3 July 2015, Original content: Hotel terrorism underwriting in East Africa – the same for North Africa in the wake of the Tunisia massacre?

04 July, 2015 Insurance

…with expert commentary by ATI’s Sherry Kennedy and Souvik Banerjea

 by Jeff Moore, PhD, with Tim Hill, 3 July 2015

(originally written in November 2014, slightly updated for June/July 2015)

With the devastating 26 June terror attack on the Riu Imperial Marhaba Hotel in Sousse, Tunisia, hotel terrorism insurance all over Africa – and in scores of other regions – will be a hot topic for the rest of the year, and probably beyond. Terrorist and insurgent activity in Africa over the past 24 months has reached an alarming crescendo. Even when military operations by French, Kenyan, and Nigerian forces have beaten back these belligerents, they’ve found ways to resurface and attack in other areas. Aside from holding back millions of capable Africans thirsting for socio-economic advancement, terrorism and insurgency are wreaking havoc on Africa’s multi-billion dollar tourism sector, putting hotel terrorism underwriters increasingly under the gun.

Terrorist and insurgent groups abound in Africa. Among multiple threats in the north, ISIS has gained ground in Libya. On 18 November, its forces seized Derna, a coastal town 140 miles from the Egyptian border. It now serves as an administrative center for ISIS complete with a legal court and militant training facilities. ISIS has an identical base in Raqqa, Syria, from where it spread to the rest of Syria and Iraq. Within Libya, ISIS has already launched violent and/or political warfare operations in Benghazi, al Bayda, Sirte, al-Khums, Tripoli, and Tobruk. ISIS claims it has in its ranks suicide bombers from Egypt and Tunisia, the indication being it could carry out operations in these and other countries. ISIS is expected to further expand in North Africa, and it’s already made inroads in Algeria.[1]

In West Africa, Nigeria’s Boko Haram keeps expanding, and its viciousness toward what it calls infidels isn’t abating. It continues to fight the government over various towns such as Mubi, a major commercial center.[2] On 16 November, Boko Haram sent a female suicide bomber to a mobile phone market in Azare. Her bomb killed 10 and wounded 60.[3] On 28 November, a suicide bomber detonated an explosive at the central mosque in Kano followed by gunmen spraying the congregation. The attack killed over 100 and wounded as many as 400.[4]

Cameroon’s 1,000-member Rapid Intervention Battalion, a border force, has engaged Boko Haram in combat on nearly a weekly basis throughout 2014-15 as the militants try to expand their caliphate beyond Nigeria’s borders. The invaders have mostly used light infantry attacks, but on occasion, they’ve used car bombs, and in one case, they attacked a military post with a tank.[5]

Saibou Issa of Cameroon’s Peace and Security Studies at the University of Maroua, says, “It is only a matter of time before Boko Haram launches a terror attack in Maroua. Then it will trigger a much bigger crisis.”[6]

In Kenya, Islamist jihadist militants linked to al Shabaab aren’t backing down, either. Radicals took to the streets at night on 17 November, stabbing and killing four as revenge over government raids on local mosques that detained 250 and uncovered jihadi flags, a pistol, ammunition, and several grenades.[7] On 22 November, jihadist fighters stopped a bus in Mandera county near the Somalia border, separated the Muslims from the non Muslims, and shot the latter, killing 28 in all.[8] After a continual stream of similar attacks in Kenya for over a year, and the terror attack on Westgate Mall in September 2013, the writing is clearly on the wall: Kenya has a low level insurgency on its hands, and civilians are on its hit list.

These conflicts (and others) are spilling over into neighboring countries, and civilian targeting has increased. Unfortunately, hotels are part of this targeting trend.

Since summer 2013, there’ve been multiple terror attacks on hotels in Africa. In October 2013, in Sousse, Tunisia, a suicide bomber tried to attack the Riadh Palms Hotel but was chased off down the beach by hotel security where his explosives detonated. In November 2013, gunmen in Libya carried out a drive by shooting on a political gathering at the Tibesti Hotel in Benghazi. Al Shabaab attacked the Jazeera Hotel in January 2014 to inaugurate its yearly offensive in Somalia.

Kenya saw multiple direct and indirect hotel attacks in 2013-2014. For example, in June 2014, terrorists – some say Al-Shabaab-linked and others say politically-linked – raided the rural Kenyan town of Mpeketoni with as many as 50 fighters that attacked not only locals’ houses and a police station, but also the Taweel Hotel, the Breeze View Guesthouse, and the Mtandao Guesthouse. There were also three attacks on more prominent hotels: the Diani Sea Lodge (indirect attack), the Safari Park Hotel (indirect attack), the Reef Hotel (direct attack).

