Climbing premiums, shrinking coverage: Are NGOs increasingly vulnerable?

Insurance challenges mounting for organizations

Climbing premiums, shrinking coverage: Are NGOs increasingly vulnerable?

Non-Profits & Charities

By Gia Snape

Non-governmental organizations (NGOs) carrying out vital aid and development work in conflict zones worldwide face multiple risks and insurance challenges.

At least one expert has warned that these organizations now face increasingly limited avenues for financial safeguarding as insurers retreat from the market or drastically restrict coverage.

According to Mike Kelly (pictured), senior partner and head of the international practice at BRP Group, heightened losses of life and property damage due to armed conflict in recent years have left insurance providers with unsustainable payout ratios.

As a result, organizations are often left with fewer options and exorbitant premiums for war risk coverage, which is essential for safeguarding personnel in volatile environments.

“Insurers are paying out a lot more in claims than they’re collecting in premium, and therefore many of them want to either pull out of a market entirely or restrict the amount of coverage they are willing to offer,” Kelly told Insurance Business.

“As you can imagine, there were not many insurers before the conflict began in Ukraine over two years ago. A continued retraction in that market has led to fewer players with curtailed coverage, making the general offer of insurance much more difficult.”

Aid organizations face shrinking insurance options

Kelly’s expertise in international risk management stems from over a decade of experience in establishing a formal practice for international development organizations and NGOs.

BRP’s practice focuses on addressing the extreme need for international travel risk management, particularly in safeguarding personnel and implementing programs funded by foreign governments and private philanthropy.

Kelly stressed that the challenges organizations face in obtaining insurance for personnel operating in conflict zones are multifaceted.

“Most organizations have some form of contractual obligation from their funder to offer some level of insurance to protect staff, travellers, etc. That can be a disabling factor for some that they can’t procure the appropriate coverage,” he said.

“On top of that, there’s war risk coverage, which is optional coverage that pays for losses directly resulting from any sort of armed conflict.”

Despite war risk insurance being optional, the vast majority of NGOs still want some level of coverage.

“The problem is this coverage is extremely expensive,” Kelly said. “I’m talking multiples of factors higher than their baseline premiums. We are increasingly working with organizations saying, ‘Do you really want to spend all that money on more risk insurance? Can we find a way to self-insure this?’

“The community by and large is struggling with the costs, which takes a big chunk of their programme budget away and reduces the impact that they can make.”

‘Predictable’ versus ‘unpredictable’ warfare? The difference between risks in Ukraine and Gaza

Conflicts in regions like Gaza also pose unique challenges due to their unpredictable nature.

Drawing insights from his interactions with insurers, Kelly said he observed variations in war risk insurance pricing in Ukraine compared to Israel and Gaza.

“Insurers view the risk in Gaza as much more uncertain and less predictable than in Ukraine,” he explained.

“An organization in the far west of Ukraine, simply getting aid into the country, will have an extremely low war risk. Some of our forward-thinking insurers have said, ‘Well, if you were in Kyiv or east, we’re going to charge one rate for war risk; pretty much anywhere else, the further west you get, we’ll charge a much lower rate for war risk.’

“Unfortunately, that is not the case in Gaza at all, where there’s a real shortage of insurers in war risk. Premiums are extremely high.”

Risk mitigation and planning ‘imperative’ for NGOs

In light of these challenges, aid organizations are compelled to adopt robust risk mitigation strategies to reassure insurers of their preparedness to navigate hazardous environments.

One key consideration for organizations operating in conflict zones is meeting their duty of care obligations.

Kelly underscored the importance of providing insurers with comprehensive information on security measures, travel itineraries, and crisis management plans to mitigate risks effectively.

By demonstrating a proactive approach to risk mitigation, organizations can enhance their prospects of securing coverage on favorable terms.

“Insurers want to know what your organization is doing to safeguard and prepare these individuals as they travel to and around [conflict zones],” said Kelly.

“When you’re able to get into granular and specific detail as to how individuals and property will be safeguarded, you’ll find that not only will you have more offers for coverage, but the terms, conditions, and pricing will be much better.”

Do you have something to say about the war risk insurance market and the insurance challenges NGOs in conflict zones face? Please share your thoughts in the comments.

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