Concerns rise over increases in political violence (source: Lloyd’s of London site / News and insight – www.lloyds.com)
Tue 09 Apr 2013 – As companies pursue opportunities in emerging markets they increasingly face the threat of political violence from a wide, and often unexpected, range of sources.
Changing political perceptions
Recent events in North Africa and the Middle East have increased awareness and are changing how companies and their boards think about political risk, according to Dr Elizabeth Stephens, Head of Credit & Political Risk Analysis at broker JLT Specialty. “Political risks now seem more widespread, complex and interconnected, ” she says. Such events have also highlighted the increasingly wide-variety of drivers behind political risks and the many different ways in which they manifest themselves, explains Dr Stephens. For example, unrest in Egypt at the start of the Arab Spring was the result of a combination of factors, including rising food prices, a large young population and limited economic opportunity. Commodity prices and resource security are an increasing source of political risk, says Dr Stephens. Rising food prices caused unrest in 35 countries in 2008 and 2009, and contributed to the Arab Spring. Attempts to increase fuel prices also caused unrest in Nigeria last year.
Interest grows in Africa “There has been a surge of interest in political risk insurance in Africa, in particular in countries affected by the Arab Spring, as well as Nigeria, Kenya, Somalia, South Africa and the Democratic Republic of the Congo, and more recently Algeria and Mali, ” says Chris Parker of Beazley. “In the last six months the numbers of enquiries in Africa have tripled as risk awareness and levels of violence have increased, and as more companies invest and see growth opportunities in the region, ” says Parker. Africa is currently the key region for political risk, according to Tom White of Marsh. “Demand has increased for forced abandonment cover, in particular, after the uprising in Libya caused companies to abandon their plant and assets, ” he says.
Robust market “The political risk market is currently very healthy, ” says Andrew van den Born of broker Willis. “There have been several new entrants and a number of additional Lloyd’s syndicates are expected to commence underwriting political risk later this year. The market is also looking to come up with new products and expand its offering by combining political risk with other products, as well as increasing interest in global programmes, he says. Underwriters have already moved to develop political risk insurance for supply chain disruption and cyber, according to Parker. In March, banks and broadcasters in South Korea were the target of an alleged politically motivated cyber-attack. According to press reports it has been suggested that North Korea is behind this and previous attacks. “These are hot topics and are areas where we see more enquiries, ” says Parker.
Broader cover The Arab Spring, and on-going unrest in the Middle East, has created a spike in demand for political violence cover, explains Piers Gregory, Global head for Terrorism and Political Violence at ACE Overseas General. “Companies are now taking a much broader look at the risks associated with civil unrest and political violence, ” he says. “The balance of new business enquiries we are seeing is therefore somewhat shifting away from standalone terrorism, to political violence cover. Companies now want more responsive policies that cover damage resulting from politically-related violence and even conventional war perils, ” says Gregory. Research undertaken by ACE last year revealed that there is still confusion among buyers/policyholders as to what risks are covered by their insurance. One in five of the companies surveyed believe that terrorism and political violence risks are covered under one or more policies in their insurance programme, despite this often not being the case. “The scale and extent of the current unrest around the world, and in particular the Middle East and North Africa, has blurred the point at which civil commotion or general riot cover becomes political in nature, and thus becomes outside the scope of a standard insurance. The priority, therefore, is to ensure that insurance is in place to cover all eventualities, ” says Gregory.