Terror insurance cost jumps 10pc as malls take cover

Smoke rises from the Westgate shopping mall in Nairobi on September 23, 2013 after a terror attack. FILE 

In Summary

• Premiums have in the past five months increased by between 10 and 20 per cent as demand for terrorism cover has surpassed uptake of insurance against political violence.
• Higher premiums to increase the cost of doing business for many investors who have in the past five months bolstered their security detail.

By MUGAMBI MUTEGI
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Insurance companies have raised premium charges for terrorism cover by up to 20 per cent, loading an extra burden on firms that are anxious to protect their business from terror attacks.

Chief executive of African Trade Insurance Agency (ATI), George Otieno, said premiums have in the past five months increased by between 10 and 20 per cent as demand for terrorism cover has surpassed uptake of insurance against political violence.

The costlier premiums coincide with an increase in the number of policy holders taking out terrorism covers, since the September attack on Westgate Mall that left at least 67 people dead.

“Prior to Westgate, most people were just concerned about political violence risks in this category of insurance,” said Mr Otieno.

“We are seeing a greater uptake by hotels and shopping malls, not just in Kenya, but across the region in Uganda and Tanzania,” he added.

ATI was one of the re-insurers of Westgate Mall. The amount of premiums depend on the value of the property. Westgate mall was, for example, primarily insured by Kenindia Insurance and re-insured by Lloyd’s of London and the ATI for about Sh6.7 billion.

Individual claims by tenants amounting to Sh4.2 billion were expected to raise total claims to about Sh10 billion. This amount is equivalent to a third of the total industry payout in 2012.

READ: Westgate attack to cost insurers over Sh10bn in claims

Besides the higher insurance expense, businesses also have to deal with higher taxation by county governments and an increase in security costs incurred to safeguard their property.

ATI says the higher uptake has seen its gross exposure accrued in its political violence, terrorism and sabotage covers go up by 47 per cent between 2012 and 2013.

“Now they realise the risk of terrorism may be equal or even greater than political violence. As a result, we are seeing a greater uptake by hotels and shopping malls, not just in Kenya, but across the region.”

The insurers say frequent attacks by Al-Shabaab militia using grenades detonated in passenger service vehicles and places of worship have worsened Kenya’s terrorism risk ranking.

The unstable States of South Sudan and Somalia have also worsened the situation. Heritage Insurance estimates that terrorism premiums have increased by an even greater margin, of between 10 and 40 per cent.

“The ratings of terrorism is based on the property being insured, whether a school, shopping mall, vehicles and even its location,” said Joseph Kyungu the firm’s executive director.

READ: Westgate attack to raise cost of terror insurance

Mr Otieno now says that if the owners of Westgate Mall were to renew their terrorism cover, their annual premium would more or less remain unchanged.

However, new policy holders who own buildings with similar risk characteristics (and value) as Westgate Mall would have to part with more money.

The agency explained that fears about the possibility of violence in last years’ general election had pushed political violence premiums to unprecedented highs. These high rates served as a deterrent to many new policy holders who could not afford the rates.

“Westgate changed the perception of not only international insurers but also local policy holders, who may have put off taking up political violence cover during the last election because the prices were too high,” said Mr Otieno.

A higher insurance rate will only go to increase the cost of doing business for many investors who have in the past five months bolstered their security detail.