PVT insurance typically covers damage to insured property and the ensuing loss of income. Is the emphasis changing?
Ciara Appleford (CA): Terrorism and political instability have entered a new era. While the fundamental purpose of cover remains the same, recent events have called for an upgrade in conditions and expansion in cover. Off-the-shelf products have been claims-tested through numerous events that have highlighted gaps in cover.
Terrorists have found new ways to create fear and cause harm to the public. Bombs have been replaced by more sophisticated weaponry including drones and ballistic missiles, and there are more ‘lone wolf’-style malicious attack events using a variety of weapons including knives, firearms and vehicles.
How is that influencing the cover that businesses can buy?
CA: Insurers are partnering with specialised security companies to develop bespoke products that provide compensation cover for victims of an event, damage to insurable property, including loss of revenue and legal liabilities, with access to crisis response teams before, during and after an event.
These products differ from the standard terrorism products as they automatically provide cover for victim support, medical and psychiatric treatment, retraining of staff, relocation and rebranding costs which, previously, would have been uninsured or a cost to the client, unless otherwise specifically covered.
Non-material damage business interruption covers, such as denial of access, loss of attraction and threat, are becoming more relevant and clients are looking to their insurance policies as a risk transfer mechanism. Insurers have recognised the increased risk and responded by developing bespoke products that are readily available to global clients.
What’s changing in the strikes, riots and civil commotion (SRCC) space?
CA: The geopolitical situation is unpredictable and can escalate rapidly. The internet and social media are breeding grounds for radicalisation and for political activists to spread their message. This virtual space benefits from freedom of speech, enabling political movements to gain momentum at a rapid pace. The 2021 underwriting year saw losses due to demonstrations over government responses to the pandemic.
It is concerning that in any slightly unstable environment, protests that start as peaceful can gain sufficient momentum that damage to street-level assets, infrastructure and human loss of life are a high risk.
Clients are more aware of the nature of risks, and the purchasing of wider coverage will continue for the foreseeable future.
What does the insurance supply/demand balance look like going into 2022?
CA: Historically, soft market conditions saw property insurers provide strikes, riots and civil commotion (SRCC) cover for a nominal increase in premium. However, following the politically motivated uprisings in Chile in 2019, where the property market carried a high quantum of the losses, there has been a market shift to cover SRCC exposure.
After losses in Chile, Colombia, and more recently the riots in South Africa, the property market is expected to continue to approach the SRCC exposure with caution through either high rate increases, sub-limiting exposure or excluding the perils in their entirety. This increases the relevance of the standalone PV product and highlights the importance of levels of coverage.
What was the market’s underwriting experience in 2021 and what’s the outlook for buyers in 2022?
CA: Few to none of the PVT markets would have made it through the 2021 underwriting year unscathed as losses hit the market from every corner of the world, including South Africa, Lebanon, Yemen, Saudi Arabia, Hong Kong, Australia, the US and Kazakhstan. Underwriters are under pressure to approach risks with more caution and increase rates.
The Ukraine conflict is another major loss event for the PVT market, with the London market likely to face a costly fallout. A wide array of businesses with operations in Ukraine have cover insured or reinsured into the London market, and losses are expected to come into London through open market placements as well as facilities. Sources estimate that London’s gross exposure to the conflict could be up to $5bn.