Twelve years on from 11th September 2001, it is clearly evident that the threat of worldwide terrorism continues unabated, with statistics showing that there has been an increase in the number of extremist terrorism organisations and attacks. Indeed al-Qaeda has a larger area of safe havens and operational planning than it has had in a decade. Whatever actions are put in place to arrest the steep incline in hostile activities is met with movements going underground and reorganisation and reappointment of war mongering leaders. What unites the recruits and the fanatical messengers of terrorism frameworks around the globe is the desire to imprint political aspirations on others that can lead to death and destruction. Whether it be large scale activity and long term war in the Middle East, random attacks on marathon runners in Boston, suicide bombers in Pakistan, or zealous militant groups such as Al-Shabaab in Africa, the global message is the same in that terrorism is an ever present, hidden threat, that is fed by the extremism to which each of these obsessive groups belong.
After 11th September 2001 and reported losses in excess of $30bn, terrorism became an excluded peril from virtually every All Risks Property Damage policy, leading to the emergence of the standalone terrorism market. The main protagonists in this very uncertain theatre of further potential catastrophic events were a handful of Lloyd’s syndicates with a total capacity of around £100m. Predicting how severe a threat al-Qaeda or its affiliated regimes would be for the coming months or even years was impossible to assess, and therefore aggregate at this time was expensive to buy and minimal in amount. However, as the years went by with no major losses to report, the class of Sabotage and Terrorism and the broader perils included with Full Political Violence cover has become more attractive to underwrite, with approximately $2.6bn in capacity available worldwide, with around 40 syndicates and company markets entertaining the class in London alone. Loss ratios remain very low which has had the effect of attracting more income. It is reported that over the past 12 years terrorism and political violence insurance has been underwritten in over 100 countries across the globe.
This increase in capacity has manifested itself in dramatic decreases in rate and premium levels. There are many examples of how tremendously the terrorism market has softened, one being a major US onshore energy provider. In December 2001 this company bought a standalone sabotage and terrorism policy insuring assets in excess of $20bn. The limit that was bought by the client was $100m, and the premium paid was $6.5m net of commission to the broker. The same insured today benefits from a $300m Sum Insured and a premium of $250k. This highlights just how competitive the underwriting of this class has become.
Terrorism and Political Violence insurance has moved on a long way since 2001 and 2014 will be no different, with further softening of the market and reductions in rates, broader coverage available in some cases mirroring property policy forms, and innovative new syndicate products being floated. Terrorism is now an accepted part of Risk Management spread and is no longer seen as a ‘boutique buy’ or ‘luxury product’, but as part of an overall insurance requirement for clients with diverse occupancy and in particular Fortune 500 companies with multi-territory exposures.
For 2014 capacity in certain parts of the world will remain carefully allocated with uncertainty persisting in many regions for some time to come. The situation in the Middle East for example remains particularly fragile, which in turn lends itself to measured underwriting and smaller limits.
Over the last few years as scenarios have arisen in different regions of the world, insurers have adapted the cover, and clients have purchased insurance to suit their specific needs. As a single peril terrorism is still seen as being very adaptable and flexibly rated, with the pricing element coming under increasing pressure with ever expanding capacity, and appetite for risk. Product tailoring and broadening of cover enhancements will continue to address particular concerns as underwriters look to remain muscular and maintain market share in a competitive underwriting arena.
Terrorism and Political Violence is neither predictable nor quantifiable, and 2014 will be a year to follow the previous twelve in the standalone field of the Lloyd’s and London markets. Worldwide terrorism insurers will look to provide an ever more affordable and bespoke product, which continues to be financially considered by a far larger contingency of risk managers and insurance buyers than ever before. To this end no tightening in the cycle is expected and further reductions in rating across the board will be commonplace.