The global terrorism and political violence market has experienced increased volatility in recent years. Civil unrest in Chile, Hong Kong and South Africa generated significant losses. This was further compounded by the Russian invasion of Ukraine. In response, the market hardened quickly: insurers pushed for higher rates to offset losses, imposed more restrictive terms and adjusted their risk selection approach. Sublimits that had been available for extensions like “contingent business interruption”, “unnamed suppliers”, “service interruption” and “miscellaneous unnamed locations” were commonly excluded, as renewal negotiations became more protracted.
Challenging reinsurance treaty renewals underpinned these trends, particularly in Q4 of 2022 with the majority of carriers renewing their programmes on January 1, 2023. Depleted reinsurance capacity and appetite culminated in significant rate rises with many insurers being forced to increase retentions. In a marketplace that was becoming more reliant on facility utilisation, significant underwriting controls were also implemented on delegation beyond sabotage & terrorism perils. Converting these facility placements to the open market in many cases added cost, as insureds could no longer benefit from economies of portfolio purchasing.
Despite a period of uncertainty, the market remains steady with capacity for sabotage and terrorism standing at approximately USD 3.5b. These perils have experienced lower levels of volatility and fewer losses, thus underwriters are able to afford more flexibility. This is reflected in the rating environment, with rate increase generally being between 5%–15%. Underwriters are also more amenable to the broadening of previously restricted policy terms for sabotage and terrorism perils when rated adequately.
The market has seen a greater degree of losses in the strikes, riots, civil commotion and malicious damage (SRCC) space. This is perhaps unsurprising, given the myriad social and political trends that have driven incidents across large geographic areas. The cost of living, social isolation since COVID-19 lockdowns and political polarisation are regrettable global currents which show little sign of abating. In a US context, some clients in retail sectors have seen property insurers impose civil unrest exclusions or restrictions, prompting many to consider standalone buyback options. In Latin America, the purchasing of civil unrest coverage is most prevalent but in recent years, insurers have sustained meaningful losses – particularly in Peru and Mexico. Current rate increases are in the region of 25%–35% but in many cases higher, depending on occupancy and loss history.
The peril which has hardened most is political violence which includes war, civil war and coup d’état. This is a direct result of the invasion of Ukraine, with both actualised and potential losses from the conflict leading to significant claims reserves being retained. Whilst this experience has prompted markets to reconsider their appetite, aggregation and pricing models for political violence coverage, it’s also contextualised other global flashpoints. These include Taiwan, Israel, and Pakistan.
The active assailant market has grown significantly in the past decade, drawing together multiple lines of insurance to meet the demand for coverage against indiscriminate acts of violence. Despite the prevalence of mass shootings this year, most notably in the United States, coverage solutions for physical damage, business interruption, liability and crisis response remain available. The prevalence of active assailant losses has inevitably driven rates and markets have, in some sectors like retail, hospitality and entertainment, managed their exposures via reducing limits or increased syndication.
Whilst the terrorism and political violence market has experienced a challenging period, there are reasons for optimism. Capacity remains stable with growing levels of competition. A multitude of different products remain available to insureds, which can be tailored to meet their specific risk transfer needs.
For further information, please visit the Lockton Crisis Management (opens a new window) page, or contact:
James Bannister, Head of Global Terrorism
Will Ambidge, AVP - War, Terrorism and Political Violence
Martin Halls, AVP - War, Terrorism and Political Violence