“War and terrorism do not have sufficient demand capacity”

As rampant civil and political unrest has amplified on a global scale, war and terrorism coverage is beginning to experience reduced capacity and rising prices. In January, the cost of reinsurance increased for all business lines that fall under the world of political violence.

“What we’re seeing, similar to the natural cat space, is that there isn’t as much capacity to sate demand, especially during these turbulent times,” said Jennifer Rubin, senior specialty markets underwriting executive at Liberty Mutual. “It’s getting very difficult for customers to get their programs at the same prices they’ve been paying for the past few years.”

Rubin spoke with Insurance Business about where war and terrorism capabilities may be most restricted, why the relationship between a broker, risk manager, and insurer is especially vital right now, and why TRIPRA coverage may not be enough.

Understanding restricted ZIP codes

For war and terrorism coverage, both underwriters and insurers are particularly aware of specific regions and their vulnerability to loss.

As a result, insurance companies created a list of restricted ZIP codes, a list known to the industry for areas of high population density and business concentration, particularly in metropolitan areas where destructive events can occur frequently.

“San Francisco, New York and Chicago are usually pretty hard to get capacity,” Rubin said. “As capacity shrinks, we may start to see some insurers pull out of those markets, which is bad news for business owners within those regions.”

“When we look at earlier eras, these social justice movements weren’t as widespread as they are today, and that’s entirely because of Instagram, Facebook, TikTok and other platforms,” Rubin said.

“We saw this happen in multiple cities across the country during the 2020 Black Lives Matter protests, but this is not just endemic in the United States. We are also seeing more frequent political events abroad, such as the protests in Chile, Peru and South Africa, just to name a few.”

“There is value in the relationship between brokers, insurers and risk managers”

It is more important now than ever, as war and terrorism begin to intensify the potential for loss, that insurers, brokers and risk managers consider their clients’ risks holistically.

“There is value in the relationship between brokers, underwriters and risk managers,” Rubin said. “These three need to work in unison to really evaluate the various factors in order to provide the right coverage for a client.”

However, this collaboration goes beyond risk management through insurance policies, but is also very much in tune with mitigation efforts.

“If we are insuring a retail store, especially in an area where there has been a history of violence or property damage, we will advise the broker to inform their client of a series of steps to help protect their property and merchandise,” Rubin said. . .

“We would suggest moving the more expensive stock to the back of the store and have someone keep an eye on social media for any flash mobs. It is also important to have a great relationship with police officers and firefighters to help them understand where your business is and what to expect when things can go wrong.”

For some, this information may not be common knowledge, so it is best to ingrain these preventative measures before any destructive scenario.

Why TRIPRA may not be a solid solution

The Terrorism Risk Insurance Act (TRIA) was initially enacted in 2002, conceptualized in the aftermath of the 9/11 tragedies. It was then extended to December 2027 through the Terrorism Risk Insurance Program Reauthorization Act of 2019.

This law provides coverage for domestic terrorism incidents and is a federal endorsement available to US citizens who are concerned about their exposure to a loss from terrorism.

However, it is important to note TRIPRA’s shortcomings in certain areas. First, it does not cover war-related losses, nor does it provide coverage for political violence in the form of riots, strikes, and civil commotion.

The legislation also has three triggers, and since it was enacted after 9/11, it has yet to be tested.

“A stand-alone war and terrorism policy has a much stricter insurance agreement that says what needs to happen to get the claim through the door,” Rubin said.

“Similarly, TRIPRA does not cover foreign losses, whereas a stand-alone policy may have extended physical limits.”

Some markets may only offer TRIPRA protection, while others may be willing to have a broader definition and provide additional coverage. However, reinsurers are not required to provide this coverage to the insurance companies they reinsure, which may result in a decrease in the protection they once had.

“If this reinsurance goes away, direct markets are going to have to be very careful about where they want to deploy counterterrorism capability,” Rubin said.

As the severity of geopolitical conflicts increases, it will be interesting to see how insurers may react to this global phenomenon.