13 February, 2019 Insurance
In the wake of the 15 January 2019 al Shabaab terror attack on the dusitD2 hotel and business complex where 21 people died and at least 30 were wounded, Muir Analytics wanted to know more about the terrorism insurance market in Kenya. We reached out to Mr. Souvik Banerjea, Managing Director of Continental Re in Nairobi, for his expert insights. Here’s what he told us in this exclusive interview.
Muir Analytics: How do hotels and resorts get terrorism insurance in Kenya? What’s the typical route?
Mr. Banerjea: The insurance market in Kenya is broker-driven. Typically, the client will approach their insurance broker, who in turn will approach one or more insurance companies for the same. Again, the insurers shall usually approach a reinsurer who will provide the actual terms, and we go all the way down back to the client.
Muir Analytics: And do these terrorism policies cover war and political violence, too? Or are they different?
Mr. Banerjea: Yes, War/Civil War can be covered. Political Violence is an integral part of most of these policies. We really do not have much uptake on policies that cover only Terrorism and Sabotage. Interestingly, in Kenya, there is poor uptake on War/Civil War covers, whereas the situation is very different in Uganda.
Muir Analytics: Am I correct to say that terrorism policies for Kenya also cover violent crime, such as a criminal gang bursting into a hotel or retail store and shooting the place up for a robbery, for example?
Mr. Banerjea: No, violent crime would ordinarily fall into the category of Burglary. Having said that, there is usually not much evidence that will prove/disprove the causa proxima – was it an incident of violence for purposes of burglary only, or for a larger purpose that is related to terrorism? Hence, clients prefer to take up, a) Fire and Allied Perils Insurance, which includes burglary, and, b) Terrorism and Political Violence Insurance. Together, these two policies would possibly leave no gray areas, and all incidents of this nature would be covered by insurance.
Muir Analytics: Does the Kenyan government provide terrorism insurance like the UK’s POOL RE?
Mr. Banerjea: No, the Kenyan Government provides no insurance backup, whatsoever.
Muir Analytics: So, at what point does stand-alone terrorism (excess lines) apply in Kenya?
Mr. Banerjea: Sums Insured in Kenya for the hotel industry are almost tiny compared to those in the US. Here, we possibly have just about 20-odd risks that will reach the USD $100 million mark. The concept of applying excess lines really does not apply. Most terrorism insurances are on a proportionate basis, with reinsurers sharing the fortunes of the original insurer. Even deductibles are low, usually not exceeding USD $50,000.
Muir Analytics: Is the take up rate for terrorism insurance in Kenya high or low?
Mr. Banerjea: Take-up rate is terribly low, primarily due to, a) High premium rates for terrorism insurance, b) Lack of Governmental initiatives, and, c) Lack of any Terrorism Pool. All three above are actually inter-related. Let me elaborate.
Possibly less than 10% of all industrial risks in Kenya are covered under Terrorism Insurance. Pre-2007, this was less than 1%! One of the chief factors that contributes to this is high premium rates. In fact, the client in Kenya can expect to pay a premium equal to their Fire Insurance policy for Terrorism Insurance! The high premium rates are driven not so much by the exposure rating, as much as it is driven by poor uptake of Terrorism Insurance! So, it is a Catch-22 situation.
In countries like South Africa and Namibia, where the governments have taken initiatives to set up Pools for Terrorism Insurance, premium rates are less than one-tenth that in Kenya. In an ideal situation, Terrorism would be part and parcel of every insurance policy that covers Property and Human Life. This is not the case in Kenya.
Uptake of Terrorism covers is also a factor of poor liquidity and cash crunch. In every cost-cutting exercise of a corporate body, insurance comes up as a first casualty. Post Westgate [the ultra-violent Westgate shopping mall terror attack by al Shabaab in 2013], most Motor policies are now covered for Terrorism, this has changed the total premium volume for this product, significantly.
Muir Analytics: Who in Kenya buys the most terrorism coverage? Big, international business? Big, Kenya-based companies? Small companies? Urban or rural?
Mr. Banerjea: Big, international business: Yes, but there are so few of them here! Further, the ones that exist are mostly in trading, rather than in manufacturing. Hotel chains usually have terrorism policies for the Group as a whole, with high excess points, and the local entity may purchase a deductible buy-down.
Big, Kenya-based companies: A big company would be more likely to take up this insurance compared to smaller companies, who find it unaffordable.
Small Companies: We do see a presence of these in the risk registers, but compared to all those who have Fire Insurance policies, less than 10% would have coverage for Terrorism.
Urban or Rural: Rural, possibly never.
Muir Analytics: Do hotels and resorts in Kenya secure a lot, or a little, or not much terrorism insurance?
Mr. Banerjea: Kenya has witnessed a number of terrorism incidents targeted at hotels; the Norfolk Hotel attack in 1980 was an eye opener. Following this, many hotel chains had taken up insurance policies, mostly written directly by overseas insurers. It was only post 2007, following the post-election violence here, that the local insurance industry woke up to the huge potential of this product.
Muir Analytics: What terrorism underwriters are the biggest for Kenya?
Mr. Banerjea: Let me put it this way. Retentions of insurance companies being so low in Kenya, more than 90% of the total premiums written here go to either Lloyd’s or Swiss Re.
