The recent terrorist attacks in Paris, Nice and Brussels will prompt big changes in insurance demand, according to KPMG.

Research to be published by the consultancy this week will show that demand for political risk insurance is set to grow strongly over the next three years. The types of risk clients face are changing, however.

Maximising casualties

“There is a shift in the nature of terror,” said KPMG partner Paul Merrey in London. “In the 1990s it was about property damage. The incidents we’re seeing now are about maximising casualties.”

The problem, said Mr Merrey, is that terrorism insurance tends to focus on property damage, rather than the sort of business interruption that companies have suffered following the recent wave of attacks.

“In 2015 the global cost of terrorism was $32 billion, but the indirect cost was much higher. If you look at the Paris incident, business interruption costs were $12 billion,” he added.

Economic damage

Business interruption coverage is often linked directly to property damage. Policyholders generally cannot claim for the economic costs of an attack unless their property was directly affected. But, says the KPMG report, the recent wave of attacks has created economic damage while leaving properties relatively unscathed.

The challenge that insurers face is working out the direct link between a terrorist incident and lost business. "There are a lot of things that could cause people to cancel their travel arrangements and you could pick up things that have nothing to do with political risk," says David Anderson, head of political and credit risk at Zurich Insurance.

Mr Merrey says insurers will have to find a way to deal with the issue. “There is a gap between what insurers are providing cover for and what customers actually need. We see an opportunity for the industry as a whole to collectively find solutions for this.” – (Copyright The Financial Times Ltd 2016)