Direct attacks are when terrorists intentionally target a hotel. Indirect attacks happen near hotels and cause slight physical damage and/or PR injury to the hotel. Both tactics impact revenues, physical security, and insurance.

Suffice to say, the terror threat in Africa is real, and terrorist targeting of hotels is a demonstrated fact. What, then, are the challenges in Africa’s hotel terrorism underwriting sector?

Sherry Kennedy of the African Trade Insurance Agency (ATI), an East Africa insurance agency, says, “Most of the insurers, and even reinsurers, based in Africa – with the exception of South Africa – are relatively small in size, with limited capacities for taking up large risks. Hence, a majority of the hotel risks in Africa get underwritten by the reinsurers in London.”[9]

Kennedy also says that getting people to pay attention to terrorism risks hasn’t been easy. “The threat perception from terrorist activities [in East Africa] was ruefully low, until Westgate happened. This in spite of the fact that reinsurers were virtually shouting from the rooftops about possible attacks, based on the threats issued by al-Shabaab following the Kenyan invasion of Somalia to flush out this terrorist group.”

The low threat perception, asserts Kennedy, caused a low uptake of terrorism insurance, but even today, with Westgate still on people’s minds and additional threats rising, the majority of hotels in East Africa are not insured for terrorism.

Aside from simply ignoring threats, price is also a factor. Says Kennedy, “The premium rates for terrorism covers prescribed by the London market for Kenya and Uganda, where there is relatively good uptake, are sometimes more than the rates paid for coverage of Fire and Allied Perils.”

ATI’s Chief Executive Officer, George Otieno, said in February 2014 that terrorism premiums – including hotel coverage – had increased as high as 20 percent since 2013. Kenya-based Heritage Insurance Co Ltd says that fighting in Somalia and South Sudan has caused African terrorism premiums to rise anywhere between 10-40 percent. Otieno moreover said sales of terrorism insurance policies had overtaken sales of political violence insurance policies. The Westgate raid was a primary mover behind this trend.[10]

ATI knows well the impacts of the Westgate attack. While Kenindia Assurance was the mall’s main insurer, ATI and Lloyd’s of London were its re-insurers. Total coverage from all entities was Sh 6.7 billion, or $74.3 million USD.[11]

As a result of premium increases, Kennedy says some hoteliers turn down terrorism coverage unless they perceive an imminent threat. This, in turn, causes a negative ripple effect. “It is actually a Catch-22 situation,” says Kennedy. “Unless we get more volumes, prices cannot be reduced, and unless prices are reduced, the volumes may not come in.”

Obviously, the impact of terrorism on tourism is also a major factor in purchasing terrorism coverage for hotels. Violence causes a drop in vacationers, which causes a drop in hotel revenues, which reduces hoteliers’ abilities to stay in business, which then reduces purchases of terrorism insurance. “Hotels find themselves seeking every possible way of cutting down costs,” says Kennedy, “and insurance uptake is one of the first casualties.”

Tourism in Kenya is down 24 percent from 2012, and some coastal resorts are suffering from a 70 percent drop in occupancy.[12]

A similar trend in North Africa post the 26 June Sousse massacre is expected.

In light of the increased threats, one would think that hotel insurers in Africa would be increasing their risk assessment capabilities with threat data and advanced analyses. But they’re not.

“At the level of the local insurance companies,” says Kennedy, “nothing much is being done to re-analyze the threats. However, as mentioned, Lloyds are currently underwriting most of these risks, and we know that they obtain a constant stream of intelligence, which helps them set pricing. The job of the local insurers is mostly to educate the clients on better systems and passing on information to reinsurers.”

And what about war and political violence insurance? Is this also a growing issue in Africa? Says Kennedy, “The uptake for Full PV cover (inclusive of War/Civil War) is low in Kenya, and relatively higher in Uganda.” She continues, “We have not witnessed much of an uptake from Tanzania or Zambia. Having said that, a number of Tanzanian hotel risks pass to overseas reinsurers without being seen by local insurance companies.”

The London market has not sat idly by and let the slack build up, however. It’s quite concerned about the uptick in violence in Africa and has forwarded security advice to hoteliers so they can better protect their staffs, patrons, and properties. “In many instances, says Kennedy, “premium rates have been reconsidered by the London reinsurers upon receipt of such information [security upgrades] from the local insurers.”

