Roundtable: The changing face of the political violence insurance market

The increased risk environment epitomised by Russia’s invasion of Ukraine presents significant opportunity for political violence insurers, but a string of costly loss events, hardening rates and greater scrutiny on business plans, broker facilities and individual policy wordings has seen the wider market enter a period of much-needed recalibration.

These were among the key takeaways from a roundtable of senior voices from within the political violence insurance market, hosted by The Insurer in partnership with Arch Insurance International.

The discussion gathered leading underwriters, brokers and service providers from across the sector, with acknowledgement that the political violence insurance market is going through a period of transition, requiring greater industry collaboration and enhanced communication with clients. Here are five key takeaways:

1. Greater exposure is driving rate in a hardening market

 The ongoing war in Ukraine, a global shift towards protectionism, growing social action across the globe on climate change and the emerging cost of living and energy crises are just some of the “worrying” trends which are focusing minds within the political violence market.

And while these market dynamics are still evolving and there was a broad consensus that even the more benign terrorism risks are starting to carry rate, participants agreed there was no room for complacency.

“We’re not in a hard market just yet, we’re in a hardening market and this will likely continue for the next few years, as opposed to the one-year correction that we’ve seen happen in other lines,” said Andrew Bauckham, head of terrorism, political violence and war at Arch Insurance International.

Bauckham added that the market’s ability to achieve rate will come down to the products on offer. While some clients will certainly see more value in the product as this period of hardening continues, it is the sector’s “duty” to ensure that all clients maintain adequate protection and that the messaging behind rate rises is passed on, he said.  

“It’s necessary to ensure that the class is realigned to the new global norm in terms of loss expectation and loss frequency,” he continued. “We’re there to ensure clients have appropriate levels of coverage and it’s our duty to ensure we have an appropriate price for that coverage to sustain the class.”

This view was shared by Dev Ray, deputy head of terrorism and political violence at WTW. However, Ray noted that while price adjustment may be required to maintain market sustainability, carriers should ensure that a “balance” is maintained.

“Given the perfect storm the industry finds itself in, and of course with the benefit of hindsight, it follows that a bit of price adjustment is needed for the sustainability of the PV market. Our clients face real risks and require real coverage but there has to be a balance with price increases being realistic,” he said.

“While some clients will be aware of recent [PV market] losses and will be more receptive

to rate increases, others may find it more challenging. As brokers we can prepare clients but we need early communication and firm commitments from markets.”

2. Broker facilities are here to stay

One topic discussed at length during the roundtable was the use of broker facilities within the political violence insurance market.

Raj Rana, head of war and terrorism and managing director at Bowring Marsh, emphasised that “there is still a place for facilities in the market”, but that these facilities are also under increased scrutiny at time when the wider political violence market is reviewing risk appetite and terms and conditions.

“As well as being an efficient way of trading, facilities provide a guaranteed pool of capacity to place risk. What is clear is that the market approach to every risk being placed is changing, and facilities are no different in that respect,” Rana explained.

“There is a vast difference in the premiums paid by clients, ranging from $250 to $20mn. Managing a portfolio of this kind as a broker and as an underwriter would be challenging; facilities not only make this possible but also offer the client the added benefit of speed and efficiency.”

Addressing concerns on wordings head-on, Rana said: “Having a facility in the market, we continue to work really hard on our wordings to make sure that they are suitable for the current risk environment.”

Looking forward, Rana acknowledged that there is “certainly” going to be a greater focus on wordings within facilities and noted that some will likely be challenged by insurers.  

“As a result of this, we as brokers are spending more time with clients to understand how their needs are changing and to ensure that cover remains fit for purpose,” she said. “There have been many loss events before the Russia-Ukraine conflict, and claims have been paid for many years using the current wordings.”

This view was shared by WTW’s Ray, who noted that facilities not only bring large pools of premium but that the efficiency benefits are consistent with the current push within Lloyd’s and the wider London market for greater streamlining.

However, Jennie Beard, underwriting manager – war and terrorism at Liberty Specialty Markets, said changes are now required on market facilities and raised concern over the “expansion” of risks which now fall within some of the wordings.

“Over the last few years, there has been an expansion in the types of risks that go underneath some of these facilities which was likely caused by market pressures. There is certainly a market recalibration occurring now, with a review of what these facilities will look like in the future,” Beard explained.

