Companies are acutely aware that they face terrorism risk both at home and overseas. The nature of this threat is ever changing and potential attackers have both new motives and new methods. Daniel O’Connell, head of war, terrorism, political, violence – global at AXA XL, a division of AXA, explains how insurance coverage has evolved to help clients manage this risk, and how terrorism and political violence can be covered in international insurance programmes.
How has the terrorism threat changed in recent years?
The terrorism threat has evolved during recent years. Increased resources have been devoted to the detection and prevention of terrorist events around the world, making it harder for terrorist groups to stage large-scale attacks. In recent years, however, a new threat has emerged – that of ‘lone wolf’ attacks carried out by individuals or very small groups. These plots, which are often more focused on causing loss of life and garnering attention than on causing economic damage, can be hard to detect. As well as being different in nature, these events tend to be more frequent than large-scale attacks. The methods used by terrorists also have shifted, requiring new risk management and insurance coverage responses.
How can insurers help clients to manage these changing risks?
Insurers and brokers work with specialist risk consultancies to help clients to understand, manage and transfer these risks. When these consultancy services are part of the insurance package, clients have not only access to pre-incident risk assessment but also help with recovery in the aftermath of an incident.
If clients have access to services such as tailored crisis management consultancy to help them prepare for, manage and recover from incidents, the coverage becomes more about partnership than simply risk transfer.
How has the terrorism and political violence insurance market adjusted to meet the changing nature of the threat?
The coverage has evolved as the threat and methods of attack have changed – for example, active assailant and loss-of-attraction coverage is a relatively new extension to this cover that can help to get businesses back on their feet after an event. Active assailant attacks, such as mass shootings, can be hard to detect and prevent.
International insurers can offer coverage that is triggered by a physical attack that results in business interruption, property damage and/or bodily injury at an insured location. It can cover the expenses incurred if there is denial of access to premises because of an event, as well as some of the costs of recovering from an event. Loss-of-attraction insurance can cover losses when an event occurs within a pre-defined radius of an insured premises and causes business interruption, even when there is no property damage at the client’s location.
How can terrorism and political violence exposures be included in global programmes?
As the insurance market has adapted to meet the changing nature of the terrorism threat, and the coverage has been tried and tested, there has been an uptick in awareness and interest from clients in transferring some of these risks. Clients, and their brokers and insurers, must be mindful of local rules and regulations surrounding terrorism and political violence coverage, which can vary greatly.
We have seen an increase in demand from global programme clients looking for locally admitted policies. In those countries where there are – often very meaningful – state-backed terrorism insurance and reinsurance pooling arrangements, insurers can write difference-in-conditions and difference-in-limits endorsements, and offer more bespoke coverage to complement the insurance provided by the pool.
Contributed by Daniel O’Connell, head of war, terrorism, political, violence – global at AXA XL, a division of AXA