Insurers offer cover for political, terrorism risks but no takers

The Association of Uganda Insurers said that interested members can offer the cover to help businesses remain afloat after major disasters. PHOTO | FILE 

By HALIMA ABDALLAH

In Summary

• With the exception of Burundi, all other East African countries have experienced terrorist attacks, with Kenya and Somalia shouldering the biggest burden in terms of frequency and magnitude.

Uganda insurers could soon cover political and terrorism risks in their policies.

At its meeting last month, the Association of Uganda Insurers said that interested members can offer the cover to help businesses remain afloat after major disasters.

The terrorism cover forms part of the association’s 2015 strategy to grow penetration particularly in untapped markets. The risk will be covered under the Political Violence, Terrorism and Sabotage Policy.

“The strategy is to educate the public that these covers are available and to encourage them to take them out so that when such a situation occurs, the insurance company is in a position to manage the losses that would arise,” said the association’s chief executive, Miriam Magala.

Terrorism is a global phenomenon that is fast spreading in East Africa. With the exception of Burundi, all other East African countries have experienced terrorist attacks, with Kenya and Somalia shouldering the biggest burden in terms of frequency and magnitude.

Three weeks ago, over 150 university students were massacred in Kenya when Al Shabaab terrorists attacked the Garissa University College in Garissa, 200km northeast of Nairobi.

Even so, the regulator, the Insurance Regulatory Authority (IRA) said that the demand for the cover is low.

“We have not seen such cover come up for approval, but as regulators we ask players to be innovative,” said Mariam Nalunkuuma, IRA spokesperson.

In spite of the optimism, the industry is caught in a dilemma: While it is an opportunity for the industry to penetrate the market, it comes with the risk of enormous claims that can cripple it.

“There will be an adjustment to premium. We shall also consider what losses should be covered,” said Magala.

However, she added, the amount to be paid would be subject to approval by the regulator. It is also expected that insurance companies will continue to receive support for re-insurance from the Africa Trade and Insurance Agency (ATI) to provide reinsurance for terrorism covers.

Already ATI has been providing reinsurance services to companies in respect to political violence risks, especially for traders. This helps to strengthen the capacities of insurers to pay.

Impact of terror

Before the September 11, 2001 terrorist attacks in the US, standard commercial insurance policies included terrorism coverage as part of the package, effectively free of charge. Today, terrorism, coverage is generally offered separately at a price that better reflects the current risk.

The impact of the terrorist attack of September 11, 2001 for example was substantial — producing insured losses of about $39.4 billion according to the Insurance Information Institute. Losses were paid out across many different lines of insurance, including property, business, interruption, aviation, workers’ compensation, life and liability.