By DAN REYNOLDS, senior editor of Risk & Insurance®
The serial uprisings that have led to regime change or threats of it in many Middle Eastern countries are also leading risk managers, brokers and carriers to take a new look at coverage for the damages and business interruptions caused by strikes, demonstrations and political violence.
Reflecting the volatility of the political environment in the Middle East, it's a fluid insurance environment where notices of policy cancellations and reviews and premium price increases are rife.
"These first four months of 2011 have been a watershed in the history of the Middle East, quite frankly," said Bob Peilow, a managing director, global solutions-international, for Willis.
Willis has produced a client alert, titled "Mind the Gap," which addresses some of the coverage shortcomings for companies with operations in the Middle East, North Africa and wherever violent regime change breaks out.
Corporate risk managers are urged to think again if they might have felt that a Lloyd's sabotage and terrorism only form or a strikes, riots and civil commotions (SRCC) addition to their property and marine cargo coverage was adequate to address the risks of upheaval.
According to Peilow, carriers, which might have paid out a modest claim in one case of political upheaval under a strike, riots and civil commotions extension, might not pay a second time around unless full-scale political violence cover is in place. Buyers are moving toward full cover when they can get it.
"We have seen and bound significantly more stand-alone political violence policies with significant rate increases on renewals," wrote Alex Clayton, executive director, Willis' Global Markets International, in an e-mailed response to questions from Risk & Insurance®.
"Clients are opting to take the full political violence cover rather than relying on the strikes, riots and civil commotions cover in their property policies or stand-alone terrorism cover," Clayton wrote.
According to the Willis report, full political violence cover isn't exposed to cancellation where the Lloyd's form and the SRCC extension normally are. The full political violence cover can also be tailored to the exclusions in a property-damage policy, Willis said, where the Lloyd's form wouldn't be and the SRCC coverage would be an extension of a stand-alone policy.
As we have seen in Egypt, Tunisia, Libya, Bahrain and Syria, the nature of the upheaval in each country is different.
Underwriters will be drawing a clear line, in the case of a Lloyd's sabotage and terrorism form, for example, between violence to overthrow an unpopular leader and violence connected to terrorism.
Terrorism in this context is defined as: "an act, including the use of force or violence, of nay person or group of persons whether acting alone or on behalf of or in connection with any organization(s) committed for political, religious or ideological purposes including the intention to influence any government and/or put the public in fear for such purposes."
Of course, to the likes of Col. Muammar Gaddafi, those who would seek to overthrow him are terrorists, and that is part of the difficulty of underwriting in this area.
That's why, Peilow and his colleagues said, buyers are better off with the fuller blanket of political violence coverage rather then crossing their fingers and hoping that a terrorism policy or a strikes-and-commotions policy will protect property, even as the price of the political violence cover seems to be on the rise.
"The risk assessment is very much in the eye of the beholder, and although there are certainly markets that still offer full political violence coverage, clearly it is becoming more expensive," Peilow said.
"A lot of it depends on the precise location of the risk," he said. "Even in places like Bahrain, the precise nature and location of the asset needs to be taken into account and the provision of full underwriting details is actually even more critical."
April 29, 2011
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