Demand for coverage against war has increased amid ongoing wars and concerns of geopolitical tensions developing into conflict. Rates for some lines of business have been hardening and reinsurers have increased exclusions on cedants offering such cover. We speak to Vantage Risk’s Mr Dan Riordan and WTW’s Mr William Miller for insights.
Conflict deaths are its highest level this century with over 238,000 people killed in 2022 according to research by the Global Peace Index. Insurers and brokers we spoke to have seen increasing demand for coverage against war risks amid high-profile events such as Russia president Vladimir Putin’s invasion of Ukraine, civil war in Sudan and political instability in Myanmar.
Types of war products
Vantage Risk political risk and credit global head Dan Riordan shared some types of cover that exist in the market for war insurance.
“Political risk investment insurance (PRI) is a source of coverage for exposures resulting from war coverage as well as other covers. Typically, PRI covers also include protection for expropriation/nationalization, currency inconvertibility and political violence (war, revolution, insurrection) and civil strife,” he said.
He said his company usually receives requests from clients like international banks, global corporations and export credit agencies or multilaterals to purchase war insurance products. Demand for such products is high and rates have been rising according to Mr Riordan.
“While the product has changed very little over the years, the demand has been peaking since the onslaught of the Russian/Ukraine conflict in early 2022, as well as growing concerns about a potential China intervention in Taiwan,” he said.
He said some of the underwriting challenges they face includes the potential catastrophic nature of losses associated with war and the lack of recoveries.
“Given current loss development in the industry as a result of damage in Ukraine and Russia, most underwriters will not accept new risks at this time. That is expected to change after cessation of hostilities and when the rebuilding efforts begin,” he said.
WTW’s new crisis management unit also shared some relevant products in the market that are available for coverage against war risks. It has seen a ‘huge increase’ in demand as clients recognise that there has been an increase in geopolitical instability. There are also concerns of increased tensions between superpowers.
“We see companies that are looking to invest in more frontier economies and being able to put in place robust programmes that protect their people that provide duty of care, access and support to be able to provide safety for their employees. As a result of that, we’ve seen an increase in clients coming to us to ask how to design programmes that are going to give the protection to their employees and provide protection to the assets and business interruption interests that they have,” said WTW Asia Pacific crisis management head William Miller.
“The lines of business that would be applicable (from crisis management) would be special risks insurance or kidnap for ransom. Within that context, you can also cover things like support for emergency evacuation from security situations.
“Another line of business which is relevant is accident and health. That would include personal accident and medical evacuation support. This is vital for organisations that are working in areas where there is geopolitical insecurity and potentially conflict which could be relatively close by.
Another insurance line is terrorism and political violence for organisations that wish to cover their physical assets and business interruption,” he said.
Client profiles
Clients operating in high-risk environments and with security concerns have been requesting the company for cover. The company has seen significant investment across Africa given an increase in the value of precious metals and elements to support a boom in the high-tech industry and that has spread into both the east and west (of Africa).
The broker continues to see clients in Iraq involved in oil and gas and in efforts to rebuild the infrastructure in the country. There has been significant investment across Central Asia in terms of construction and engineering projects within a belt of central Asian economies from Pakistan to Kazakhstan.
“Those companies tend to be in mining, extraction and oil and gas. What we’ve tended to find is that, with increasing pressures on companies to deliver returns for their shareholders, there is an increased willingness to accept risk in terms of the areas that they work in. Those companies still have a duty of care towards the employees who work for them, and they need to protect their assets and their business interruption interests in the light of what might be geopolitically challenging areas.
“Once a conflict starts, there are organisations which have an interest in being able to go in and support people on the ground. Those might be, for example, an NGO or a charity or an aid body looking to provide support to those people who are affected by a complex situation. That’s quite a challenging set of clients to be able to provide cover for because the underwriting parameters, rating and appetite are all affected by the fact that the house is on fire and you’re running towards those fires.”
He said media organisations have also been taking precautions and buying cover to protect the journalists and broadcast staff who work in conflict zones.
How policies have changed
While demand for war products have increased, some reinsurers have imposed restrictions on certain risks.
“One thing that we have seen particularly within the context of accident and health are some restrictions on coverages for nuclear, chemical, biological and radioactive (NCBR) covers. The reason for that is a result of (Russia president Vladimir Putin’s invasion of Ukraine). Some of the treaty reinsurance, that sits behind accident and health has started to exclude NCBR coverage. It doesn’t apply to all markets because some may be on longer term agreements with their reinsurers but typically, we’re seeing that NCBR cover is increasingly written on a net basis by underwriters. Therefore, there’s a decreasing appetite to provide that cover,” said Mr Miller.
“In the context of terror and political violence, what we’ve seen is that there’s been a huge hardening around cover for political violence as a result of Ukraine, Myanmar and an increasing frequency for these types of events,” he said.
How changing appetites impact brokers
As reinsurer’s lose their appetite for war risks, there are also implications for insurers and brokers. A group of Japanese insurers including Tokio Marine, Sompo Japan and Mitsui Sumitomo told clients in December 2022 that they would stop offering war risk coverage following withdrawals from reinsurers. However, that decision was reversed after interventions by the Japanese government in response. We ask Mr Miller how changes in insurers’ capacity to provide cover affect brokers.
“One of the roles that we play as brokers is that we hope to be able to understand very closely what insurer appetites are so that we’re always able to look for alternatives if we do come up against a decline from an insurer. Sometimes, those decisions to change appetite can be quite arbitrary but I’d like to think that as we have one of the biggest terror, political violence teams regionally that’s specific to terror and political violence. That allows us, to have a network through the region in terms of the underwriters who are available to us and write the class. If we can’t find a solution in the Singapore market, for example, we do have the international insurance markets and particularly in London but also a wider field to be able to look at for alternative solutions for clients,” he said.
Underwriting challenges
According to Mr Miller treaty renewals are having an impact on insurers in terms of what they can write on a net basis. There is also a hardening of rate and restrictions in political violence or strikes, riots and civil commotion products.
“One of the difficulties underwriters have is being able to distinguish whether the cover that they’re offering is for passive war exposure or active war. In the context of accident and health insurance, if you’re looking at providing cover for a group of local nationals who may be 100 kilometres from the front-line conflict in Ukraine, with significant rocket fire going back and forth between the two sides, that is a sufficient barrier to be classed as a passive war risk rather than an active of war risk. The logistics of modern warfare make that distinction very difficult for an underwriter to be able to distinguish exactly the exposure that they might be writing.
“One of the challenges that underwriters have is responding to the context of modern warfare as it stands but also having to balance the tightening of their reinsurance rates. In addition, some of the restrictions that they’re seeing through that chain around the coverages that they can and cannot provide with reinsurance support,” he said. A