Energy sector urged to address terrorism threat

Global energy firms have been warned they remain a key target for the world’s terrorists as political violence and unrest continues.

Writing in broker Willis Towers Watson’s Energy Market Review, Luke Bennett Executive Director, Financial Solutions Terrorism & Political Violence Practice, at Willis Towers Watson said firms needed to revisit their coverage levels for such risks.

“All around the globe social interconnectivity, combined with extreme political polarisation, has exacerbated the need for organisations to rethink how they approach Terrorism & Political Violence risks,” he said. “The energy sector remains vital for infrastructure globally and will continue to be a key target for terrorist organisations and possible political violence activity.

“With a constantly evolving risk landscape, it is imperative that the energy industry buyers consider whether the coverage they currently purchase is appropriate, and whether their terms and conditions are truly fit-for-purpose against the backdrop of a wave of global unrest.”

He added the terrorism & political violence market is on hand to replace gaps in coverage—whether in full or in part, subject to available capacity — that may be left by All Risks insurers in the event that Strikes, Riots and Civil Commotion perils start to become more widely excluded for energy sector buyers.

The report found events in US, Chile and Hong Kong have precipitated significant Strikes, Riots and Civil Commotion losses to the global insurance market, with many losses having been insured in the Property/All Risks market.

“These events have focussed attention on understanding the underlying socio-economic issues, and indeed have additionally highlighted the wider implications of COVID-19 and the consequential impact on civil unrest,” it stated. “In previous years we have noted that large catastrophic type losses have been generally replaced with smaller attritional losses, with small-scale damage often being caused. This is likely to be a continuing theme through 2021; however, the ability for such damage to lead to much larger Business Interruption (BI) losses should not be overlooked.”

WTW highlighted the increasing instability around the world as a result of public unrest, together with general discontent around a number of issues such as:

  • racism and inequality
  • climate change and the environment
  • social activism and the unequal distribution of wealth
  • the economic hardship fuelled by the impact of COVID-19.

“The resulting effect of these factors has been a demonstrable increase in insurer scrutiny of the conditions under which they offer coverage, particularly around the provision of Strikes, Riots and Civil Commotion coverage globally, with appetites waning in certain high risk territories such as Latin America, Africa and now even the United States,” the report added.

While new capacity has entered the market attracted by rising rates this new capacity is expected to be offset by the partial shrinking of primary global capacity, as insurers demonstrate caution in deploying large line sizes and look to manage exposures in emerging market risks.

“Headline capacity figures are now in the region of US$3.5 billion for Terrorism, and $2.5 billion for Political Violence,” added WTW. “Global capacity for Nuclear, Chemical, Biological and Radiological Terrorism coverage stands at around $650 million, while capacity for Cyber Terrorism is approximately $1.9 billion.”

“The Terrorism and Political Violence market continues to experience losses in the Energy sector, although the majority are deemed small and not catastrophic,” the report stated. “Demand for Non-Damage Business Interruption continues to rise, and at the very least remains a hot topic of conversation.

“Along with terrorist attacks and both global and localised conflicts, the threat of Strikes, Riots, Civil Commotion and Malicious Damage remain a real risk to the energy industry. In addition, many new construction projects around the world will continue to face environmental activism and local opposition, including those where land disputes and population displacement may arise.”