Political risk experts assess business precautions
8 December 2008
The horrific attacks on India’s commercial capital Mumbai took terrorism in the region to a new level, according to political risk experts.
India is no stranger to terrorist violence, but previous attacks have usually been related to local political tensions between India’s Hindu and Muslim communities.
According to the US state department, 2,300 people died in terrorist attacks in the country during the course of 2007. Adding to the country’s volatility, there are Maoist groups in the east and centre and nationalists in the north-east.
Terrorism and political violence: implications for business
The recent coordinated attack on high profile targets in the financial and tourist centres of Mumbai has more serious implications for businesses with exposures in India, however, according to David Guest, war, terrorism and political violence underwriter at Lloyd’s insurer Hiscox.
“Such extensive and prolonged use of automatic weapons and explosives, along with the taking of hostages in several locations, has altered the parameters of terrorism in India,” he warns. “The specific targeting of public spaces frequented by Mumbai’s business elite, and the singling out of US, UK and Israeli citizens represents a new dimension – terrorism in India has gone ‘global’”.
From a risk management point of view, businesses located in India—or doing business in India—now have to review the precautions they take. Mumbai’s highly cosmopolitan population and open links make it very difficult for authorities to maintain firm control of terrorism threats to the city.
Business and insurance: duty of care
The attacks on Mumbai were carefully planned and executed, with the Trident Oberoi and Taj Mahal hotels chosen for the widest possible impact on investors and the media.
In light of the overwhelming scale and type of attack, businesses have to look at the ‘hard protections’ they have in place, Guest says. They also have to look beyond protecting their bricks and mortar assets and reassess how well they protect people.
For hotels this will include employees, guests and visitors. International businesses will also need to think more carefully about the duty of care they owe to employees sent on business to foreign locations such as Mumbai.
Lloyd's insurers: specialist security risk management
Several Lloyd’s insurers and brokers specialise in security risks, providing risk management expertise as well as terror specific insurance products. Hiscox policyholders, for example, have access to the services of specialist consultants Control Risks who can advise on security risk management.
From an insurance perspective, Lloyd’s insurers offer packages that address company assets at risk and their people. Coverage is available that will respond to kidnap & ransom, medical and political repatriation and personal accident following an act of terrorism or political violence.
There are serious liability implications for businesses linked to the bodily injury or death of those caught up in an attack. The duty of care placed on businesses, in terms of their own people or other third parties such as customers, is significant, according to Hiscox’s David Guest.
Hiscox, for example, offers terrorism liability products that pay damages for which an insured can become legally liable to pay because of claims for bodily injury to employees or third parties caused by acts of terrorism.
Third party liability is increasingly important both to businesses with exposure to large numbers of third parties and also to businesses operating internationally in many legal jurisdictions, Mr Guest explains.
Asia's commercial centres
Bombay is only one of several growing commercial centres in Asia. At a time when economies in the West are contracting, growth in the global economy will come from China, India and the Middle East.
“The axis of economic power is moving east and business travellers will—must—continue to go to places like Mumbai to seek out opportunities,” Mr Guest says.
Chris Parker, head of terrorism at Lloyd’s broker Marsh, says it is still too early to say what effect the attacks will have on the terrorism insurance market in general.
“However the timing of these attacks, being so close to the terrorist attack in Islamabad [in September], will certainly mean that underwriters will be carefully scrutinising their terrorism exposures going forward and may possibly be more selective in their underwriting,” he told lloyds.com.
“It is possible that the attacks may prompt a hardening of the terrorism insurance rates for those with substantial values in Indian cities or for hotel occupancies,” he says. “They may also prompt an increase in demand for terrorism insurance or even a broader form of physical damage, contingent business interruption or liability coverage.”
Last updated on 21 Dec 2009
