9/11, the Madrid train bombings, the attack at the Manchester Arena or the London Tube bombings: Modern-day terrorism has many faces and continues to evolve. Despite that, it was only after Russia invaded Ukraine that the demand for insurance against political risks and violence significantly increased.
Terrorist attacks, strikes, violent protests against social evils and other political unrests can cost lives and directly or indirectly impact businesses as well. While insurance policies cannot prevent human suffering, they can help companies offset material damages, facilitate reconstruction, and get back to business as usual. An insurance policy reduces financial losses incurred due to business interruptions, it minimizes rental losses or even a loss of reputation.
However, the insurance possibilities against terrorism and political violence have not yet reached companies in Europe. These insurances are still regarded as providing niche coverage only, even though banks and investors increasingly ask for this coverage. Despite major international events, such as 9/11 or the terrorist attacks in large European cities, neither the demand nor prices have increased on international markets for protection against political risks.
This changed gradually only a few days after Russian troops invaded Ukraine. The demand for Political Risk & Violence Coverage has increased. Companies now want to be on the safe side and are thus willing to accept higher costs for insurance premiums. At the same time, the war has caused the coverage market to shrink. The good news is: It has remained largely intact.
Possible Risk Exposure
Critical infrastructure such as energy and communication are typical high-risk targets for terrorist attacks. Similarly, industrial plants, commercial properties, tourism or health facilities have also been targeted. With globally connected national economies, their supply and value chains as well as background infrastructure, the scope of possible damage has changed over the past decades. Unlike earlier on, the potential for major financial losses without material damage to companies has spiked. A “Non-Physical Damage Business Interruption“ (NPDBI) protects against financial losses due to terrorist attacks that happen in the vicinity of the company, yet cause no material damage at the company’s location.
Additionally, there is a risk of being held accountable and obligated to pay compensation for damages if safety and security measures are found inadequate for protecting the lives and property of others, such as employees. Special terrorism liability insurances safeguard companies against such potential liabilities.
Terrorism insurances are so-called “named perils”, providing coverage against known and named dangers. This also means that the insurance only provides coverage for the contractually agreed dangers or events that protect documented financial assets and gross profits. A risk analysis is thus a prerequisite to determine the coverage that best meets the company’s potential risks. Possible threat scenarios, their impact and potential for damage must be closely looked at.
The aim is to adequately safeguard the client against any impact in the event of damages. Our GrECo risk specialists develop tailored insurance solutions for their clients. In doing so, their task in providing such special concepts for coverage is to also define the limits of other, more conventional (all risk) material damage and business interruption insurances and avoid overlaps or insurable coverage gaps.
The Devil’s in the Details
It is impossible to insure clients against all potential risks or events. A world war is the major exclusion of insurance coverage, meaning that if war breaks out between at least two of the five global powers – USA, Russia, China, UK and France – insurance coverage shall not apply. Cyber terrorism is also excluded from this coverage.
The construction sector and construction project managers pay attention! Normally, construction policies do not protect against terrorism and political violence. Insurers do provide coverage against strikes, riots and civil commotion (SRCC clause) with sub-limits. This type of coverage is usually subject to a special right of termination on part of the insurer, a right that may be exercised at any time.
Group Practice Leader Energy, Power and Mining
T +43 664 962 39 04
The international insurance industry is no longer willing to agree on coverage for Russia and Belarus. The options for coverage in Ukraine are very limited.