1

In partnership with

T E R R O R I S MR E P O R T2 0 1 7

3

The 9/11 terrorist attacks on the United States mainland in 2001 signalled a new level of intensity, audaciousness and geographical reach from those who seem dedicated to causing indiscriminate death and destruction.

Since the 9/11 attacks, the terrorism market has evolved significantly. Before 9/11, the market for stand-alone terrorism cover was very small, with roughly five Lloyd’s-based insurers offering terrorism cover as an extension in their property policies. Fast forward 16 years and the market has grown to about 60 (re)insurers offering significant capacity to the market – justifiably so.

Recent years have seen an increase in major terrorism events across the world, as attacks in Barcelona, Brussels, London, Madrid, Nigeria, Paris, Tunisia and Turkey have highlighted the growing need for terrorism and political violence cover.

In this volatile environment, it is important to understand the threat and protect the financial well-being and viability of your business. The main challenge for risk managers currently is how to prepare companies for an increasingly threatening world in which terrorism and political violence are very real and changing threats.

THE MARKET RESPONSE

As a result of these changes, there is much greater interest across Africa and Europe for terrorism cover and rapidly rising appetite for broader political violence protection – particularly as the impact of globalisation means businesses have increased exposures in countries not recently regarded as particularly high risk.

A large number of clients who opt for wide political violence coverage come from the extractive and associated service companies, construction and engineering contractors, especially in project finance, as well as banks and the financial sector. There is also growing interest from other businesses, and also from smaller companies, who can often least afford to lose business, particularly as the risk to property in CBDs increases and so too the risk of business interruption. In many cases, companies may have a very small property loss but, because the whole business district has been shut down, the business interruption can be far higher than the property damage.

ContentsC O N T E N T S E X E C U T I V E

S U M M A R Y

030406070810

Executive summary

Case study

Risk checklist

Plugging the gaps

Heat map

Take cover

4

THE 2011 REVOLUTION IN CAIRO, EGYPT

Protests in Tunisia were the catalyst for the Arab Spring uprisings of 2011, which quickly gained momentum in the Middle East and spread to other states in the region, including Egypt.

The anti-government protests in the Egyptian cities of Cairo, Alexandria, Suez and Ismailia became a popular uprising against president Hosni Mubarak’s rule. Eighteen days of widespread unrest ensued causing extensive damage to property in the capital and surrounds.

Despite the demonstrable impact on business, many of the insurance claims relating to property damage caused by protestors, which included damage to one of the city’s largest shopping centres, were rejected by insurers.

REASONS FOR REJECTION

Many of the insured claimed on their all risks insurance policy for strikes, riots and civil commotion but, following closer inspection, insurers rejected these claims. The peril that triggered the loss was not deemed strikes, riots and civil commotion but rather revolution, which is not a covered peril.

Would the property damage have been covered under a terrorism-only policy? Again, an insurer would typically have rejected the claim, as the peril that triggered the loss would be deemed political violence, i.e. revolution.

LESSONS LEARNED

The controversy exists because the insured has too little coverage, or, stated differently, has gaps in the cover. The property damage suffered during the revolution is neither covered under the insured’s all-risk policy or the terrorism-only policy due to the interpretation of the peril that

C A S ES T U D Y

triggered the losses. The real issue here is that the insured must be aware of the policy that has been purchased and therefore the potential gaps in cover.

A similar situation arose during the last Israel-Lebanon crisis in 2006, where it was debated whether the damage sustained in Israel was an act of terrorism or war. The basis of the argument was whether Hezbollah, the perpetrator of the damage, was representative of the Lebanese government – and therefore considered an act of war – as it held seats in the Lebanon government at the time. Following this conflict, only full political violence polices are sold in Israel.

The above cases reflect the critical need for companies to re-evaluate the adequacy of their risk management strategy to ensure as broad a range of perils as possible is covered, thereby reducing any uncertainty and dependency on the classification of an event.

To minimise gaps and to ensure seamless cover between standard property and political violence exposures, a comprehensive full political violence policy purchased in conjunction with a conventional all-risk policy will ensure protection against the impact of political violence and instability.

