Scurrying For Cover
David A Austin emphasises the need to take a close look at the levels of coverage currently purchased in view of the strife in the region
May 5, 2011 3:12 by shafeer
Many property policies within the Gulf region still have extensions for strike, riot, civil commotion and malicious damage. An escalation in recent unrest and the resultant claims could well lead to the removal of these perils from current policies, leaving policyholders with the choice of purchasing stand-alone products or being uninsured.
So can your client really afford not to insure? Moreover, does your client realise that they are potentially at risk and that cover is available?
However you describe it, and whatever level of cover you purchase, sabotage and terrorism insurance (political violence, war, strike, riot and civil commotion) is a class that really only became widely known following the attacks of 9/11. It is also a class that has grown and evolved rapidly, the most common variant of coverage, the T3 wording, becoming popular throughout the world.
Over the past years we have seen increasing levels of terrorist activity. India, Colombia, Peru, Russia, Greece and Thailand have all suffered losses in the very recent past.
Demand for the various forms of sabotage and terrorism coverage has been limited throughout most of the Gulf region, with the majority of policies sold to high risk or high- profile clients such as hotels, oil installations and infrastructure or where a bank interest requires the coverage to be in place.
But what a difference a month can make. The events in Tunisia and Egypt have shown just how quickly political situations can change. The ensuing protests in Bahrain, Libya, Iran and Yemen have shocked the Gulf with the reality that there is a real threat posed and that there is a need to take a close look at the levels of coverage currently purchased.
Historically, most businesses viewed the exposure as “why would anyone target us?” The simple answer is they probably won’t. However, with a changing political climate, thoughts are moving away from exceedingly unlikely specific and targeted attacks to the potential of a loss occurring following a more widespread and indiscriminate event. Obviously location still has a major bearing on the likelihood of sustaining a loss, but the chance of suffering damage at a low-key location has increased significantly. Recent reports of labour camps being damaged by workers protesting over poor living conditions highlights the point clearly. Large numbers of labour camps are located within industrial estates regionally, areas generally considered as low risk.
So what if such a protest spread to the industrial estate itself? We have seen examples in the recent past of accidental fires started within an industrial estate spreading to many properties. Fire departments have a very difficult task to perform at the best of times, but what if they are prevented from executing their duties due to protesters bent on causing the maximum amount of damage and disruption.
Coverage for portfolio
A relatively recent influx of reinsurance carriers and a huge increase in sabotage and terrorism insurance capacity has driven down the cost of this cover to a level where each and every risk manager should be considering coverage for their portfolio.
It is a class that is very seldom sold or advertised by anyone outside of the dedicated industry professionals. I have lost count of the number of times I have seen a property submission and enquired about the terrorism coverage, only to be told that the client has not asked for terms. Isn’t it about time the industry offered the policy as part of a standard quotation process? At the very least the client can decline to purchase after having been given the opportunity to fully consider their exposures.
It is also no longer an arduous process to gain a quotation. There is more than $500,000,000 of capacity available from carriers within the DIFC alone – with most of the providers keen to collaborate with their fellow underwriters to keep 100 per cent of the placement within the region. Regionally located underwriters have deep expertise of sabotage and terrorism cover and being located within the region allows for quick servicing and turnaround of quotations, together with prompt issuance of policy documentation, Arabic working week and no time delays due to local working hours. This also allows face-to-face negotiations and, where necessary, site visits, giving the opportunity to fully understand a risk the way an e-mail presentation never can.
CONTRIBUTOR: David A Austin is chief executive officer of Visionary Underwriting Agency Ltd.