The recent violence in Orlando, Nice and Brussels is prompting increased demand for political risk and standalone terrorism insurance. Whether carriers are prepared with the right products to address that demand, however, is an open question.
According to research published earlier this month by KPMG, the market for political risk insurance is set to grow 4% over the next three years, eventually exceeding $10 billion. At the same time, the changing nature of ideologically motivated crime has yet to be addressed in the majority of products on the market.
“There is a shift in the nature of terror. In the 1990s, it was about property damage. The incidents we’re seeing now are about maximizing casualties.” said KPMG partner Paul Merrey. “There is a gap between what insurers are providing cover for and what customers actually want.”
Insurance carriers in the standalone terrorism space have agreed with KPMG’s characterization of growing demand – a 35% increase in submissions for XL Catlin, for example – but say they are working hard to address the evolving risk presented by assailants.
Ben Tucker, head of US Terrorism & Political Violence for XL Catlin, said the company is trying to fill the void with its new Active Assailant policy.
Unveiled in February, Active Assailant offers time element coverage due to bodily injury or death, not just physical damage. It can be triggered when an event involving a handheld weapon (such as a gun or suicide bomb vest) affects three or more people – and the definition of “affects” is broad. A person could simply be a witness.
Others have sought to address the method of attack. With gun violence in the United States so prevalent, major brands like Willis have begun offering “active shooter” insurance. The policies provide coverage outside of workers’ compensation policies, including the liability companies have if they are found not to have taken needed precautions to prevent gun rampages. It also covers “on the scene” costs of an attack, including property damage and any needed counseling or consulting for victims.
Wendy Peters, an executive vice president at Willis, said that like terrorism insurance, “there’s been widespread interest in the product.”
So which of these new products, considered alongside traditional standalone terrorism coverage, is preferable?
Jen Rubin, head of Hiscox War, Terrorism & Political Violence Practice Group, says it is up to an agent to determine, based on the particularities of the client.
“When you’re doing your review of coverages, it’s really important to make sure perils are defined and any gray areas you’re concerned about are documented or discussed,” she said. “New products are defining what is covered based on the evolution of events in the market."
With less of a focus on property damage, such “evolution of events” may point agents toward policies with high business interruption limits and allowances for “loss of attraction” triggers rather than simple physical ones.
“In 2015, the global cost of terrorism was $32 billion, but the indirect cost was much higher,” Merrey said. “If you look at the Paris incident, business interruption costs were $12 billion.”
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