Amid geopolitical turmoil and an unprecedented election year, insurers are reassessing their coverage strategies in response to the heightened risk of civil commotion, war and cyber threats, according to experts.

“For example, is it still appropriate to offer unnamed contingent business interruption coverage under a war policy?” said Tim Strong, head of crisis management at Aspen Insurance, referring to CBI that provides coverage if a third party that isn’t named in the policy has a loss impacting the insured’s business activities or supply chain.

“What happens if the insured has a supply chain that includes semiconductors made in Taiwan or Israel?” he said. “Recent geopolitical events have prompted underwriters to reconsider some of the expansions of coverage that were a product of the soft market years.”

U.S. policy institute The Center for American Progress reported that globally, more than two billion voters in 50 countries will go to the polls. In the U.S. alone, more than 160 million Americans are registered to vote in the November 5 presidential election, according to the World Economic Forum. Rising political tensions surrounding these global elections, coupled with ongoing conflicts in places like Ukraine and Israel, have led to mounting concerns of unrest and what it means for insurers.

“Elections and transitions of power can oftentimes lead to civil unrest and increased geopolitical risk,” said Matt Westhoff, head of North American Commercial Property at Beazley. “You add in the fact that we have two wars happening right now in the Middle East and what’s going on in Ukraine, and I think, broadly speaking, the world is a riskier place than it was four years ago. So, I think it’s very important we’re having this conversation. We want our clients and brokers to understand the risks and be prepared as best as possible.”

Strikes, Riots and Civil Commotion

In the property world, Westhoff said the conversation has been dominated recently by climate risk, inflation, increasing reinsurance costs and other risks.

“So, with this strikes, riots and civil commotion piece of the policy, oftentimes, we start at the bottom of the conversation,” he said. “Not that those other things aren’t important, because they’re so very important, but this topic needs to be discussed.”

Typical homeowners and renters policies, as well as commercial property insurance, cover damage caused by riots and civil commotion. However, exclusions may exist, which has led to more conversation about carving out strikes, riots and civil commotion as a standalone policy.

“I think, broadly speaking, the world is a riskier place than it was four years ago. So, I think it’s very important we’re having this conversation. We want our clients and brokers to understand the risks and be prepared as best as possible.”

Matt Westhoff, Beazley

“I think right now, the property market, broadly speaking, is still a good place to get coverage for SRCC, but for your higher-risk clients, the standalone market certainly is there for you,” Westhoff said.

However, others see standalone coverage as the way forward for SRCC risks.

“Personally, I believe SRCC risks should be housed in the standalone, specialty market and not within property all-risk policies,” Strong said. “A standalone SRCC solution brings greater value to the client, as the coverage can be tailored to the insured’s specific needs and risk profiles.”

He added that the standalone SRCC market can offer access to advisory services and post-incident support and response via third-party security consultants who have relationships with specialty insurers.

“In terms of industry trends, the approach varies by region and client type,” he said. “Following a costly SRCC event in a specific country, property carriers tend to exclude SRCC and shift exposure to the specialty markets. However, when market conditions soften, carriers often revert to including SRCC in their all-risks forms to differentiate their offerings. Nevertheless, many clients find value in a standalone solution and seek to maintain those partnerships regardless of the coverage offered in their property policies.”

Another point of dissention for insurers regarding SRCC coverage is how the losses are actually defined and whether they can aggregate, Strong said.

“The key for us is to be proactive rather than reactive. If you’re looking at your portfolio at this point in May before the U.S. election, for example, it’s already too late to make fundamental changes to what you’re doing.”

Tom Lewis, Aspen Insurance

“While there is no single, uniform definition for an SRCC event, some event definitions in reinsurance or retro contracts may have time or distance considerations,” he said. “For example, if there is widespread civil unrest in the U.S. around the presidential election, how would this be considered in terms of an event or a number of events? One could argue that all unrest linked to an election has been triggered by the same proximate cause, however, insurers may find that the language in their reinsurance or retro contracts considers these to be multiple events, and therefore, multiple net retentions.”

He said improvements in SRCC modeling can help insurers gain better insight into their net retentions for these scenarios, but more work still needs to be done in this space. (Related article, “TEASE TO LISA’s article whether online or in magazine)

“We’re seeing a heightened awareness from leadership teams around how costly SRCC events can be and, with 2024 being a key year for elections along with other emerging geopolitical risks, it’s only natural that this issue is currently a talking point,” he said.

Westhoff said insurers should be preparing for starting conversations with brokers about how coverage is triggered in an SRCC event and what their retention levels are.

“We should be setting our risk appetite and risk tolerance appropriately for that, and we should be working with our brokers and our insurers to educate them on what the risks are, what to do if an event happens, and how to react,” he said. “Not all of these policies are created equal. It’s very important for people to understand the terms and conditions.”

“There are a variety of reasons that can motivate an individual or group to launch a cyber attack. “Political ideologies are one of them.”

John Farley, Gallagher

Deadly Weapons

Lucy Straker, U.S. focus group leader for political violence and deadly weapons at Beazley, added that it’s not just SRCC coverage insurers should be thinking about. Newer coverage areas, such as deadly weapons coverage, should also be part of the conversation.