5

25 JAN THE DAY OF REVOLTThousands demonstrate in Cairo.

28 JAN THE FRIDAY OF ANGER Hundreds of thousands demonstrate in Cairo and other Egyptian cities. Reports of looting, prisons being opened and burned to the ground. Prison breaks are coupled with withdrawal of police forces.

10 FEBMubarak addresses Egypt and, instead of resigning, announces the delegation of powers to Vice President Suleiman, while maintaining control. This leads to renewed anger.

6 FEBEgyptian Muslims form a safety ring around Egyptian Christians praying in Tahrir Square. Negotiations continue amid protests, as the Egyptian army attempt to maintain order and protect museums.

26 JAN Thousands demonstrate in Cairo.

2 FEB BATTLE OF THE CAMEL Mubarak supporters, some who rode into Tahrir Square on camel- and horseback, clash with anti-government protesters.

11 FEB THE FRIDAY OF DEPARTUREProtests continue throughout Egypt until 18h00 that day, when Mubarak’s resignation is announced and control is handed over to the Supreme Council of the Egyptian Armed Forces.

25JAN

26JAN

28JAN

02FEB

06FEB

10FEB

Source: K. Wahba, The Egyptian Revolution 2011: The Fall of the Virtual Wall – The Revolution Systems Thinking Archetype, www.systemdynamics.org/conferences/2011/proceed/papers/P1436.pdf.

11FEB

76

Today, there is more capacity available in the stand-alone insurance market than ever before, with broader wordings, higher limits and more affordable terms. However, the boundaries between the various terrorism, political violence, business interruption and property covers are complex, and there may be gaps in cover.

These gaps tend to arise when exposure falls between policies, when an event causes damages, which are difficult to categorise or are defined differently by various authorities. Due to

R I S KC H E C K L I S T

1

72

83

94

105

6Does my existing insurance policy cover financial loss and physical damage caused by an act of terrorism?

Do links in my supply chain have terrorism and political violence cover?

If war breaks out in a particular region, such as the Middle East, am I overexposed to one supplier?

What if we lose working hours following a political demonstration – are we covered?

Can my current insurer combine my standard policy with terrorism and political violence cover to provide a more seamless protection, regardless of the cause?

Does it provide cover against terrorism and political violence including war and civil war?

Am I covered for every eventuality?

Can I extend my existing terrorism programme to provide all the cover I require?

Are there gaps in my existing insurance arrangement?

Have I purchased cover that matches my requirements in different territories?

P L U G G I N GT H E G A P S

COMPREHENSIVE POLITICAL VIOLENCE

TERRORISM ONLY STRIKES, RIOTS

AND CIVIL COMMOTION

POLITICAL VIOLENCE

EXCLUDING WAR & CIVIL WAR

COVER War and civil war

Terrorism only. Often required

internationally recognised terrorist organisation

involvements to attempt government ‘influence’ or

overthrow.

Physical loss or damage from strikes (including lock-outs), riots, civil

commotion

Physical loss or damage arising from strikes

(including lock-outs), riots, civil commotion, mutiny,

terrorism and/or sabotage, uprisings, rebellions, coup

d’état, insurrection and revolution

PREMIUM Fixed at inception Fixed at inception Fixed at inception Fixed at inception

RELATIONSHIP WITH PROPERTY DAMAGE POLICY

Can be purchased stand-alone or can be tailored

to exclusions of property damage policy. Business

interruption can be included.

Not tailored. Business interruption can be

included.

Not tailored. Extension of terrorism wording,

business interruption can be included.

More commonly purchased

stand-alone but can be tailored.

Business interruption can be included.

EXCLUSIONSChem-bio-radiological-

nuclear attacks, political risk, theft

Several

Numerous and includes:political risk, chem-bio-

radiological-nuclearattacks, war, civil war,

insurrection, revolution,rebellion, mutiny, civil

commotion where it isthe result of a popular

or military rising

War and civil war, chem-bio-

radiological-nuclear attacks,

political risk, theft

PERIOD Usually one year. LTAs available

Usually one year. LTAs available

Usually one year. LTAs available

Usually one year. LTAs available

the complex nature of this cover it is advisable to use specialist combined policies and seek advice from specialist brokers. By taking a ‘combined’ approach to this form of cover, clients should get the cover they require, no matter where in the world their business operates.

