Terrorism risk underrated

Aon Risk Solutions has launched a sequel to its 2013 Global Risk Management survey. The sequel – the 2014 Underrated Threats report – closely examines findings from the most recent survey, key of which is that terrorism is significantly underrated.

New research shows that events in many countries around the world have raised concerns about the ranking of key risks on the top 50 list. Most notably, more than half of the research respondents stated that a ranking of 46 in the 2013 report was too low for terrorism risk.

“Given that this is a global report, we need to consider more closely the relevance of the findings to what is happening in Africa. From an African perspective, there can be no denying that the threat of terrorism or political risk is real. The ranking of country risk ranges from medium to severe in 43 out of 54 countries on the continent. This has significant implications for multinational and Africa-based businesses in terms of their risk management strategies, business continuity plans and decisions on where to deploy their capital. Risks arising from civil unrest and terrorism had limited effect on business 10 to 15 years ago, this is no longer the case,” said Darlington Munhuwani, Regional Controller for Aon Sub-Sahara Africa.

In East and West Africa, terrorism stands out as the predominant risk, reinforced by the internationally high profile attack by Al Shabaabon on the Westgate Shopping Mall in Nairobi, Kenya in September 2013.  More recently, terrorism attacks in Nigeria including the kidnapping of over 200 schoolgirls by the militant group, Boko Haram and the bombing of the market in the city of Jos, killing at least 118 people has once again put Africa in the spotlight.

“According to the 2014 Aon Terrorism and Political Violence Map, Kenya’s risk rating is four (high), similar to Uganda, Ethiopia and Burundi. South Sudan and Nigeria are rated five (severe) similar to Democratic Republic of Congo, Chad, Mali, CAR and Somalia. In fact, of the 54 countries in Africa, there are only 11 with low to negligible terrorism and political risk ratings – these are Rwanda, Tanzania, Djibouti, Ghana, Zambia, Malawi, Botswana, Namibia, South Africa, Lesotho and Swaziland.

“The reality is that the demand for political and terrorism risk covers has increased tremendously following the Westgate attack and certainly premium rates are increasing.  The breakout of a civil war in South Sudan also emphasises the need for businesses to factor both the financial cost and possible loss of lives and the impact of political risks into their strategic plans,” explained Darlington.

The war in South Sudan and terrorism threat by the Al Shabaab in Somalia, Kenya and Uganda, political instability in the Central African Republic, and Boko Haram activities in Nigeria are key political and terrorism issues facing regional and multinational businesses as they seek to increase their African footprint. These risks have and will continue to have a negative impact on the flow of foreign direct investments and expansion plans of most companies.

“Not a day goes by without news of political unrest and terrorist attacks which are taking place all over the globe destroying lives and disrupting businesses, but it seems that the world has become de-sensitised to such news as these events are nowoccurring with regular frequency and may soon be regarded as a‘normal’ part of our lives.

“Or could it be that it is a case of ‘out of sight – out of mind’ if they are not happening at our doorsteps? Terrorism attacks are not confined to politically or economically unstable regions – the 9/11 attack is a case in point, demonstrating the pervasive and unpredictable nature of terrorism. Businesses should not choose to ‘fly blind’ because of how they perceive the risk. The assessment of the exposure must be in the context of what is happening in Africa, more so in cases where companies have an investment in a country where there are no tools to manage or control the risk or its impact,” said Darlington.

“Based on the research in the 2014 Underrated Threats Report, it appears larger organisations place a much lower priority on this risk which leads us to the belief that they are better prepared for such events and have appropriate measures in place to address and manage the impact of human and economic loss to their organisations either through insurance or business continuity planning. But can any of us be fully prepared for these events and have the capacity to carry the risk in our balance sheets?” said Darlington.

In conducting this and other research, Aon notes that it has become clear that risks are growing in complexity, becoming increasingly interdependent and requiring more innovative and creative solutions. “This constellation effect of, or interconnectivity between risks might not always have been recognised by organisations but could have a significant impact on their approach to risk management and overall business performance,” concludes Darlington.

Download the Underrated Threats report here.

Download the 2013 Global Risk Management survey here.

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