As rampant civil and political unrest has become amplified on a worldwide scale, war and terrorism coverage is beginning to experience tightening capacity and rising prices. In January, the cost for reinsurance went up for all lines of business that are included in the political violence world.
“What we’re seeing, similar to the natural catastrophe space, is that there is not as much capacity to satiate demand, especially during these turbulent times,” said Jennifer Rubin, senior underwriting exec, Liberty Mutual specialty markets. “It’s becoming really difficult for clients to get their programs together at the same prices they’ve been paying for the last few years.”
Rubin spoke with Insurance Business about where war and terrorism capacity may be restricted the most, why the relationship between a broker, risk manager and an insurer is especially vital right now, and why TRIPRA coverage may not be enough.
For war and terrorism coverage, underwriters and insurers alike are particularly mindful of specific regions and their vulnerability to loss.
As a result, insurance companies created a list of restricted zip codes, an industry-known list of areas of high population density and a concentration of businesses, particularly in metropolitan areas where destructive episodes may frequently occur.
“San Francisco, New York and Chicago are typically quite challenging to get capacity for,” said Rubin. “And as capacity shrinks, we may start to see some insurers pull out of those markets, which is bad news for business owners within those regions.”
In the age of social media, civil unrest is just a viral video away, which makes the likelihood of claims in the wake of protests and other demonstrations much more likely.
“When we analyze previous eras, these social justice movements didn’t become as widespread as they do today, and that is entirely because of Instagram, Facebook, TikTok and other platforms,” said Rubin.
“We saw this happen in multiple cities across the nation during the 2020 Black Lives Matter protests, but this is not just endemic to the United States. We’re seeing political events with more frequency abroad too, such as the protests in Chile, Peru and South Africa, just to name a few.”
It is now more important than ever, as war and terrorism begins to intensify the potential for loss, that insurers, brokers and risk managers view their clients’ risks holistically.
“There is value in the relationship between brokers, insurers and risk managers,” said Rubin. “These three must work in unison to really assess the various factors in order to provide the correct coverage for a client.”
However, this collaboration goes beyond managing risks through insurance policies, but is also heavily attuned to a mitigation efforts.
“If we are insuring a retail store, especially in an area where there has been a history of violence or property damage, we will advise the broker to inform their client on a number of steps to help safeguard their property and merchandise,” said Rubin.
“We would suggest moving pricier stock to the back of the store and having someone keep an eye out on social media for any flash mobs. It is also important to have a great relationship with police officers and firefighters to help them understand your business situation and what the expectation is when things may go bad.”
For some, this information may not be common knowledge, which is why it is best to ingrain these preventative measures in advance of any destructive scenario.
The Terrorism Risk Insurance Act (TRIA) was initially signed into law in 2002, which was conceptualized in the wake of the tragedies of 9/11. It was then extended until December 2027 through the Terrorism Risk Insurance Program Reauthorization Act of 2019.
This act provides coverage for incidents of terrorism on domestic soil and is a federal backstop available to US citizens who are concerned about their exposure to a terrorism loss.
However, it is important to note TRIPRA’s shortcomings in certain areas. First and foremost, it does not cover losses related to war, nor does it provide coverage for political violence in the form of riots, strikes and civil commotion.
The legislation also has three triggers and since it was enacted following 9/11, it has yet to be tested.
“A standalone war and terrorism policy has a much tighter insuring agreement that says what must happen in order for the claim to get through the door,” said Rubin.
“Similarly, TRIPRA does not cover losses abroad, whereas a standalone policy can have extended physical boundaries.”
Some markets may only offer TRIPRA protection, while others may be willing to have a broader definition and provide additional coverage. However, reinsurers are not required to provide this coverage to the insurance companies they reinsure, which may result in a lessening of protection that was once had.
“If this reinsurance goes away, then the direct markets are going to have to be very thoughtful about where they want to deploy the terrorism capacity,” said Rubin.
As geopolitical strife increases in severity, it will be interesting to witness how insurers will be able to react to this worldwide phenomenon.