8

KEY:

Severe High Elevated Moderate Low

9

Iraq

Egypt

1

Syria2

Afghanistan3

Niger4

5

Nigeria6

Kenya7

Cameroon8

Ukraine

Turkey

9

10

France111 DATE: COUNTRY: CITY: DEATHS:

9/4/2015 IRAQ QAIM 300

DESCRIPTION:Assailants executed 300 civilians in Qaim in the Al Anbar governorate.

2 DATE: COUNTRY: CITY: DEATHS:

21/5/2015 SYRIA PALMYRA 280

DESCRIPTION:Assailants executed at least 280 people, including civilians,government employees and Syrian Armed Forces soldiers.

3 DATE: COUNTRY: CITY: DEATHS:

28/9/2015 AFGHANISTAN KUNDUZ 240

DESCRIPTION:Assailants raided Kunduz, storming the prison and releasingmore than 500 inmates. At least 240 people were killed in this attack.

4 DATE: COUNTRY: CITY: DEATHS:

25/4/2015 NIGER KARAMGA 230

DESCRIPTION:Assailants attacked a military base and residential areas, which killed at least 46 soldiers, 28 civilians and 156 assailants.

5 DATE: COUNTRY: CITY: DEATHS:

31/10/2015 EGYPT UNKNOWN 224

DESCRIPTION:An explosive device detonated on a Kogalymavia passenger flight which caused it to crash in North Sinai, killing all 224 on board.

6 DATE: COUNTRY: CITY: DEATHS:

13/8/2015 NIGERIA KUKUWA-GARI 174

DESCRIPTION:Assailants opened fire on residents in Kukuwa-Gari village. Villagers were killed by gunfire or drowning in a nearby river, killing at least 174 people.

7 DATE: COUNTRY: CITY: DEATHS:

2/4/2015 KENYA GARISSA 154

DESCRIPTION:Assailants armed with grenades and firearms attacked students at Garissa University College, executing non-Muslim students, killing at least 154.

8 DATE: COUNTRY: CITY: DEATHS:

9/4/2015 CAMEROON FOTOKOL 144

DESCRIPTION:Assailants attacked residents, soldiers and buildings including mosques in Fotokol town, killing 144.

9 DATE: COUNTRY: CITY: DEATHS:

10/8/2015 UKRAINE STAROHNATIVKA 143

DESCRIPTION:Assailants attacked Ukrainian soldiers with artillery and tanks near Starohnativka. The Donetsk People’s Republic claimed responsibility for the incident, which killed 143.

10 DATE: COUNTRY: CITY: DEATHS:

10/10/2015 TURKEY ANKARA 105

DESCRIPTION:Two suicide bombers detonated at a peace rally near the train station in Ankara. The assailants were identified as members of ISIL. The attack killed 105.

11 DATE: COUNTRY: CITY: DEATHS:

13/11/2015 FRANCE PARIS 92

DESCRIPTION:Three suicide bombers opened fire on the Bataclan concert hall in Paris. This was one of several attacks in Paris on this evening, which resulted in a total of 136 deaths.

H E ATM A P

Source: Global Terrorism Index 2016. http://economicsandpeace.org/wp-content/uploads/2016/11/Global-Terrorism-Index-2016.2.pdf

10

Considering the latest data from the 2016 Global Terrorism Index, the Middle East and North Africa continue to be considered extremely prone to terrorist activity. Only certain pockets of Africa – Botswana, Malawi, Namibia, Zimbabwe – are relatively safe from terrorist threat. It should by no means be seen as an indication of prosperity in these states, as political violence and poverty remain rife inside their borders.

Equally, the 10 most economically impacted countries, relative to the size of their economy, are all conflict-affected states in the Middle East and North Africa, sub-Saharan Africa and South Asia, according to the index.

Globally, and closer to home in South Africa, political turmoil continues to drive an increase in social unrest and riot risk, which sits aside the terrorist threat. The 2016 #FeesMustFall protests in South Africa caused estimated damages of R600 million in the university sector alone, not even considering the damages to other property.

There has been an increase in terror attacks in North and East Africa over the past 12 months. In 2016, four of the top 10 most impacted countries by terrorism were located on the African continent. It is reported the primary targets of these attacks were private citizens and property, in which more than 583 properties were damaged across four countries.