She continued: “There is space in our market for well-managed facilities, especially given their ability to effectively manage high volumes of quality business. They do now require a sharper focus on delegation controls, and the types of occupancies/territories that are permitted to attach to them.”

3. Policy wordings will remain under the microscope

A focus on wordings and contract clauses is a wider theme that the political violence insurance market will have to grapple with, Kennedys partner David Chadwick said.  

Chadwick explained that Russia’s invasion of Ukraine in particular would trigger scrutiny over wordings.

“Russia-Ukraine is the big story from a legal perspective. We saw to a certain extent the same scrutiny enter the market following the conflict in Afghanistan but I think political violence wordings are potentially going to get tested in a way that they’ve not been tested before as a result of claims and litigation from Russia-Ukraine,” Chadwick explained.

“The issue is not whether the conflict is relevant to political violence as a line of business, it’s how these specific wordings respond to the circumstances surrounding these claims. What, for example, will be the position if there is no actual physical damage?”

But Chadwick stressed that a serious look at the wordings within policies against the claims being made is a “mutually beneficial evolution” of the market.

“This is not about competition, there’s not a market outside of London who’s doing this better, so a testing of wordings is just a natural evolution of the market in which both insurers and insureds can benefit,” he explained.

4. Sub-delegation and MGAs

As wordings and traditional coverages come under scrutiny, the MGA market continues to enjoy a renaissance as capital is drawn to supporting cost-efficient and specialist underwriting platforms.

Charlie Hanbury, CEO of Samphire Risk, said MGAs must bring three things to the party: “truly specialist products”, efficiency and distribution, and a “really good grasp” and “proven expertise” in their chosen niche.

Hanbury noted that coverages in the political violence space, particularly those with a human risk-focused element, have typically been siloed despite the risk often being heavily interconnected. The executive said that this can often make it difficult to coordinate products such as active assailant or kidnap and ransom cover together.

“This is particularly true within the mid-market space where we see clients less inclined to want to buy specialist products in isolation, particularly if they are thematically about, for instance, duty of care. These are generally areas that I believe MGAs are particularly more adept at servicing with product and distribution,” he explained.

“It’s also areas such as this where MGAs could be more liberal and more efficient in bringing those products together where they can be distributed in a tech-enabled and cost-effective manner. It’s here that I believe they can play a really important role,” Hanbury continued.

5. Changing client expectations will test market offering going forward

As the risk environment continues to evolve, so too do client expectations. Ted Jones, CEO at Northcott Global Solutions (NGS) raised concern that clients were not always aware of the precise nature of the coverage being provided or have expectations which do not align with the policy wording or premium. He said such miscommunication could easily be avoided, adding that it is imperative for the sector to better articulate its offering.  

“‘If you’re paying peanuts, you’re going to get monkeys’, it’s an old saying but I don’t believe it’s properly communicated through the chain and buyers are unaware of what they are purchasing. As a result, the complaints rate in my industry runs at around 50 percent, which costs everyone a lot of money, makes everyone look bad and impacts renewals,” he explained.

“We speak to insurance clients who have no comprehension that companies like mine exist. They worry about premium and not much else. At NGS we’ve tried increasingly to come along and explain to clients, especially the larger corporates, about exactly what they’re getting and invariably the intelligent buyer of insurance finds value in that. Clear communication has been essential.” 

This call for clarity was echoed by Rob Sheehan, director at Aon. Sheehan noted that managing client expectations is perhaps more important now than ever before, particularly at a time when rates are increasing. He also stressed the need to educate clients on the coverages available as the political violence product increases in relevance.

“Previously the market had seen year-on-year discounts due to an abundance of capacity and low loss ratios, and it’s been relatively straightforward from a client perspective because we have managed, as brokers, to broaden terms of conditions whilst achieving reductions,” he explained.

“It is core to the business to maintain levels of client service with brokers engaging early and educating clients in order to manage expectations and guide clients through the changing market.”

He continued: “Early engagement is clearly key in managing this successfully but so is encouragement and early engagements from markets. Management of the pipeline is essential and early communication from markets as to their risk appetite has never been more important or valued by both brokers and clients alike.”

Arch’s Bauckham also highlighted the importance of maintaining levels of client service, adding that clients are drawn to partners who can deliver innovative solutions and are proven to respond.

“Whether there’s substantial market and global political disruption, whether the market is soft or hard, the one constant within the market is that clients like a solutions- driven relationship and response- driven partner,” he said.