Threat to business from terrorism and political violence continues to rise

The number of countries downgraded—where the threat of terrorism or political violence had increased—outweighs the number of upgrades. The risk reduced in just six countries, including Australia, the Netherlands and Egypt. Some 46% of the 200 countries assessed by Aon now present some form of terrorist threat, it said. The number of downgrades shows that risks continue to grow for companies operating internationally, said Neil Henderson, Head of Terrorism in Aon Risk Solutions’ Crisis Management Practice.hideThe threat from globalised radical terrorism has declined with the death of al-Qaeda leader Osama bin Laden last year. However, regional groups inspired by al-Qaeda still pose a threat, he said. South Asia and the Middle East remain focal points for Islamist terrorist groups, however Africa has shown the most dramatic shift in terrorism threat in the last year. Aon has downgraded the ratings of six African countries. While terrorism is still a threat to business, civil unrest was the main cause of increased risk in many countries rated by the broker. The biggest increases in risk were in the Maldives, Papua New Guinea and Senegal, which were downgraded by two notches. The Maldives and Papua New Guinea have witnessed increasing unrest on the lead up to elections. A large proportion of the downgrades, 43%, were in Europe, where the sovereign debt crisis has caused riots and protests in a number of countries. Austerity measures and spending cuts have led to riots, strikes and student protests, said Mr Henderson. As a result Aon moved the risk rating of the UK, France, Germany, Italy, Portugal and Spain from low to medium. In countries like Greece, there have been low-level terror attacks targeting banks, while the UK has experienced violent riots. The Olympic Games in London will also lead to a higher risk of terrorism and contributed to the change in risk rating. The aftershocks of the Arab Spring also continue to be felt in the Middle East and beyond, said Mr Henderson. Authoritarian governments in Africa and Asia took measures to protect themselves from similar challenges, while localised protests also continued in the Middle East and North Africa, he said. For insurers, the higher risk of civil unrest has brought an increase in claims and a significant deterioration in loss ratios. The past two years of unrest in Thailand, the Middle East and Africa has generated losses equal to around one year’s premium income for the terrorism market, or around $500m to $600m, he said. Insurers have responded to the changing threats with higher rates, said Mr Henderson. “Underwriters are more sophisticated in monitoring risk, so when the situation changes they alter their prices accordingly,” he said. “There is around $2.5bn in capacity so the market is liquid,” he continued. ”Premium rates are generally flat to 10% increases. But for the high risk areas rate increases are higher because there is little capacity.” Insurance capacity is currently limited in countries like Thailand, Israel, Pakistan and north Africa, as well as Syria, Iran, Iraq and Afghanistan.

Threat to business from terrorism and political violence continues to rise

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