Muir Analytics: What terrorism brokers are the biggest for Kenya?
Mr. Banerjea: Pre-2007, the international brokers like Marsh, Guy Carp etc., would take out most of the terrorism business into the Continental market. After the post-election violence, list insurance companies and brokers woke up to this huge untapped market, and now, virtually every broker has a portfolio of this business, in equal proportion to their total Property portfolio.
Muir Analytics: Is London the center of gravity for terrorism coverage for Kenya? What about Bermuda?
Mr. Banerjea: London has traditionally been very close to the Insurance market here. Bermuda based reinsurers have virtually no presence in Kenya; I personally have not seen them being reflected in treaties of insurance companies.
Muir Analytics: Is there any non-sensitive information that can be revealed regarding terrorism insurance and the Dusit attack?
Mr. Banerjea: Uh, no estimates have been released yet, I am afraid. Investigations are still on. Having said that, we expect that the Business Interruption component of the loss would be significantly lower than in the Westgate incident, as most businesses have already re-opened in the complex.
Muir Analytics: How has the Dusit attack impacted terrorism insurance in Kenya? Is there a difference in before and after, as in terrorism coverage (uptake) dropped off a few years after Westgate, and now it’s picking back up because of the Dusit attack? Or has uptake been continually high since Westgate?
Mr. Banerjea: I think Kenya has taken the Dusit attack in her stride. There was very little disruption in daily life following this attack, and the location was swiftly sanitized. The response of security teams appears to have improved in a significant measure. So far, while there is obviously more consciousness of the potential terror threat, the uptake of insurance does not appear to have picked up.
Muir Analytics: I know there have been a lot of small attacks in northern Kenya by al Shabaab on a semi-regular basis, and I’m wondering if this has had an impact on insurance companies’ perceptions of terrorism risk in Kenya. What’s your take?
Mr. Banerjea: Unfortunately, most of rural Kenya seems to be out of the ambit of insurance. The only place it has made a difference is in London where the threat perception for Kenya increases with every attack.
Muir Analytics: What about the impact of the Dusit attack on premiums? Will they go higher or stay the same?
Mr. Banerjea: The market had been softening for the past two years. This could prevent the slide. Having said that, the competitive pressures on premium rates are high, and I for one do not see hardening of the rates immediately. Underwriters would also have been gratified to notice the improvement in security response to the incident, which has prevented this from escalating into a major loss.
Muir Analytics: In your opinion, is terrorism coverage globally behind the curve and still reacting to events after they happen, or is there evidence of proactive coverage? Any trends for Kenya?
Mr. Banerjea: There is possibly no country or territory where the ugly face of terror has not reared its head. Hence, all coverage is necessarily reactive. In Kenya and in Eastern Africa, where industries work on poor margins, and there is lack of liquidity, most insurance coverage, not just for terrorism, is reactive!
Muir Analytics: Does the terrorism insurance sector for Kenya and East Africa rely on robust and well-done research and intelligence to calculate risks, process underwriting, and to designate the exact wording that goes into policies, or is it still based on general assessments of the threat.
Mr. Banerjea: Risk calculation, I fear, is at a minimum. Underwriters have preferred to skim the market rather than ‘underwrite’, which is also the reason for the poor uptake. Having said that, obviously one needs to have built a premium reserve from whence to pay off a claim, and the reserves are simply not available with local underwriters. There have been efforts in segregating risks based on location within Nairobi, determining exposures based on blast radii, but at the end of the day, premium rates are still too high for sustainable insurance.
On the issue of wordings, I would refer you to the answer in Q 3. Following the post-election violence in 2007, a number of underwriters from insurance and reinsurance got together to decide on which coverage was most suited, that would reduce the gray areas, and we zeroed in on a particular wording which provided maximum breadth of coverage.
Muir Analytics: Are there any other issues you’d like to address?
Mr. Banerjea: There have been a few attempts at setting up a Pool for Terrorism, but the efforts petered off due to lack of unity among the insurance companies, and lack of any direction from the Government. We have been shouting from the rooftops about this necessity, which is the only way of cutting through the Gordian Knot, and bring the fruits of insurance to the entire insuring public.
Muir Analytics: Is there any angle regarding terrorism insurance from Continental-RE that you’d like to discuss?
Mr. Banerjea: Continental Re today offers a large capacity but this is not fully utilized due to low uptake from industries. We are contributing our mite [small sum of money] towards educating the insuring public.
BIO: Mr. Souvik Banerjea is the Managing Director, Continental Re, Nairobi Subsidiary. Mr. Souvik’s career in insurance has spanned more than 30 years. He has gained his experience in the insurance industry in various organizations, namely, the New India Assurance in both India and Japan, the African Reinsurance Corporation, and the African Trade Insurance Agency where he worked since September 2011 up to the time of joining Continental Reinsurance in 2017. He holds a Master of Business Administration (MBA) from R.A. Podar Institute of Management, University of Rajasthan, India. He majored in Marketing Management, and minor electives were in Personnel Management. As a first degree, he undertook a Bachelor of Commerce (B. Com) at the University of Rajasthan, India. Mr. Banerjea is a Fellow of the Insurance Institute of India and has undertaken various professional programs with premier institutions like C.I.I., London, and National Insurance Academy, Pune.
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