By Jalal Chtioui, Senior Terrorism, Political Violence & War Underwriter
This article was first published by Middle East Insurance Review.
Ongoing geopolitical instability and a greater awareness of the value of political violence (PV) cover, aligned with more strategic buying activity, are acting as catalysts for growth in the Middle East and Africa (MEA) region. Alongside this, the sector has attracted increased market interest spurred by a relatively benign loss environment in recent years, despite numerous conflicts and rising tensions within the region.
With new players either re-entering the sector or establishing fledgling operations, and more capacity flowing into the market, a shift in insurance dynamics across MEA is being seen.
Rising Market Pressure
The MEA region represents a spectrum of highly dynamic risk environments. Conflict-impacted regions such as Sudan, Mozambique, DRC, Yemen, Lebanon, Sudan, and Syria border financially robust and stable territories such as the Gulf Cooperation Council (GCC). This is creating a geopolitical and socioeconomic backdrop for fluctuations in insurance pricing.
However, in the last 12 months, the PV market has experienced sector-wide pressure on rates. The expansion of the insurance ecosystem, with both new brokers and underwriters entering the GCC market, coupled with capacity increases reflecting rising appetite due to a relatively subdued loss environment, is creating a competitive landscape for carriers, despite ongoing conflicts in certain countries.
That is not to say the region has been loss-free from a political violence perspective, but low overall losses over the past three years have led to a broad flattening of rates across the market. However, maintaining underwriting discipline to ensure continued rate adequacy remains critical – widespread volatility persists across MEA, and as seen recently, geopolitical tensions in regional hotspots can escalate dramatically within short timeframes.
The Geopolitical Lay of the Land
Interest in political violence cover is growing, which is to be expected. Flourishing economies attracting major investment are conscious of the fragility of many surrounding countries, and the potential for upheaval—coupled with an improved understanding of the scope and value of such products—are catalysing the sector’s growth.
The last 16 months have been marked by intense upheaval across multiple regions. The scale and intensity of the Israeli–Palestinian conflict have had significant regional and global repercussions, with heightened attacks between Israel and Iran, creating one of the most volatile periods in this long-running conflict.
As of writing, this conflict is somewhat restrained by a ceasefire agreement signed by Israel, Lebanon, Palestine and the mediating countries, including the U.S. However, without the security of a peace treaty and proof of its lasting stability, the pause in military activities could remain temporary.
In recent months, rapid developments in Syria have also created a fluid situation. The major offensive by opposition forces, resulting in the takeover of the government, has created a fragmented landscape as an interim government is established.
Yemen continues to pose a significant threat, with Houthi attacks on key trade routes persisting despite strikes by the U.S. and UK in response.
However, there is evidence of a shift in this geopolitical landscape, particularly with a realignment of the Sunni bloc across several regions. Factors such as the rebuilding of Syria, tightening sanctions in Yemen and Iran, Lebanon’s newly elected president /government formation and the weakening of Iran’s influence are contributing to a rebalancing in the region, with potential for new alliances to emerge.
The impact of the new U.S. administration on developments in these conflict-exposed territories is also likely to be considerable. While it is still early in this administration, there are clear signs that the approach to security threats in the region could become increasingly robust.
Taking a Measured Approach
Against this volatile backdrop, the PV insurance market is finely balanced, with growing demand for cover in regions exposed to political unrest in neighbouring territories, and a market responding with greater appetite and new entrants, whilst still maintaining a stringent underwriting approach. A large proportion of business underwritten across the market focuses on insureds located in stable, financially robust countries with proximity-related exposure. However, an uptick in underwriting activity in more volatile countries is also being witnessed.
Ensuring rate adequacy and a strict approach to terms and conditions is essential to preserve the stability of the PV market in the region. It’s important that critical policy structures, such as the requirement for contingent business interruption cover, don’t become eroded as the competitiveness of marketplace persists. Brokers are also playing an important role in promoting the value of PV cover across MEA, and this collaboration between insurers and brokers remains essential for responding most effectively to insureds’ challenges and opportunities in the region.
As dynamics continue to evolve across the MEA geopolitical landscape, having a focused underwriting approach according to the market cycle, regional experience, along with an in-depth understanding of clients’ risk exposures are critical to support the development and growth of the PV insurance market but also to ensure its long-term stability.