Insurance Marketplace Realities 2023 Spring Update – Terrorism and political violence

Rate predictions: Terrorism and political violence

	Trend	Range
Terrorism and sabotage
Non-volatile territories		+15% to +20%
Some volatility and/or isolated events		+20% to +30%
Major volatility and/or widespread risk of major incidents		+30% to + 40%
Political violence
Non-volatile territories		+25% to +35%
Some volatility and/or isolated events		+35% to +50%
Major volatility and/or widespread risk of major incidents		+50% or higher

The crisis in Ukraine, the latest and most significant potential loss to the Terrorism and Political Violence market in years, has ushered in changes mandated by treaty reinsurers.   

• Facing significant losses, treaty reinsurers have increased rates and insurer retentions, as well as restricted coverage and appetite.
• Coverage changes on treaty reinsurance programs include distance limitations for any one 'occurrence,' increasing the potential for significant increases in retained risk for any dispersed event, such as nationwide civil commotion losses experienced in the United States in 2020.
• At this time, most insurers are not looking to push these reinsurance occurrence clause changes onto clients, but will be factoring these changes into rates.
• Coverage changes directly felt by clients is the retraction in appetite for contingent and non-physical damage coverage, as well as limiting interest for binding multiyear programs.

Overall market capacity has not dramatically changed but expectation for actual reductions in line size deployment on individual risks.

• While the marketplace has remained relatively static in terms of capacity, many insurers are reducing per-risk deployed capacity (see below chart), especially in high-risk territories, heavily aggregated locations, and for policies with wider Political Violence perils.

A new generation of crisis analytics is being deployed to identify and calculate the human and financial consequences of terrorism and political violence.

• Risk aggregation models can calculate precise aggregate accumulations and point the way to operational and structural changes to reduce vulnerabilities.
• Global risk analytics can now generate risk scoring for any point on the planet to provide a holistic view of a company’s global risk profile and provide warnings about changing risk environments.
• Specific Probable Maximum Loss (PML) estimates can critically evaluate previous insurance decisions and improve market submission

The deployment of captive insurance vehicles continues to provide access to otherwise unavailable or uncompetitive capacity for terrorism risk.

• The Terrorism Risk Insurance Program (TRIP) continues to offer support for conventional terrorism events, but also provide critical capacity for more limited coverage, such as for physical damage due to a cyber terrorism event.
• In a market where premium is capacity-driven, the flexible rating mechanisms permitted within a captive structure allow exposures to be priced for risk exposure and divorced from unrelated perils — generating significant cost savings for many clients.

Disclaimer

Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed entities, including Willis Towers Watson Northeast, Inc. (in the United States) and Willis Canada Inc. (in Canada).

Each applicable policy of insurance must be reviewed to determine the extent, if any, of coverage for losses relating to the Ukraine crisis. Coverage may vary depending on the jurisdiction and circumstances. For global client programs it is critical to consider all local operations and how policies may or may not include coverage relating to the Ukraine crisis. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal and/or other professional advisors. Some of the information in this publication may be compiled by third-party sources we consider reliable; however, we do not guarantee and are not responsible for the accuracy of such information. We assume no duty in contract, tort or otherwise in connection with this publication and expressly disclaim, to the fullest extent permitted by law, any liability in connection with this publication. Willis Towers Watson offers insurance-related services through its appropriately licensed entities in each jurisdiction in which it operates. The Ukraine crisis is a rapidly evolving situation and changes are occurring frequently. Willis Towers Watson does not undertake to update the information included herein after the date of publication. Accordingly, readers should be aware that certain content may have changed since the date of this publication. Please reach out to the author or your Willis Towers Watson contact for more information.

Contact

---

Fergus Critchley

Head of Crisis Management, North America

email Email phone +1 212 915 7651

---