Over There, Over Here

It would be folly to think that political risk is something that only happens “over there.”

The effects over here can be just as damaging. That the number of such incidents may not be as high as has traditionally been the case in emerging markets should offer neither comfort nor serve as a basis for complacency.

A newly released report from RIMS, the risk management society, explores the political risk insurance market. “The paradigm dividing the world into developed and developing countries is antiquated and can lead risk managers astray,” it notes.

RIMS reports that capacity in the political risk market has ballooned from about US$700 million in 2009 to US$2 billion today. High-profile attacks perpetrated or inspired by the Islamic State of Iraq and Syria “is driving a rapid increase in business for terrorism coverage.”

Earlier this year in the United States, in fact, the Federal Insurance Office asked insurers to voluntarily submit certain insurance information regarding their participation in the Terrorism Risk Insurance Program.

The requested data relates to lines of insurance with exposure to such losses, premiums earned on such coverage, geographical location of exposures, pricing of such coverage, take-up rate for coverage and amount of private reinsurance for acts of terrorism purchased.

Among the current concerns to Western countries is the increasing number of attacks in public places and involving shooters.

“ISIL presents a global terrorist threat which has recruited thousands of foreign fighters to Iraq and Syria from across the globe and leveraged

technology to spread its violent extremist ideology and to incite terrorist acts,” reports the U.S. State Department.

Aon Risk Solutions reported this spring that 2015 was the most lethal year for terrorism in Europe in almost a decade. For the first time since Aon began issuing its annual Terrorism and Political Violence Map in 2007, shootings overtook bombings in the Western world and the move to target civilians in public spaces became more commonplace.

It suggested since the start of 2015, 31% of attacks in the West targeted private citizens and public gatherings, up from 25% in 2010 to 2014. “This means that terrorism re-emerged as a significant business risk over the past year, with major high-profile international attacks targeting tourism-related sectors (hotels, resorts, airports and civil aviation) and crowded public spaces (including retail and sports venues).”

Aon Risk Solutions noted the threats should encourage business leaders with global footprints to adopt a more strategic risk management approach to limit the impact of attacks on their people, operations and assets.

Bombs are also a concern.

March’s terrorism blasts in Brussels were “a somber reminder of the difficulty of preventing attacks against transportation infrastructure,” like airports and bus stations,”

stated a report from Risk Management Solutions. “As security at military bases, embassies and other government facilities increases, there has been a trend among terrorists in targeting softer targets such as public transportation infrastructure.”

The blasts shut down flights and discontinued the metro system for a time.

A 2016 viewpoint report by JLT Re and JLT Specialty Limited further suggested insurance is absorbing only a fraction of the economic impacts of terrorist attacks.

Aon Risk Solutions’ 2015 political risk map showed Canada as among nine developed economies with increased terror threat.

It reported terrorism and geopolitical uncertainty are risks that businesses, whether in developed or emerging markets, cannot ignore.

True, Canada’s risk still remains low. However, that should not be a barrier to improving risk mitigation.

Alan Bell, president of Globe Risk International Inc., recently said that emergency management planning should take into account terrorism-related factors. “You have to learn to liaise with other agencies, more enforcement agencies, more security agencies,” Bell advised.