Businesses should factor terrorism insurance

Terrorism in Africa has become a reality that businesses have to consider in their risk planning. The crime has become globalised with terrorists adopting a cross-border operation model.

In terrorism risk planning, it does not matter the size of the business. This is evidenced by the attack on Westgate Shopping Mall in Kenya where even delivery vehicles for micro, small and medium enterprises suffered the collateral damage when the building was bombed to flush out the Al Shabaab terrorists.

Personal assets were also damaged but luckily some insurers offered a relief to the asset owners who had not embedded terrorism cover in their main insurance by offering compensation for losses.

Terrorist groups like Al Shabaab of Somalia have now succeeded in creating active and semi active cells in countries like Kenya, Uganda, Tanzania, and Ethiopia.

Boko Haram in Nigeria has meanwhile extended its operations into Cameroon.  In North Africa, several Al Qaeda affiliated terrorist groups are at play while in Central Africa region, rag-tag armies and groups like Lord’s Resistance Army are active across several countries.

One of the weaknesses of African countries in fighting terrorism is their inability to indentify and cut financing links to terrorists. A good example is Boko Haram whose leader is often broadcast speaking in front of military tanks and displaying sophisticated weapons.

In Somalia, the Al Shabaab is still able to secure military hardware supplies despite the presence of the African Union peacekeeping force there. Then there is the challenge of porous borders and lack of enough manpower and low investment in technology to monitor the unmanned border areas.

What this means is that terrorists are likely to continue using these advantages to increase their influence across the continent if countries do not take immediate measures to invest heavily in anti-terrorism measures.

Sadly, this is happening at a time when Africa is working harder to increase intra-regional trade, with new protocols allowing for free movement of goods, services and people across the borders.

This means more businesses in Africa are exposed to terrorism either in their countries of origin or in countries that they are likely to be doing business in.

To mitigate on these risks, it is crucial therefore that terrorism insurance becomes part and parcel of business risk planning for businesses in the continent.

There is increasing number of insurance companies that today offer terrorism insurance cover. In other countries, capacity for insurers to cover risk is still being developed.

But the important news is that Pan-African reinsurance companies like ZEP-RE and others have redeveloped a bigger capacity to offer reinsurance services on terrorism risks.

The advantage of home-grown companies offering this reinsurance risk is that they have the local knowledge which then becomes important in guiding the insurance companies on design of the most appropriate and well priced terrorism insurance covers.

But the role of providing effective terrorism insurance should not be left to the private sector alone. There is need for some form of participation as happens in Britain, France, Israel and South Africa

Unlike most natural catastrophes that occur where such activity can be expected, say, the risk located within the vicinity of say the Rift Valley, the exposure to the earthquake is significantly higher, there is no such prediction model for terrorism.

There is no scientific data and past events history available to help model the future. This makes it a big challenge to appropriately predict the risk of terrorism and therefore develop appropriately priced cover.

In the United Kingdom for instance, surplus funds from compensation of a terrorism event is used to build up reserves through purchase of Catastrophe Bonds. Once the reserves are exhausted upon payment of claims, the Government would make funds available to pay further clams.

In France, the State is the Reinsurer of last resort. The Reinsurers (Pool Members) provide first layer of cover worth US$2.3 billion and this act as the industry’s retention. Above this, the French state provides unlimited layer.

In the United States, each insurer has a deductible of 20% of their earned premiums. Insurers can then recover 85% of their losses from Government, assuming the event is certified. Aggregate limit of all losses is US$. 100billion.

It is time that African governments worked with local reinsurance and reinsurance companies to find means of addressing the growing risk of terrorism and its threat to businesses.

KENNETH OBALLA