Insureds across Africa are choosing to co-insure rather than go without political, violence, terrorism (PVT) cover, according to a group of market specialists, in the wake of the South African riots last year and the Ukraine war.
Both those events have turned the PVT market from 15 years of soft conditions to a hardening market overnight, with capacity reducing and rates rising.
That was the conclusion of market experts who met as part of a roundtable discussion, hosted by Africa Speciality Risks (ASR) recently.
At the same time there has been a surge in demand, according to Linda Dayanand, executive head: operations at South Africa-based Emerald Risk Transfer, who said insureds were looking for more capacity from the commercial insurance sector as the state-operated pool Sasria withdrew some of its offerings.
However, Ms Dayanand said the demand for cover was being countered by reduced appetite among carriers, particularly for any risks with dangers of accumulation, such as retail parks and shopping centres.
“For these businesses we can find it hard to get even 50% of the cover required and so we are having some honest conversations with our clients about whether they are prepared to co-insure.”
Risks across Africa are expected to increase. Mikir Shah, CEO of ASR, pointed to upcoming elections in Kenya next month and in Nigeria later this year, as well as the fears of continuing tensions in South Africa.
However, Ryan Philips, managing director at Afro Asian Insurance Services, said there was a certain level of discomfort in telling African insureds that they were facing massive increase in rates and possibly reduced capacity, when there has yet to be an event in their market.
“It is hard to give insureds a logical explanation,” he said. “We all talk about improving insurance penetration across the continent but that is built on trust. It is hard to build trust when their business model hasn’t changed but the rates are going up 30% or even 50%.”
For Alex Reynolds, war and terrorism underwriter at Atrium, this is the first time he has experienced a hardening market in his career, but he believes it is important if the class is to remain sustainable.
“There have been a series of events which failed to turn the market: protests in Thailand, problems in Yemen and riots in Chile, as well as the riots in South Africa. But with the war in Ukraine, people have realised the market must turn.”
The group questioned whether the market should, in fact, have hardened in previous years, rather than waited for the shock of the Ukraine war, but for Mr Reynolds it is a case of better late than never and while he understands a 30% or 50% rate increase is a shock to clients, he says it remains essential if future claims are to be met sustainably.
He pointed to capacity that has left the market entirely and stressed that an unsustainable market would ultimately have led to more quitting the class and insureds facing an even tougher time in finding cover.
Michel Darcy, director, war and terrorism, political risks and trade credit division at Chedid Re, admitted that some smaller customers were choosing not to renew cover because of the escalating costs.
He said the market has shifted through recent renewals, but he predicted that it would be the 1 January renewals that would be the hardest and might result in the largest change in the market.
“Demand will depend on the geopolitical context,” he said, adding that it can fuel demand in regions that are remaining stable as well as in the “hotspots”, pointing to the large hotels in the UAE as an example of that.
Zouheb Azam, head of underwriting – political violence, war and terrorism at ASR, agreed there has been a surge in demand recently, with a flurry of enquiries from countries such as Mozambique. The challenge, he said, has been to convert those into policies as insureds baulk at the rising costs. Some, however, have returned to the conversation once they realise that there are limited options across the market.
Mr Reynolds agreed that there is a growing disparity between the demands of insureds and what is possible in the current market. A dose of realism, he said, is needed as the market changes. Mr Azam added: “A shift is needed. Historically, people were used to PVT being a very small fraction of the cost of the policy, but the world is changing and becoming a more dangerous place.
“There are also reinsurance costs to factor in. Maybe there was some naivety about the costs of PVT cover.”
However, some parts of the continent are experiencing a very different picture. Yinka Omilani, a director at Yoa Re, reported that aggressive competition among insurance players is dampening down any attempted price rise in the Nigerian market, despite the looming election causing the risk factors to rise.
“The number one enemy in our market is competition,” he told the group, adding that price remains an issue, despite the NoSARS protests in recent times. Mr Omilani explained that those protests, mostly in Lagos, had highlighted the exposure to PVT risks for many businesses but had not changed the market dynamic.
In fact, he said, some insurers had gone as far as paying claims that could have been avoided in the hope that it would create more awareness of the product and encourage future sales.
So far, he said, the results of that have been disappointing, with relatively few new sales. “Before NoSARS, not a single shopping centre had PVT cover in Nigeria. Now there are a handful, but it is still only a handful.”
The group questioned whether Lloyd’s would remain the global centre for PVT risks or whether it would face new competition itself. However, Mr Philips said the attraction of A-rated paper remains, making London a natural centre for these type of risks.
The danger, warned Victor Akisanya, director, energy at MNK Re, is that African risks are not well understood or get bundled into a global view, without taking local factors into consideration.
He cited the example of attacks carried out by Boko Haram. “I was told by London interests that a risk in Lagos was increased because of the Boko Haram threat. But anyone in Nigeria can tell you that those attacks are always in the north of the country and those terrorists don’t operate in Lagos.”
As Mr Omilani added: “The Boko Haran region is much closer to South Sudan than to Lagos.”
Mr Reynolds admitted that local knowledge was required, saying that post-Covid travel was essential to give underwriters a chance to get to know the areas personally and to understand regional differences to allow for more accurate underwriting.
However, it is not just a question of understanding on the part of the underwriters. There was also concern among the group that insureds do not fully understand how a PVT policy works and that runs the risk of disappointment when a claim is not valid.
The group around the table also considered whether a policy could, in effect, be dismantled, for example removing the war element but maintaining cover for strikes, civil commotion and riots. But the general consensus was the tinkering with policies in that way may save a few pennies at inception but cost a lot more in terms of damaged reputations if a policy then failed to deliver at the claims stage.
In all, the group agreed, there are some interesting months ahead in the PVT world and for African risks.
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