2024 was an historic election year: 50 countries including the United States, UK, India, South Africa and a range of European nations and their 2 billion+ voters headed to the polls. Disruption – using the definition of ‘an interruption in the usual way that a system, process, or event works’ – was inevitable. For Political Violence and Terrorism (PVT) markets, this ‘Year of Elections’ was high on the agenda. A key question ahead of the US Election was: How big would a US political violence (PV) event need to be, for insurers to exclude strikes, riots and civil commotion (SRCC) from property policies? As it turned out, Trump didn’t lose, and the defeated Democrats didn’t riot. But last year’s ‘super-cycle’ of elections was just one among a number of social, political and economic factors fuelling political violence and terrorism, and increasing demand for PVT insurance, into 2025 and beyond.
Bridging the gaps: Addressing evolving needs in products and coverage
Today’s risk events look increasingly different to the definitions upon which the post-9/11 PVT market was based, so too the type and scale of losses, and therefore Claims.
Experts point to geopolitical instability and global civil unrest as “the new terrorism”, and the increasing regularity, materiality and ubiquity of commercial risks facing the full spectrum of clients, well beyond specialty Aviation and Marine.
There’s a growing need and gaping holes in product and cover.
This year, the advent of Martyn’s Law or the Terrorism (Protection of Premises) Bill (the key focus of which is to mandate counter-terrorism measures in public spaces) will mean that an estimated 250,000+ UK ‘premises’ will be required to address terrorism risks – and find cover – for the very first time. The definition of ‘premises’ is broad: festival holders in fields will fall into scope, for example. At the same time, Pool Re, the UK’s largest Terrorism reinsurer, says that fewer than 10% of SMEs currently have any kind of Terrorism cover.
SME specialists are taking action, including launching into the ‘overlooked’ medium-sized Property risks with Terrorism cover extensions, and extending covers automatically for both renewing and new business across standard SME policies like Commercial Combined, Residential Property Owners, Public Houses, Hotels, Office and Surgeries. The more innovative SME brokers and MGAs are getting ahead of a curve that Pool Re itself is architecting; one of the key drivers for its revised reinsurance scheme (to be introduced in April this year) is to enable ‘…terrorism cover to be reintegrated into package products’.
Non-Damage Business Interruption (NDBI) coverage that can respond to the loss of revenue without a physical damage trigger is not standard – yet – but we’re seeing specialist intermediaries in SME Landlord, Real Estate and Construction taking the lead on innovation, here, too – utilising alternative data sources to infer a BI incident.
SRCC: The ‘new’ Terrorism that underwriters are finding hard to handle?
The 2020s has seen a definitive shift away from large-scale terrorist attacks to major losses from SRCC events. SRCC impacts are global, frequent, and affect multiple product lines simultaneously yet industry commentary regularly talks about “the seeming inability to predict these (SRCC) losses”, as well as nasty surprises on exposures and unplanned for losses for everyone – client, broker, insurer and reinsurer. Key questions being asked include:
- Are PVT policy wordings and pricing strategies fit-for-purpose?
- Where cover is included for clients in Property, Marine, Cargo and Specie portfolios, are policy wordings and pricing strategies fit-for-purpose?
- Is cover on a non-affirmative (silent) basis a good way to operate in 2024, given that this can mean the peril is in play but often not priced for, aggregated or monitored?
A ‘tradition’ of non-affirmative (or silent) cover, combined with slim to non-existent event mapping and modelling, out-of-date risk assessment, wordings and pricing, is up against a fundamentally changed threat environment and increasing client demand. Market innovation is happening, and at a quickening pace, but there’s a huge opportunity for data-enabled capabilities like PVT aggregations and tools that are expertly tailored to real-world workflows to make a real difference.
The rise of digitalised, data-augmented solutions
I think it’s clear that there’s movement towards digitalisation, with technology innovations such as political violence and terrorism submission automation, automated sanctions checking and intelligent exposure management – all enabled by specialist third parties.
And it’s accelerating. The Jobs to be Done range from addressing tricky issues like hidden exposures, complex or contradictory wordings and inadequate limits, to reaping the big benefits of the nascent application of ‘crisis analytics’ i.e. data, tools and analysis enabling clearer pictures of potential human and financial consequences of terrorism and political violence in insurance.
No matter how great they may be, a single specialist partner is unlikely to be able to meet even seemingly ‘simple’ requirements for SRCC, or indeed for PVT as a whole. And underwriters and other end-users in the firm certainly don’t want to see the complexity in their user experience – there’s enough of that in their day already! This means that insurance firms (and their suppliers) will most likely need core competency in working with and alongside a range of partners to enable the capability set they want and need – from acquisition to portfolio management, and everything in-between.
We can see these multi-faceted partnering set-ups emerging now. In fact, we’re doing some ourselves.
This is not a drill.
Today’s PVT is a dynamic, expanding and evolving insurance market, facing into increasing and changing client need, and able to tap into a range of specialist data, analytical and workflow partners. At the same time, longstanding issues, many of which can be traced back to how today’s PVT market came about, as well as new challenges arising from differences in how terrorism manifests in today’s world (like SRCC), require urgent attention.
It won’t be plain sailing. But the size of the prize for PVT insurance is big. How about fixing the Probable Maximum Loss (PML) issue and achieving high-accuracy estimates for better insurance decisioning and improved market submissions? Or being able to generate PVT aggregations that calculate precise aggregate accumulations, however complex?
While some technology providers may arrogantly (or naively) claim that the entire PV&T underwriting process could be fully automated, experts recognise the invaluable role of experience, relationships, and intuition. By leveraging proven technology to streamline inefficient processes, enhance accuracy, and provide political violence specialists with actionable insights, insurers and MGAs can unlock the full potential of this dynamic and evolving market.
