By Carolyn Cohn and Noor Zainab Hussain
LONDON (Reuters) - Insurers grappling with the rising risk of physical attacks on businesses due to war or civil disorder are reconsidering the breadth and scope of such cover in potential conflict hot spots.
Political violence cover, which businesses can take out to insure against physical damage caused by war, terror attacks, strikes or riots, can be bought as a standalone policy alongside property insurance or as part of a political risk package.
However, international underwriters have largely pulled out from offering such policies in Ukraine following Russia's invasion and heavily scaled back business in Israel since its conflict with Hamas, industry sources told Reuters.
They are now weighing reduced coverage for other regions seen as potentially vulnerable to unrest in an effort to avoid losses, including in Taiwan, amid fears of an attack by China.
"There's a chance that the reaction to Ukraine and others is going to have more of an impact on other parts of the world that are not live situations right now but could be live in the future like Taiwan," said Tarique Nageer, terrorism placement advisory leader at broker Marsh.
Many of the political violence policies are written in the Lloyd's of London insurance market, as well as by insurers based in the United States and Bermuda, while separate war policies are offered in aviation and shipping.
"You can't get anything in Ukraine at this point in time. For places like Taiwan, available capacity has dropped maybe 50%, if not more," Nageer added.
Insurers had reduced political violence and broader political risk cover in Taiwan after Lloyd's asked its members earlier this year to identify potential exposure to so-called realistic disaster scenarios related to conflict in the region.
Lloyd's chief executive John Neal told Reuters in September that the market's exposure to Taiwan was "manageable".
'HOUSE ON FIRE'
Since political violence policies are generally annual, insurers can make fairly rapid decisions not to renew them.
But some have even switched to offering monthly cover in Israel, said Hamish Greenwood, head of crisis management at insurance broker McGill and Partners.
"Some syndicates offered 12-month cover just before Russia invaded Ukraine and people got burnt," he said.
Others have dropped cover altogether, particularly for new clients, with insurance sources concerned about the conflict widening to neighbouring countries such as Lebanon.
Greenwood said one client in Haifa, in northern Israel, who previously bought protection against $100 million of damage was now struggling to get $10 million of cover.
"Effectively, you're insuring a house on fire," he added.
Rates for political violence cover in Israel were already higher than other parts of the world due to the perceived risk.
"There's a lot more markets who are reluctant to write (cover for) Israel now than they were before. Israel may have seen 75% reduction in available capacity," Nageer said.
Some rates have risen by 10 times or more in the past few months, Greenwood said, although an underwriter who declined to be named said rate rises were likely to be lower in parts of Israel further from Palestinian territories.
And insurers say business has not dried up completely.
"For longstanding clients who've bought cover, you don't want necessarily to drop the cover," said Roddy Barnett, head of political risks and trade credit at insurer Beazley.
"We have been quoting on a little bit of business in Lebanon and in Israel, it's not like the market has run away."