by Tarique Nageer, Senior Vice President, Property Specialized Risk Group
A wave of demonstrations, protests, and acts of civil disobedience has swept through the Middle East and North Africa since December 2010, Dubbed “Arab Spring,” these events have unfolded at a rapid pace: we have seen unrest in Algeria, Egypt, Libya, Jordan, Pakistan, Bahrain, Yemen, Syria, Tunisia, Oman and Saudi Arabia.
Considered the catalyst of Arab Spring, the Tunisian Revolution started in December 2010 with demonstrations caused in part by rising consumer prices, high unemployment, government corruption, and a lack of freedom of speech and political freedom. A four-week long series of dramatic protests lead to the ousting of President Zine El Abidine Ben Ali in mid-January after 23 years in power.
The Egyptian revolution in early 2011 was arguably the most publicized. It began in late January as a series of protests and demonstrations; thousands gathered in Cairo’s Tahrir Square demanding change. On February 11, 2011, Egyptian President Mubarak resigned after nearly three weeks of massive protests, ending his 30 year reign.
Calls for the ousting of Libyan leader Muammar al-Gaddafi—and his staunch refusal to step down—initiated a civil war in Libya. Gaddafi, who rose to power in a 1969 military coup, continues to fight rebels and has vowed to die a “martyr.” The United Nations imposed sanctions against the embattled regime, soldiers continue to defect from the Libyan army, and NATO forces are escalating assaults, leading some to speculate Gaddafi is likely to be removed from power in the near future.
In Yemen, conflict began early in the year with protests against government corruption, unemployment, and a government proposal to modify Yemen's constitution. A deal mediated by the Gulf Cooperation Council (GCC) called for President Ali Abdullah Saleh to step down, variations of which he initially agreed to sign before backing out. As a result, protests gathered strength and violence broke out in many cities across the country. The situation continues to evolve and remains extremely volatile.
The citizens of Syria are also making their presence felt. Since mid-January 2011, Syrians have staged ongoing acts of civil disobedience, including hunger strikes and protests. The government has responded with violence, killing hundreds of protestors and injuring scores more. Despite the army’s engagement, protests continue.
The social, political, and economic ramifications of these events will be felt for some time to come. The situation is fast-evolving and affects many countries in the Middle East and North Africa; businesses need to prepare for both the short-term likelihoods and the longer-term possibilities. Companies with operations in the Middle East may face losses from threats such as business interruption, theft of and damage to property, disruption to contracts for both purchase and supply, late payments that potentially impair cash flow, and the need to evacuate and/or relocate employees. There are a number of property and property-related insurance implications companies with exposures in the Middle East and North Africa need to consider.
Insurance Implications
Property Damage
Companies with locations in affected areas may experience damage to their physical property. These organizations should begin to gather as much information as possible to prepare for the claims process. Take steps to mitigate losses as far as is safe and practicable. It is important to capture the damage for record purposes (e.g., photographs, video, etc.) and maintain separate accounting codes to identify all costs associated with the damage. Once the situation stabilizes adjusting teams will be deployed on the ground to deal with losses on behalf of insurers.
Terrorism and Political Violence
We can expect a greater emphasis from insurers on monitoring and restricting their aggregate exposure to war and warlike events. This will directly influence the available terrorism and political violence capacity offered by insurers, which in turn may put upward pressure pricing.
Going forward, due diligence by insurers for countries where there have been political violence events will be amplified. Detailed business continuity plans (BCP) will be a necessity and terms and conditions can be expected to tighten with rates likely to increase for areas with higher perceived risk. Additionally, insurers may limit the number of days a quote will be valid: in some areas the window may shrink to 24 hours. This is a direct result of the fast moving nature of the Arab Spring events.
Most organizations have some sort of terrorism insurance, whether a standalone policy or embedded in their property programs. This coverage, however, may not be sufficient for companies with interests in developing or unstable regions. Terrorism coverage is often incorrectly perceived to cover all violent human acts resulting in property and business interruption loss. A loss must meet the terrorism definition under the policy in order for coverage to apply. Certain types of events are typically excluded from standalone terrorism contracts, including:
- strikes, riots, and civil commotion;
- war and civil war; and
- insurrection, revolution, rebellion, and coup d’état.
Exposures faced by companies in developing countries vary geographically and are not limited to “terrorism” as defined under most terrorism policies. For insurance purposes, such events may actually be considered “war,” civil war,” or another political violence peril. Companies with interests in the region should consider purchasing political violence insurance, either on a standalone basis or as part of a current terrorism program with a separate sublimit for political violence perils.
The standalone terrorism and political risk markets can offer broad political violence coverage to companies with locations in developing countries, including most Middle Eastern and North African countries. (Note: As is typical of insurance programs, restrictions may apply in certain countries until the current situation reaches its conclusion.) Political violence policies are designed to respond to a broader class of perils in developing countries than only terrorism and commonly provide the following coverage:
- sabotage;
- malicious damage;
- riots, strikes, or civil commotion;
- revolution;
- rebellion;
- insurrection; and/or
- war and civil war.
Combined political violence and terrorism programs are structured to coordinate with a company’s existing property policies, including any coverage under a property program for such perils as strikes, riots, and civil commotion or in-country pool terrorism schemes.
Supply Chain
The events in the Middle East may cause some organizations to experience a disruption in their supply chains. Organizations often have an inventory of thousands of suppliers and there may be hidden dependencies and vulnerabilities not previous identified or evaluated. While each supply chains is unique, there are a number of general measures all businesses should consider. These include:
- Prioritize key suppliers and evaluate the inherent risks
- Seek assurance from key suppliers over their own contingency plans
- Try to reduce reliance on single suppliers where possible
- Review and, if necessary, refresh internal contingency plans (i.e., identify alternative suppliers, increase stock levels or establish contractual relationships)
Immediate concerns for businesses with key suppliers in affected Middle East and North African countries:
- Seasonal goods and perishable goods need to assess the potential interruption to transportation arrangements
- Discuss contingency planning with air cargo handlers to understand what arrangements they have in place
- Review all affected supplier contractual agreements relating to the delivery of goods and services
Perhaps most importantly businesses should be involved in their supply chain. Understand the chain itself, its vulnerabilities, individual suppliers, and potential impacts from a disruption. Do not assume that everything will simply be okay, but be proactive in monitoring and managing each link in the chain.
Marsh has a range of experts that can help you understand and manage events associated with the ongoing situation in the Middle East. When faced with an actual crisis situation, Marsh can guide you and help to ensure that you are back in business as quickly as possible. Working with you, we can help you stay ahead of your risk issues and manage your recovery efforts.
For more information, please contact your local Marsh representative or: