[This article was first published in Die VersicherungsPraxis - trade journal for the insurance industry , Issue: 5 / May 2021]

Terrorism, sabotage, political violence, strikes riots and civil commotion are arguably some of the most difficult risks to predict. Unlike other risks that can be modelled, and their impact assessed on assets and in territories we know are at risk; there is the random, human element in political violence and terror threats that makes it difficult to predict how a risk will manifest and when or where. As civil unrest is increasing across Europe’s major cities Liberty Specialty Markets’ (LSM) terrorism underwriter for Germany, Corinna Walter, examines the growing need for German risk managers to protect their organisations against the impact of violent protests and terrorism.

Rising propensity to violence

Recent events around the world demonstrate the scale of the issues the market is currently facing. According to the 2020 Global Peace Index, published by the Institute for Economics and Peace, riots around the world increased by 282% in the last decade and general strikes were up by 821%.  For risk managers of large corporations also in Germany, the arrival of the pandemic and the related social unrest seen across Europe must raise warning flags.

You only need to look to our neighbouring countries to see evidence of the increase in violent street protests and political unrest in recent years. Looking first at France, in late 2018 the gilets jaunes – protesters who wear yellow vests – took to the streets to protest against rising fuel prices. It led to the worst violence seen in central Paris for over a decade. Francois Asselin, head of the Confederation of small and medium-sized businesses in France, was quoted in the Journal du Dimanche newspaper predicting that overall, the violence connected with the gilets jaunes movement will cost small and medium-sized businesses some €10 billion. In January 2021, The Netherlands saw unprecedented violence in the form of nationwide anti-lockdown riots that surprised even the most experienced war and terror underwriters there. In November 2020, in Vienna, Austria a series of shootings took place, a few hours before the city was entering lockdown, when a lone gunman started shooting in the busy city centre. Four civilians were killed in the attack and 23 others were injured.

Since the start of the pandemic incidents of civil unrest have increased globally.  It has impacted the level of trust in politicians and the economy which will take several years to recover from, with many businesses facing the prospect of insolvency. The frustration of people across the globe about coronavirus is increasing and has been visible in demonstrations that have sometimes led to riots. While we have not had the anti-lockdown or anti-mask riots in Germany, there have been some organised demonstrations by opponents of lockdown. As the social system in other parts in the world is not as strong as the German state system, people are worried about their future which could lead to more demonstrations.

In the US during 2020, demonstrations often turned violent, including some of those connected with the Black Lives Matter movement and anti-lockdown campaigners, as well as protests surrounding the national elections. Damage caused is estimated to be around $1bn. In Bolivia protesters destroyed 5G mobile phone masts as they believed they could transmit coronavirus, and anti-mask, anti-vaccine disturbances have become familiar scenes.  Countries previously considered peaceful have seen that peace shattered. Riots in Chile sparked by a rise in the price of using Santiago’s subway transit system took many commentators by surprise. Most recently, Northern Ireland has experienced some of the worst violent riots in a while. All these issues are in the spotlight due to increased demand for cover and wide-spread social unrest – not just in Germany but around the world.

It's no wonder, then, that risk managers of multinational companies in Germany are keen to buy protection to cover their exposure to these increased risks. Their main concern is strikes, riots and civil commotion (SRCC), particularly those luxury brands who feel they could be targeted by anti-capitalist or pro-environmental groups. Having witnessed the impact of the gilets jaunes in Paris during the riots on the Champs-Élysées, their concern is justified. In addition, the presence of Black Blocs – militant anarchist protestors dressed in black and masked – add to the risks faced. Ironically, the Black Blocs first emerged in Germany in the 1980s but since then they have spread across the continent and beyond. In France, Black Bloc protestors joined many of the gilets jaunes protests and added a more violent dimension to the proceedings.

This rise in demand for SRCC protection has led to both underwriters and risk managers asking questions about the way in which cover is provided in the German market. Traditionally, SRCC was written in property all risks cover and has also found its way into many standalone terrorism products. However, with the increasing prevalence of civil unrest in Europe, property carriers are raising concerns about cover for SRCC. This is because the riot cover included in property all risks policies was never designed to respond to large-scale social unrest; underwriters envisioned much smaller, localised disturbances, perhaps resulting in a few broken windows. The riots and civil unrest we are seeing today are increasing in violence and damage caused; these risks need to be covered by a standalone policy.

Terrorism

As the nature of the threat changes and businesses are impacted in different ways, so the terrorism and political violence market is evolving.  Born in the aftermath of the attack on New York’s Twin Towers in 2001, what began as protection for physical damage to property caused by terrorist attacks has grown rapidly over the years, as the nature of the threat has evolved and weaknesses or coverage gaps have been exposed.

Non-physical damage business interruption cover was pioneered in response to the shift in focus from attacks on property to attacks on people, as lately seen in France and Austria. Market innovation was needed because traditional terrorism policies were triggered only by physical damage, not by the authorities locking down access to an area post a terror attack, or by so-called loss of attraction, the now all too familiar scenario in which a venue becomes less attractive to customers in the aftermath of a terror attack.

Another evolving area is the liability exposures for those targeted by terrorism. Business owners and managers have a duty of care to their employees, to customers and to others that interact with their business. While it may seem distasteful to hold targeted businesses to account for anticipating and managing terror attacks on them, it is a fact of modern life that businesses may be targeted, and they should plan accordingly.

Solutions

One of the options available for risk managers is terrorism cover provided by the state-backed pool Extremus.  LSM entered the German war and terror market in 2018. Earlier this year LSM launched a new wording, which is tailored to the needs of German clients. It is modelled on the Extremus pool wording but features a range of optional covers including non-damage business interruption and SRCC. By providing the policy wording in German it is easier for clients to compare domestic products more effectively.

Populations around the world are experiencing doubt and unrest stemming from the pandemic and its economic impact. Risk managers and underwriters are reviewing the actions they need to take to mitigate the evolving risk. For insurers, clarity of cover has become a top priority.

The most comprehensive cover available is War and Terrorism, SRCC and Political Violence.  It’s important to note that SRCC cover is also available in a Property All Risks policy, but it should not be relied on to cover all risks a business could face.  It’s important to raise any questions with a broker or insurer and discuss concerns to secure the most appropriate cover for your needs. 

Against this changing backdrop, it’s the role of insurers to raise awareness with businesses about the evolving nature of the threat and the support we can offer. We are talking with brokers and insureds about how best to structure their cover to meet these changing needs whilst ensuring that they understand the risks, the product options available and can make an informed choice.