Insuring against the unpredictable: 2024 elections' ripple effect on terrorism coverage

With the ongoing threat of geopolitical conflict across the world, the impact of terrorism and political violence continues to be felt and, in some cases, has escalated. For instance, the Gaza conflict continues to be on the verge of instigating a regional crisis as the war between Israel and Hamas raises temperatures in the Middle East. 

However, the risks the world faces have changed, with the significant events which caused catastrophic property loss having been reduced, replaced by more focused attacks by small groups of lone wolf attackers who seek to attack populations in high-density areas. 

Similarly, the focus has shifted in the wake of the national elections. The rise in Strikes, Riots and Civil Commotion (SRCC) events has led to a restructuring of priorities. Initially treated as a bolt-on to standard terrorism war policies, the category has now quickly eclipsed traditional terrorism war cover in terms of importance and priority for insurers. Civil unrest is now so prominent that it caused more than $10bn of global insurance and reinsurance losses since 2017, compared to approximately $1bn of terrorism losses in the same period. 

For example, in Beazley's Geopolitical Risk Snapshot 2024, 70% of leaders express concern over this year's elections, with 36% perceiving their environment as high-risk—a 5% increase from last year.  Among 3,500 global business leaders surveyed, 30% identify political risk as their foremost threat this year, up from 27% in 2023. Notably, 27% of UK leaders and 25% of their US counterparts admit being unprepared for the looming spectre of political risk and violence.

This time last year, in a report on the rise of civil unrest, Howden analysed this change, explaining that "Intensifying SRCC risks are a reflection of [megatrends including geopolitics, macroeconomics, climate change and technology], as well as long-standing and intensifying grievances such as the rising cost of living, food and energy insecurity, falling real incomes, political populism and polarisation, perceived poor governance and corruption."

Aside from the Ukraine war, which the report predicted to become one of the biggest Political Violence (PV) losses on record, French insurers received thousands of claims worth an estimated €280 million ($308 million) resulting from damage caused during a week of riots following the police shooting of a teenager in July last year. This impact compares with 10,000 claims for a cost of €205 million during the country's previous major riots in late 2005. While not directly related to elections, it could be estimated that insurers operating in countries facing substantial regime changes as a result of the election year could be facing similar costs should the response turn violent. 

Many are also drawing a parallel between the growth of the far right in the European parliamentary elections and the growing appetite for civil disruption. In recent news, French President Emmanuel Macron called a snap parliamentary election in an attempt to counter the rise of the far right in the country.  Whether this political movement becomes directly linked to any unrest in the aftermath of election results remains to be seen but will nevertheless be a topic of debate and scrutiny among the insurer community.

Taking a closer look at the economic and insured losses resulting from several incidents of civil unrest in recent years, Allianz predicted that events that took place in Peru ($1.3 billion), Colombia ($3 billion), Chile ($3 billion), South Africa ($1.9 billion), US ($2 billion) and France ($2.1 billion) resulted in an estimated $13 billion of damage. 

It should be no surprise, then, to see many multinational corporations looking to obtain political violence and insurance coverage to mitigate their risks. Last year, Chaucer reported that the volume of enquiries for SRCC cover it received from just one broker had doubled year-on-year.  As the coming elections play out, insurers continue to search for solutions to limit and better monitor their exposures as they note the deteriorating global situation.

As the impact of climate-related disasters continues to be felt across the globe, a familiar feeling among local populations is that their incumbent governments are either unwilling or unable to meet the many pledges they promised they would abide by. For example, after efforts to agree on vital modernisation failed, the UK government confirmed its withdrawal from the Energy Charter Treaty. As a result, many environmental protests have increased both in size and level of disruption to bring attention to the subject.

This movement is reflected in Europol's annual "terrorism situation and trend" report from 2023, which includes a specific focus on "environmental extremism" and said that "environmentally-inspired terrorism" is "expected to gain further prominence." This was the first time that environmental groups were examined under their own specific heading in the report – in previous years, environmentalism has been mentioned, but primarily as a topic that attracts the attention of certain groups or as a form of "single-issue" activism or terrorism.

To be well-prepared, insurers must consider various exposures, including geographical value distribution, exposed occupancies, recent socio-political developments, and previous SRCC loss experiences. The industry must develop better models to manage accumulation risks and identify exposure concentrations within specific geographic areas or industries. Additionally, insurers need to improve the capture of SRCC-specific exposure data and ensure it flows effectively through the (re)insurance value chain.

While it may seem like a difficult challenge for insurers to achieve, there are many service providers on the market that can simplify this process and allow for real-time monitoring of exposures.

While events are occurring more frequently and regularly, they are also often occurring in a combined fashion, with wars, civil unrest, commodity crisis, and more occurring simultaneously. Throw social media into the mix, and you can see how events can now spread quickly and have a broader impact, resulting in far higher financial costs.

With that said, insurers who can get a handle on their exposures and monitor them in real time will have a significant advantage over their competitors. This advantage can have far-reaching consequences beyond simply exposure management, with the connected ecosystem of data offered by solutions such as Insurwave allowing for better client communications in times of crisis. Similarly, with the multifaceted nature of SRCC events, having the ability to layer multiple data feeds, such as threat intelligence, onto your view of your portfolio to cross-reference and identify problem areas is invaluable and will soon become a necessity should the current geopolitical climate continue.

The rise in SRCC events has led to the need for the terrorism market to redefine its coverage terms and pricing. As businesses become exposed to a growing range of perils, the need to move away from pure terrorism cover is apparent, with companies in major Western democracies being particularly affected.

Insurers who embrace platforms that can enable them to manage their exposures in real time to improve their flexibility to respond swiftly to market conditions will be best placed to weather the storm of the 2024 election year.