September 22, 2023

MENA War and Political Violence: A Market Coming of Age in a Period of Negotiation

Insights London Market
Terrorism, Political Violence & War

By Jalal Chtioui, Senior Underwriter – Terrorism, Political Violence & War

This article was first published by Middle East Insurance Review

The war and political violence (PV) insurance market in the Middle East and North Africa (MENA) region has undergone a period of significant evolution in recent years, transitioning out of a soft market into an environment with increased focus on rate adequacy in response to complex dynamics in the region.

A Transitioning Insurance Environment

Developments on both the global stage and locally to MENA have had a significant impact on shaping the war and PV market in the region.

The rise in inflation coupled with global market losses incurred from conflicts and civil unrest worldwide have led to an increased focus on price adequacy and tightening of terms and conditions. In addition, the MENA market has experienced a decline in the availability of war and PV capacity as players have applied a more stringent approach to their risk appetite and looked to reduce potential exposure. The subsequent shift in pricing has reflected the need to create a more defined war risk insurance marketplace. In some cases, war-related coverages have been included as part of larger programmes, particularly in regions considered relatively low risk such as the member states of the Gulf Cooperation Council (GCC). There was also limited appetite for standalone war coverage.

Responding to such conditions, the market has witnessed an uptick in the application of exclusions over the last 12 to 18 months, as well as a marked shift in the use of reinstatement clauses within policies. In several cases, insurers are now requiring more defined reinstatement parameters, given the heightened risk factors that could leave carriers exposed in the event of reissuing cover in a region experiencing higher exposure to conflict or political violence.

Contingent business interruption (CBI) coverage, for example, has become a key area of focus in recent years. Such coverage is available across most countries in the region, however, the provision of specific details on unnamed customers/suppliers under the policy is now becoming a pre-requisite of cover.

Buyers are of course responding to these evolving market dynamics. Some clients are working with their brokers and insurers to introduce sub-limits at renewal to manage insurance costs effectively. For example, organisations with a high limit covering insured assets in multiple territories, many of which are not deemed at high risk of war, may choose to take a significantly lower war sub-limit to reduce their premium spend while maintaining the higher limit on other perils.  

A Complex Region

MENA remains a highly complex political landscape, with many unresolved and interconnected tensions and conflicts simmering across the region.

Sudan was recently placed on the high-risk countries list by the Lloyd’s Market Association Joint War Committee, however while political violence is expected to continue there for some time, many believe it will be contained. Insurers have considered Sudan high risk for several years — even in periods when the political situation was improving — and the military coup of 2021 demonstrated how quickly situations can deteriorate.  

In Libya, there are signs that a level of order is slowly returning. Meanwhile, Jordan appears to be in a relatively stable position, and while the economic situation there is far from perfect, the country has experienced much more challenging periods in the past. According to the World Bank, MENA economies are expected to grow at a slower pace in 2023, with double-digit flood inflation in economies like Tunisia, Egypt and triple digit inflation in Lebanon. This is adding particular pressure on low to mid-income households, thus increasing the risk of unrest.

A large question mark hangs over Lebanon, where the risk of unrest remains high. Lebanon is a politically complex country; its parliament has failed to elect a president for the 12th time, a large proportion of the population are living in poverty, and countries including Iran, the GCC and even France have a political interest in Lebanon. If civil war were to erupt, there is an expectation that it would remain contained in the country. However, there is a moderate to high risk that conflict could occur between Lebanon and Israel due to Israel’s ongoing conflict with Lebanese political party and militant group, Hezbollah.

A Period of Conflict Negotiation

The peace agreement and resumption of diplomatic relations between Saudi Arabia and Iran, brokered by China in March this year, was a key development in the region but how it will impact the MENA bloc in the long term is still to be seen.

Saudi Arabia’s Crown Prince Mohammed bin Salman Al Saud has set out an ambitious vision to transform Saudi Arabia by 2030. Attracting tourists and business visitors to the country will have a key role to play, so the peace agreement remaining intact will undoubtedly be critical to Saudi Arabia achieving its commercial goals.

The impact of the peace agreement is arguably being felt in Yemen, however to what lasting extent is unknown. Yemen’s civil war has long been a proxy battle between Saudi Arabia and Iran, and the meeting between high delegations from Riyadh and the Iran-aligned Houthis rebels in April was seen as a positive step as Saudi Arabia seeks to bring stability to the region.

Many believe the peace agreement will be a key stabilising influence for the region however others remain more cautious, preferring to reserve judgement until it has held for at least another six to 18 months. This divergence in stance is subsequently making for a very dynamic insurance marketplace.

An Evolving Market Landscape

The war and political landscape in MENA is a highly complex one that demands significant underwriting focus. While multiple territories will remain at high risk for unrest, the majority of the MENA region offers significant potential for market development and growth where price adequacy is met.

As changing dynamics usher in evolving market conditions, insurers should be ready to collaborate with brokers to provide informed war and political violence solutions to respond to customers’ challenges and opportunities.