Post Blog: The Argo effect

Anyone who's seen the Oscar-winning film Argo witnessed a gripping account of what happens when staff based overseas find themselves caught up in the grip of violent civil unrest.

The film tells the story of the storming of the US embassy by militants in Tehran in 1979, resulting in the capture of over 50 staff. Six Americans managed to flee the embassy during the attack and hid in the home of the Canadian ambassador. How these six escaped to freedom is the film's central theme and offers an insight into the world of evacuation and repatriation - referred to in the insurance market as E&R.

Situations like that in Argo are not restricted to the world of politics and diplomacy. Commercial organisations, as a matter of course, send their staff abroad and base thousands of employees in international territories. Some of these are peaceful and stable countries; others, particularly in North Africa, the Middle East and South America may have unstable political systems and may suffer from major economic turmoil.

In the same way that the US government protected its staff in Tehran, commercial organisations have a duty of care to safeguard the wellbeing of their workers. What is interesting from the London insurance market's perspective is that demand for products designed to protect staff overseas is growing markedly. Is it what we might call the Argo effect? Or has something else triggered this surge in purchasing?

The product in question here, E&R cover, is an extension purchased to a kidnap and ransom policy. E&R cover may pay for individuals to be evacuated from a region following events that cause national governments to issue an advisory recommending that its citizens leave that region. Such advisories may follow widespread and prolonged civil unrest, large-scale terrorist incidents, the onset of civil conflict or the outbreak of state-versus-state hostilities.

In the simplest cases, the means of evacuation may be purchasing an air ticket to get people out aboard a scheduled flight; in more extreme circumstances - a situation in which it becomes too dangerous to travel normally or government-sponsored evacuation flights have all left the country - it may be necessary to send in an armed escort or hire a private aircraft, hence some potentially very expensive claims.

Because of the complex and often unique situations in which E&R cover tends to be triggered, the product gives access to a range of specialist consultants.

If a company needs to evacuate staff for reasons such as a major weather event like Superstorm Sandy, that type of activity would usually be covered by the company's travel insurance.

Despite winning the Oscar for Best Picture, what has focused minds on E&R cover has not been Ben Affleck's film but rather this January's attack by militants on a BP oil refinery in Algeria. 48 hostages died in the four-day siege including workers from the UK, Japan, Colombia and Romania.

There's little doubt that the Algerian attack came as a major shock to the insurance market. While kidnapping is not unusual in this part of the world, the sheer scale and ambition of the terrorists' plan, combined with BP's reputation for excellent security, meant that many underwriters were unprepared. The BP facility in Algeria is also some distance from Mali, location of the recent French military intervention and perceived focus of current North African terrorism.

Since the Algerian attack, concerns about an ‘arc of instability' across North Africa and the execution of seven foreign nationals in northern Nigeria have heightened worries for overseas-based employees. Pakistan is also considered by many experts to be on a knife-edge and the kidnap of French nationals in Cameroon and Venezuela's status in the wake of President Hugo Chavez's death, has only served to intensify interest in E&R cover.

More broadly, the global recession is a powerful engine driving both political and civil unrest. Steep rises in the price of basic foodstuffs are also fuelling dissatisfaction. Extreme weather events like the prolonged drought in the Midwestern United States, are hitting production of staple crops like rice and cereals, hurting populations around the planet. Events such as the Arab Spring are also encouraging people to examine or question their governments and, if found wanting, contemplate taking action against the structures of authority in their countries.

Globally, we seem to be entering a period in which the potential for civil unrest - and indeed the perception of the risk it poses - is increasing. For specialist insurers in London, writing products like E&R, demand is set to remain high. For businesses operating in an increasingly globalised world in which staff regularly have to be based in high risk territories, the track record of the London market - its products, its specialist advisers and its approach to this type of product - is highly reassuring.

Lee Niblett, crisis management underwriter, Liberty International