Terrorism cover takes top priority for mall owners

Nakumatt Holdings, the anchor tenant of the now closed Westgate Mall, is among several businesses that suffered great financial losses after the terrorist attack on September 21 last year.

Luckily, for Nakumatt, their business was covered by Mayfair Insurance, that in January handed over the last instalment of a Sh1 billion compensation payout.

The money covered the loss of stock, furniture, fittings and fixtures, said Tushar Shah, chief executive Mayfair Insurance.

During the presentation, Atul Shah, the managing director Nakumatt Holdings, said that the amount paid would only cover 60 per cent of the losses incurred. However, the story would have been different had the business not been insured.

The attack highlighted why it is important for businesses to have terrorism cover.

A US State Department report published in April suggests that global terrorism rose by 43 per cent in 2013. The number of terrorist attacks in 2012 rose by 3,007 to 9,707 last year.

The report pegs the ballooning number of attacks on heightened activity by Al Qaeda subsidiaries around the globe.

Considering how susceptible to attack nations have become — and Kenya’s vulnerability given its current military involvement in Somalia — it would be naïve to rule out the possibility of more assaults in future.

READ: Westgate attack to cost insurers over Sh10bn in claims

Businesses have long insured against fire and a variety of industrial risks, and terrorism has now joined the list of unplanned occurrences that could result in heavy losses, disruption or even closure.

According to Insurance Regulatory Authority public relations officer Noella Mutinda, there has been a notable increase in the uptake of terrorism covers by businesses since attacks became widespread.

She says that while some insurers may offer stand-alone terrorism cover, others have it as part of an extended package where it’s lumped together with political violence risk and motor insurance.

Currently, only 20 insurers cover against terrorism but the numbers are set to increase following the latest spate of attacks and push by the government to bring more firms on board.

One firm that is already offering the service is Takaful Insurance. Its terrorism policy covers physical loss or damage to buildings and property therein, motor vehicles, goods in transit or other defined properties which belong to the insured or for which the insured is legally responsible.

Businesses in Nairobi and Mombasa are classified as high risk and their premiums are higher than for properties in areas like Kisumu, Meru or Nanyuki.

“The cost of purchasing terrorism cover depends on the risk exposure. It cost between 0.05 to 0.5 per cent of the property’s value depending on location, number of storeys, occupancy, businesses in the building or number of people frequenting the building,” said Takaful chief executive Hassan Bashir.

Africa Trade Insurance (ATI) Agency, one of the reinsurers of Westgate, also offers political violence, terrorism and sabotage cover.

The cover insures against business related losses such as interruption and any ensuing loss of profits or property and physical damage associated to a particular event.

“ATI acts primarily as a reinsurer through treaty programs and in Kenya, for instance, insurers such as UAP and Jubilee continue to participate in our treaty program, where we backstop the cover they offer to their clients,” said Souvik Banerjea, senior marketing officer.

The company also offers a direct (facultative) insurance cover to companies in all member countries, where the risk size exceeds the capacity of local providers.

Pricing for treaty programs are negotiated with the insurers while facultative covers are typically based on a percentage of the property value.

“We have a maximum acceptance on net account of $2.5 million (Sh21.2 million) for both treaty programs and facultative insurance covers – anything above this amount would require us to seek additional capacity from the Lloyd’s of London insurance market,” said Banerjea.

Growth

According to ATI, there have been increased enquiries from hotels, shopping malls and places where tourists frequent which has led to a gross exposure on the cover to increase by 47 per cent in 2013 over 2012.

Growth was also felt at Takaful Insurance.

“There have been increased awareness and inquiries, which shows that Kenyans are starting to appreciate the need to take this cover-and a number have taken it but there is room for growth,” said Bashir.

A lower volume in the uptake of the cover in eastern Africa is blamed for the high pricing.

Experts recommend that terrorism and political violence Insurance be made mandatory, at least in Kenya and Uganda, where the threat perception is high. But in order to realise it, government intervention is required to bring the many insurance companies together.

Lower rates for terrorism insurance are available in South and Southern Africa, because of the existence of South African Special Risks Insurance Association (SASRIA) and National Special Risks Insurance Association (NASRIA).

Setting up a terrorism pool in Kenya, would be the ideal way to progress matters, to bring more people into the insurance fold, to build volumes, and bring down the rates and make it affordable.