AS AN INDUSTRY, SOME OF THE KEY THEMES TO TAKE AWAY FROM THESE ATTACKS INCLUDE:• The crucial need for accurate data to

understand risk and aggregation• Non-damage business interruption arising

from threat and loss of attraction• Cyber terrorism – when and how?• Need for globally compliant programmes

TA K EC O V E R

THE IMPORTANCE OF COVER

Terrorism and political violence are real and constantly evolving risks. The range of risks are growing, from violent attacks that include riots and shootings to arson and large-scale bombings.Risk managers need to prepare for this increasingly volatile world and ensure they are on top of the insurance solutions available and understand the different types of cover, as well as potential gaps.

Despite the proven inadequacy of standard property damage, business interruption and terrorism cover, a worryingly high number of firms still seem unaware of the gaps in their existing policies.

Risk managers need to understand exactly what their changing exposures are, what insurance cover they actually have, what the wordings on these policies mean and where the gaps may lie. Only then can they be sure of the necessary solutions and purchase the right protection to safeguard business operations.

Apart from the standard perils that most traditional terrorism products cover, Chubb’s offering includes covers such as bomb hoax threat and contingent business interruption extensions. It also includes cover for both the premises that suffer the loss and the dependent premises.

Chubb is the only insurer to offer aligned property damage and business interruption (PDBI) and terrorism and political violence policy wordings. The dual proposition is designed to eliminate gaps in cover and uncertainty of terms and conditions between different policies.

Its multinational capabilities enable the insurer to help brokers and clients implement multinational programmes that are compliant and perform as expected when a loss occurs.

Source: Global Terrorism Database, Codebook: Inclusion criteria and variables, June 2017, https://www.start.umd.edu/gtd/downloads/Codebook.pdf.

WHAT IS CONSIDERED TERRORISM?

The experts at the Global Terrorism Database (GTD) define terrorist action as “the threatened or actual use of illegal force and violence by a non-state actor to attain a political, economic, religious or social goal through fear, coercion or intimidation”.

For the institution to even consider including an act of terror to its meticulously researched database, three attributes must be present:• The incident must be intentional and result

from conscious calculation. • Violence or the immediate threat of violence

must be present, including property violence and violence against people.

• The perpetrators of the incidents must be “sub-national” actors. The database does not include acts of state terrorism.

Moreover, at least two of the following three criteria must be present for an incident to be included in the GTD.• A political, economic, religious or social

goal must be behind the attack. The pursuit of profit does not satisfy the criterion, “it must involve the pursuit of more profound, systemic economic change”, say the authors.

• The message from the terrorist group must be aimed at a larger audience and not the immediate victims. If the group behind the attack intended to coerce, intimidate or publicise, the criterion is met.

• The action must be outside the context of legitimate warfare activities, which includes the prohibition of deliberately targeting civilians or non-combatants.

11

What is CraftsmanshipSM?To be crafted is to meet exacting standards.

It’s the human touch that combines art and science to create something unique.

We tend to think about craftsmanship in terms of physical things: fine wine, classic cars, custom furniture and iconic structures.

But what about the underwriting of insurance to craft protection for your unique and valuable things? And the service behind that coverage when you need it most — like claims and loss prevention?

For your business.

Your employees.

Your home.

The people you love.

Things that need a particular kind of protection and service.

The kind Chubb provides.

Not just coverage. Craftsmanship.SM

Not just insured.

Chubb. Insured.SM

© 2

016

Chub

b. C

over

ages

und

erw

ritte

n by

one

or m

ore

subs

idia

ry c

ompa

nies

. Not

all

cove

rage

s ava

ilabl

e in

all

juri

sdic

tions

. Chu

bb®,

its lo

go, N

ot ju

st c

over

age.

Cra

ftsm

ansh

ip.S

M a

nd a

ll its

tran

slat

ions

, and

Chu

bb. I

nsur

ed.S

M a

re p

rote

cted

trad

emar

ks o

f Chu

bb.

Chub

b In

sura

nce

Sout

h A

fric

a Li

mite

d is

an

Aut

hori

sed

Fina

ncia

l Ser

vice

s Pro

vide

r (FS

P N

o. 2

7176

).

www.chubb.com/za

CHUBB_ACE_Craftmanship_SA_297x210_July16.indd 1 14/07/2016 09:19