“That’s going to go far beyond what a traditional insurance product offers, and ultimately, it gives you advice and support in the face of violence—whether that’s before, during or after something happens,” she said. “That’s one of the products that we’ve seen emerging over the past five years, and especially growing in the face of an election super year.”

Deadly weapons coverage can be triggered by the brandishing of a weapon, she said, which means physical damage or bodily injury doesn’t necessarily have to be present. Brandishing a weapon with intent could be enough to trigger the policy. (Editor’s Note: In addition to prevention and crisis management services, deadly weapons protection may include liability coverage for lawsuits arising from harm caused by deadly weapons attacks, physical damage coverage and business interruption coverage)

“Arguably, every single client should be purchasing that,” she said. “Our clients tend to think of assets as their physical assets, and that’s where we speak about the difference between potentially traditional insurance options and newer products such as the deadly weapon protection assets. If you’re running a business, it’s also going to be your people, your brand and your reputation. And so, it’s important to make sure you’re looking at everything holistically and protecting all of those assets.”

Cyber Risk

Another coverage area that insurers are rethinking in the face of global conflict is cyber, said John Farley, managing director of the cyber practice at Gallagher.

“There are a variety of reasons that can motivate an individual or group to launch a cyber attack,” he said. “Political ideologies are one of them.”

Kellam Radford, senior vice president and national programs underwriting leader at DOXA Insurance, agreed.

“The U.S. itself is going through a polarized election cycle, with historically low levels of confidence in the political process,” he said. “This makes the democratic process more vulnerable, especially where outcomes are predicted to be close…This is where the [cyber] risk will likely be greatest.”

Farley said insurers and those purchasing cyber policies need to be mindful of how a policy will or will not respond in certain cases.

“Is there a war exclusion?” he said. “How broad or narrow is the wording of that exclusion? Do you have contingent business interruption coverage? If so, are you subject to a sublimit?”

Additionally, when cyber defense resources are focused on protecting the election process and averting any potential civil unrest or terrorist activity, commercially oriented and opportunistic attacks can occur, Radford said.

“Three main goals of any conflict are to control the narrative around the event, ensure the flow of capital to fund activities, and minimize any owned supply chain disruptions while maximizing disruptions to the other side,” he said. “All three of these goals create opportunities for cybercrime.”

Because cybercrime is most likely regionalized to areas of conflict and associated with the physical movement of goods and flow of capital around associated supply chains, Radford said the exposure for carriers and businesses depends on where they are doing business, although there is always potential for damage and losses beyond areas of conflict.

“From an insured loss standpoint, I’m not aware of any major change in claims because of these conflicts, although the covert nature and sophistication of these activities can make them hard to detect,” he said.

Although cyber policies have always included war exclusions, he said recent initiatives separating cyber and traditional wars with enhanced cyber war exclusions have prompted U.S. domestic markets to rethink their own exclusionary language.

“While this language makes it clearer as what constitutes a legitimate claim, given the covert nature of nation states, it can increase the likelihood that more claims can become disputed,” he said. “I’m hearing there has definitely been some pushback around this.”

Other concerns, such as supply chain issues and ransomware, are ongoing and likely to continue impacting cyber policies, he said.

“Cyber policies often offer contingent business interruption, and my belief is demand for coverage for this type of exposure will continue to increase. So, many carriers are likely exploring their coverage offering, perhaps with a sublimit,” he said. “If geopolitical events drive up ransomware and other insurance losses and rates can’t adjust, that could also drive carriers to try and impose more coinsurance, which we’ve seen in the past.”

One of the biggest challenges with the cyber risk landscape, Radford said, is that it’s always evolving. This makes it difficult for underwriters to quantify and price risk based on historical events and subjective assessments of the data.

“This is where models will increasingly come into play to help underwriters harness data to predict organizational vulnerabilities and their associated economic impacts more objectively to better determine the underwriting tolerance and pricing of risks,” he said. “Unlike other lines, cyber does not adhere to more standardized policy language. Coupled with the ability to better model individual risks, this will create more flexibility for underwriters to tailor policies toward specific client needs and exposures.”

Proactive vs. Reactive

Whether it’s SRCC, cyber or war coverage, Tom Lewis, crisis management senior underwriter at Aspen Insurance, said the key for insurers in navigating the impact of global conflict and an unprecedented election year is to remain proactive.

“If you’re looking at your portfolio at this point in May before the U.S. election, for example, it’s already too late to make fundamental changes to what you’re doing,” he said. “So, if you want to significantly change your portfolio, you have to be looking almost 12 months in advance.”

He said Aspen does this by examining key indicators in its business areas to determine whether a certain country is likely to have civil unrest in the near future and assess that alongside aggregations.

“We absolutely make use of external political risk consultants as, fundamentally, we see risks across the entire globe, and it’s very difficult to keep up with events everywhere,” he said. “We try to encourage cross-product-line discussion. The standalone market is not the only team within insurance companies that has this kind of exposure, so stimulating conversations between product lines is really important to make sure that we’re speaking with one message and operating to the same strategy.”