Strike and riot cover in high demand by SA corporates

Over the past two years, incidents of political violence, rioting, looting and civil unrest across Sub-Saharan Africa have grown both in frequency and severity, increasing demand for political violence and terrorism (PVT) cover. South Africa is no different; both corporates with operations here and those looking to expand into the rest of Africa are actively pursuing PVT insurance in a bid to mitigate this increasing risk.

In 2015, the Global Terrorism Index (GTI) reported that the worldwide economic cost of terrorism had reached its highest level since 2001, hitting $52.9 billion with a total economic impact of $105.8 billion. But just four years later, by 2019, this figure had fallen by 25% to $16.4 billion.

This was as a direct result of the changing nature of terrorism, which shifted from complex, large-scale attacks designed to cause mass destruction and mass casualties to low-complexity attacks that required little to no prior planning and were easier for single individuals to carry out.

However, post-2019, the landscape has changed again, and Africa in particular is beginning to experience a significant upswing in strikes, riots and political violence. Although terrorism remains an issue in markets like Mozambique, Mali, Niger and Nigeria, there has been a marked upturn in riot and civil commotion events.

In 2020, Côte d'Ivoire experienced severe election-related violence that left dozens dead, and while rioting erupted in Nigeria when the End SARS protests against police brutality turned violent. In South Africa, a racist advert on the Clicks website sparked violent protests by Economic Freedom Front (EFF) members that ultimately saw seven Clicks branches damaged and more than 400 stores closed.

In addition, civil wars began in both Cameroon and Ethiopia last year that continue to this day.

In 2021, violence broke out ahead of elections in Uganda, with Senegal also experiencing politically motivated rioting. The insurgency in northern Mozambique intensified and led to the town of Palma being overrun and occupied. For the first time since apartheid, South Africa was the scene of violent mass rioting, which escalated into excessive looting and destruction of property, and the deaths of more than 276 people.

South Africa was caught completely off guard by the scale and intensity of these riots, and the speed with which they spread. From a financial perspective, these were the most expensive riots to have taken place globally in the past 10 years over the course of a week, with the cost of the damages amounting to around $1.7 billion.

The South African Special Risk Insurance Association (SASRIA) is the only non-life insurer providing voluntary cover against risks such as civil commotion, public disorder, strikes, riots and terrorism to businesses, or government or corporate entities, with assets in South Africa. It is a state-owned entity and was founded in 1979.

In the past 10 years, SASRIA has only recorded losses in two years: 2019, which amounted to R72 million and 2022, where it has forecast a loss of R12.1 billion. This points to the increase in the need for PVT cover in recent years, and the escalating costs of claims being made against these policies.

Incidentally, SASRIA is seeking a capital injection from the government of around R4 billion to help it settle claims from the July unrest as well as meet capital requirements outlined by the regulator. The association has also confirmed it may require a further bailout to help it meet its obligations.

While the SASRIA coupon is expected to remain at the heart of PVT cover in South Africa, the role of private insurers that specialise in this cover and provide tailored PVT policies is more relevant now than ever before. Policies are often bought along-side the SASRIA coupon and/or in excess of the coupon.

There are four main insurance pillars in the PVT market, namely terrorism; strike, riot and civil commotion (SRCC); political violence; and war, including civil war.

These are covered under a number of different market standard policy wordings available in the market, each with their own intricacies and differences. The two widest wordings are the AFB 1-8 and the Hiscox 1-5 wordings, which cover everything from terrorism to war.

Often there are preferences to certain wordings over others in each country. For example, clients will more readily request Hiscox 1-5 cover in Francophone West Africa than the AFB 1-8. One of the reasons for this is that the Hiscox wording has been translated into French, making it a popular choice in this particular market. Conversely, it is more common to find AFB 1-8 wording in North African countries such as Egypt.

The perils gradually reduce across these market standard wordings, from all-out essential cover that protects against the traditional perils of sabotage and terrorism, to liability for bodily injury or property damage only as a direct result of terrorism. Where wordings only cover physical damage and do not have built-in business interruption clauses, business interruption extensions must be attached to the policies.

Wording preferences aside, it is critical that clients opting for PVT insurance place their business with insurers that understand the unique, and fast-changing, risk landscape, both here at home and within the other African countries they operate.

Such insurers can also benefit from partnering with reinsurance brokers that have an established presence in African markets, and a keen understanding of local market nuances, to ensure optimal cover for South African businesses with assets in these territories.

Going forward, the demand for PVT cover is expected to increase, as businesses continue to expand into Africa and come up against the lingering threat of terrorism and the turbulent socio-political environments on the continent.

We have just marked the 20th anniversary of 9/11 - the event that changed the insurance industry as well as the world we live in. Twenty years ago we saw the start of terrorism being withdrawn from property covers following substantial 9/11 related terrorism claims. Twenty years later, we are seeing SRCC perils being withdrawn from property covers following the global increase in SRCC claims.

While this is an opportunity for the standalone terrorism market, it comes at a time when some reinsurers are increasing their pricing, others are decreasing their lines to reduce exposure, and a few are refusing cover entirely in certain territories.

As a result, South African businesses are urged to do due diligence when choosing an insurer to cover their strike, riot and civil commotion risk, or to partner with a reinsurance broker with solid African experience in dealing with this steadily increasing threat.