Emerging risks and the insurance response

An Emerging risk from the insurance perspective, is an issue that is perceived to be potentially significant but which may not be fully understood or understood or allowed for in insurance terms and conditions, pricing, reserving and capital setting. A number of such issues are assuming increasing importance in East African region. Some of these are stated below;

1. Political Risks

Political insurance is a type of insurance that can be taken out of by business of any size against the risk of revolution or other political conditions which may result in a loss. such conditions include;

• Political violence
• Insurrection
• Civil unrest
• Terrorism
• War
• Government expropriation or confiscation of assets
• Government frustration or repudiation of contracts
• Wrongful calling of letter of credit or similar on – demand guarantees
• Inconvertibility of foreign currency or inability to repatriate funds

The precise scope of coverage is governed by the terms of insurance policy. Providers of political risks insurance include public agencies and private insurance companies. As there are a wide range of options available, the use of a specialized broker is highly recommended arranging this cover.

2. Terrorism Risks

Terrorism refers to the use of violence such as bombing, shooting etc. to obtain political demand. Example, the bombing of the American Embassies in Kenya and Tanzania, in 1998, and the recent bombing in Kampala. Terrorism insurance is purchased by property owner to cover their potential losses a liability that might occur due to terrorism activities.

Terrorism insurance is considered a difficulty product for insurance companies as the olds of the terrorist attacks are very difficult to predict and potential liability enormous

 In developed countries, governments are actively involved in the provision of terrorism insurance, it will, however be noted that terrorism can also be insured as part of political insurance.

3. Fraud and Other Malpractices by Employees, managers and Directors

Fraud by employees, often involving collusion between insiders and outsiders seem to have become more frequent in the recent past. The key indicators are increasing” inside jobs” bank Robbery, fraud by employees in banks, insurance companies and other people in positions of trust. The major cause of these frauds are lack of financial controls, weak management information systems, infrequent audits, Low staff morale, and poor recruitment methods.

Recent press reports show that fraud by bank employees is now a major concern for the top management of the banks.

Others include;

4. Increase in earthquake, tsunami’s and other Natural Disasters
5. Oil Risks
6. The freedom to strike