Analysts: Egypt Crisis’ Impact On Insurance
Multi-national companies must begin re-assessing the adequacy of their insurance coverage — much of it channeled through Bermuda firms – in the wake of political unrest in Tunisia and Egypt, according to analysts at Marsh and Aon.
Companies investing, manufacturing, and trading in emerging markets are increasingly realising they face a more complex geo-political risk landscape says political risk advisor Marsh, a subsidiary of the Marsh & McLennan Companies headed by Bermudian re/insurer Brian Duperreault.
Bermuda headquartered re/insurers Ace and Axis are already expected to face major political risk claims as a result of protests in Egypt which have rocked both the regime of President Hosni Mubarak and world financial markets. And Bermuda-based Aspen is also believed to have substantial exposure in the Egyptian market. Among the major corporations doing significant business in Egypt are Boeing, Lockheed Martin and the energy exploration firm Apache Corporation, which has invested $7 billion in the country in recent years.
And while analysts say it is too early to predict whether the uprising in Tunisia and ongoing anti-regime protests sweeping in Egypt will have an across-the-board impact on Bermuda re/insurers specialising in political risk and terrorism coverage, the popular uprising underscores an urgent need for companies doing business in potentially unstable countries to reexamine their insurance needs and political risk arrangements.
As recent events in both Tunisia and Egypt demonstrate, instances of political violence can occur with little warning in countries previously considered relatively stable. Commenting on recent developments, Evan Freely, global head of Marsh’s political risk practice, said: “We have already seen companies across a number of industries affected by acts of political violence in Egypt, including those in the oil and gas, hospitality, and real estate sectors as well as professional services firms and financial institutions. Affected companies should be gathering as much information as possible to prepare for the claims process.
“These incidents in Egypt should cause every company with operations in emerging markets to re-evaluate the adequacy of their risk management strategies. Companies need to have plans in place that can protect both colleagues and strategic assets.”
Companies with operations in countries affected by political unrest face losses from risks such as business interruption, theft of and damage to property, threats to contract for both purchase and supply, late payments—potentially impairing cash flow—and the need to evacuate employees.
“Some buyers of terrorism insurance have found themselves without cover following civil disturbances, like those in Thailand last year, because of disagreements about whether certain events were acts of terrorism or political violence,” said Mr. Freely. “Companies need to make sure that they have insurance coverage for a broad range of perils, reducing uncertainty that can be caused over the classification of an event.”
Beverley Marsden at global consultancy firm Aon — which recently upped Bermuda’s political risk level — said: “From a political risk point of view it is too early to say whether the events in Egypt will lead to losses in the insurance market. Global confiscation policies may include political violence cover and rioting and looting may impact assets covered under such policies.
“We cannot advise at this stage on the extent to which this has happened. Shutting down the internet or mobile networks would not necessarily generate claims as such action is likely to be short term – plus government contracts with mobile telecoms providers may well give the government the right to shut down networks for reasons of national security.
“We are all watching of course what happens to the Egyptian government. Whatever political system emerges will likely have medium term implications on Political Risk. Right now the market can only look at their exposures and monitor the situation as it unfolds”
Justin Priestley, head of Aon’s Crisis Consulting team, added: “Whilst the long term impact on political risk is not yet clear, a more immediate concern for companies is the safety of their people. What’s going on in Egypt highlights the need for organisations to have plans and procedures in place to protect both in-country workers and travelling personnel from getting caught up in violent clashes of this kind.
“Situations like this can blow up very quickly – and in places that have traditionally been considered ‘safe’. Organisations need to have robust travel risk management and incident response mechanisms to ensure that they are doing everything possible to protect their employees and keep them informed”.
