Evaluating Claims Costs Arising Out of Political Disorder and Civil Unrest

As insurers go global, they become more exposed to losses arising from political unrest and terrorist activity. Historically, while many of these exposures were excluded, there is increasing pressure to include them or provide alternative arrangements. Reinsurers are also taking a broader approach to coverages in this area. This paper discusses coverage issues and ways of estimating PML's, as well as the review of underlying conditions and capital requirements necessary to absorb catastrophe claims. This is done by considering the type of political unrest that is likely to arise in different territories and very, large claims or claims of a catastrophic nature. It also discusses techniques for evaluating both the frequency and severity of such claims. The paper also refers to other financing techniques of the way the reinsurance programmes may be structured to be cost effective in this area. Some other practical issues are also introduced. The paper builds on the authors' experience of working with a number of specialist companies operating in these types of areas.