Looking forward, there are a number of measures that the hotel insurance sector – London included – might take to better manage risks. One is high-grade, hotel attack actuary data that can demonstrate intricate attack trends regarding timing, place, hotel type, and attack tactics – even how explosives are used by militants and where they are placed to achieve maximum effect. This type of specialized intelligence, fitting for specialized coverage, can help underwriters formulate more precise policies, coverage, and exclusions.

It can moreover add punch to London’s existing hotel security advice. Additionally, such data would help facilitate duty of care and possibly help defensive litigation efforts in messy court cases should tragedy occur – the latter of which severely injures insurers.

And that’s not all. Local political intelligence can help as well. Kennedy explains, “We must emphasize that local politics also appear to play a significant role in determining whether a particular property shall be targeted or not, hence underwriters need to consider local dynamics and factor that into their equations.”

But will the hotel terrorism underwriting community act? There is obvious room for improvement. Hotel attack actuary data and local political intelligence is key to more effective policy writing, and attack data and analyses can be used to help protect lives and property. Reliable African government insurance pools like the TRIA coverage in America would help, too.

Ultimately, however, it will be necessary for African governments to apply professional counter terror and counterinsurgency strategies to quell these militant groups, an elusive prospect at present. The Sousse hotel attack in Tunisia is proof of this. Until this happens, insurers, reinsurers, and private security services will have to bare the burden of risk reduction for this vulnerable industry.


Jeff Moore, PhD, is the CEO of Muir Analytics, LLC, which specializes in analyzing insurgency, terrorism, and other threats to corporations. He is also purveyor of SecureHotel.US, a hotel threat analysis product. His second book, The Thai Way of Counterinsurgency, was published in May 2014. Tim Hill is a top Muir Analytics team member on the SecureHotel.US project, a premium risk assessment product for the hotel industry.

[1] “ISIS comes to Libya,” CNN, 18 November 2014, http://edition.cnn.com/2014/11/18/world/isis-libya/index.html?hpt=hp_c1

[2] “Mubi Taken Back From Boko Haram’ Claims Government,” Crossmap, 19 November 2014, http://www.crossmap.com/news/nigeria-mubi-taken-back-from-boko-haram-claims-government-13941#ixzz3JdqvkGnE

[3] “Boko Haram: 10 killed, 60 Injured In Latest Bauchi Female Suicide Bombing,” Sahara Reporters, 16 November 2014, http://saharareporters.com/2014/11/16/boko-haram-10-killed-60-injured-latest-bauchi-female-suicide-bombing.

[4] “Nigeria unrest: Mosque attack death toll over 100,” BBC, 29 November 2014, http://www.bbc.com/news/world-africa-30256157, “Nigeria attack: Over 100 reportedly dead as bombs, gunmen target crowded mosque in city of Kano,” ABC News, 29 November 2014, http://www.abc.net.au/news/2014-11-29/bombs-gunfire-at-crowded-central-mosque-in-northern-nigeria/5927526

[5] “Cameroon under pressure from Boko Haram,” BBC, 18 November 2014, http://www.bbc.com/news/world-africa-30078626

[6] “Cameroon under pressure from Boko Haram,” BBC, 18 November 2014, http://www.bbc.com/news/world-africa-30078626

[7] “4 dead in Mombasa in aftermath of mosque raids,” Sabahi online, 18 November 2014, http://sabahionline.com/en_GB/articles/hoa/articles/newsbriefs/2014/11/18/newsbrief-01

[8] “Kenya bus attack: Al-Shabab ‘wants religious war’,” BBC, 22 November 2014, http://www.bbc.com/news/world-africa-30160199.

[9] Author interview by email, 13 November 2014. (all quotes here come from Kennedy and Banerjea.)

[10] “Terror insurance cost jumps 10pc as malls take cover,” Business Daily Africa, 25 February 2014, http://www.businessdailyafrica.com/Corporate-News/Terror-insurance-cost-jumps-10pc-as-malls-take-cover/-/539550/2222018/-/f1hqwo/-/index.html

[11] “Terror insurance cost jumps 10pc as malls take cover,” Business Daily Africa, 25 February 2014, http://www.businessdailyafrica.com/Corporate-News/Terror-insurance-cost-jumps-10pc-as-malls-take-cover/-/539550/2222018/-/f1hqwo/-/index.html

[12] “Kenya tourist arrivals fall 14 per cent over terror,” Business Daily Africa, 17 October 2014, http://www.businessdailyafrica.com/Corporate-News/Kenya-tourist-arrivals-fall-14-per-cent-over-terror/-/539550/2489342/-/s9fbanz/-/index.html.

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