offering even the more basic form of SRCC,” according to the report.

Specialist insurers, primarily Lloyd's of London, are continuing to offer terrorism and full political-violence coverage.

Touching on the issue of evacuation of staff from politically unstable situations, the report says that companies in the best position to help employees were those that obtained kidnap and ransom (K&R) insurance.

Under those policies, assistance and costs of evacuation of staff in places where political unrest arose were covered.

Willis advises that companies do some basic planning and preparation in advance of an emergency to ensure a smooth decision-making and implementation process.