{"id":10007,"date":"2025-05-13T08:26:16","date_gmt":"2025-05-13T08:26:16","guid":{"rendered":"https:\/\/www.advantagego.com\/en-us\/?p=10007"},"modified":"2025-05-13T12:30:59","modified_gmt":"2025-05-13T12:30:59","slug":"political-violence-modelling-is-still-more-art-than-science","status":"publish","type":"post","link":"https:\/\/www.advantagego.com\/en-us\/content\/political-violence-modelling-is-still-more-art-than-science\/","title":{"rendered":"Political violence modelling is still more art than science"},"content":{"rendered":"\n

Napoleon Montes, Head of Hiscox crisis management, Miami, is shifting the lens on political violence risks.<\/strong><\/p>\n\n\n\n

As social unrest becomes more complex and widespread, the traditional tools used by political violence (PV) insurers to model strikes, riots and civil commotion (SRCC) are no longer enough. Napoleon Montes, head of Hiscox\u2019s crisis management business in Miami, says the PV market must evolve its understanding of exposure beyond the blunt instruments designed for natural catastrophe risk.<\/p>\n\n\n\n

\u201cMost of us [PV underwriters] still use things like RMS that are geared towards natural catastrophe and provide simple aggregation of exposure,\u201d Montes says.<\/p>\n\n\n\n

That works when modelling windstorms or earthquakes, but SRCC needs a different approach, he suggests. Under Montes, the insurer began building its own methodology following a series of PV shocks that began in Latin America in 2019.<\/p>\n\n\n\n

\u201cAfter the Chilean protests, and when the Covid-19 pandemic started, we put together a working group to analyse our apps. At the time, most of the market was still talking about blast zones, but for SRCC, that\u2019s no good,\u201d he explains.<\/p>\n\n\n\n

There is a pressing need to develop better analytics and modelling for PV<\/a> as an emerging risk, particularly given the PV product\u2019s growth in capacity being deployed, and the soft market pricing pressures facing underwriters globally.<\/p>\n\n\n\n

\u201cThe modelling is probably the bit that\u2019s missing most,\u201d Montes says. \u201cWhat makes our product more difficult is the human element. Where there are humans, there is social unrest but it\u2019s not like cat. The PV in PVT is where we still have a lot of work to do. Most of the tools specific to this business come from terrorism because that\u2019s been the history of this line of business post 9\/11.\u201d<\/p>\n\n\n\n

PV is still a maturing line of business, he emphasises. In a line of business that prizes underwriting knowledge and expertise<\/a>, data, analysis and modelling are still developing.<\/p>\n\n\n\n

\u201cIf this market was a human, it would be a young adult. I wouldn’t say that it’s fully mature,\u201d Monte says. \u201cIt has a strong personality, its own life, it’s self-sufficient and sustainable, but there are still elements of the personality that need to develop.\u201d<\/p>\n\n\n\n

Reinsurance pressures<\/strong><\/p>\n\n\n\n

One of the current limitations facing the PV market, he says, comes from the way reinsurance contracts are written. PV is typically underwritten on a direct and facultative (D&F) basis, and this portfolio of per risk business is then reinsured by treaty.<\/p>\n\n\n\n

\u201cWhen you buy treaty reinsurance protection they talk about the data, and that puts shackles on you,\u201d he says.<\/p>\n\n\n\n

He points to Mexico City \u2013 \u201cmany times bigger than London\u201d \u2013 as a case in point. \u201cIf they say you can only have this amount of capacity for such a vast city, that’s where we came up with our own in-house version of the modelling to take into consideration industry types and to be able to model the probable maximum loss.\u201d<\/p>\n\n\n\n

Hiscox has a partnership with crisis advisory firm Control Risks, incorporating its geopolitical data, including civil unrest heat maps, in a bid to build a more dynamic model.<\/p>\n\n\n\n

\u201cThat\u2019s one tool that does work well for the human factor \u2013 we’re not so irrational, it seems,\u201d Montes says. \u201cThere are certain areas where you can accurately predict that patterns will form. In Chile\u2019s protests, for example, you have the Plaza Italia, where everybody congregated, and which becomes your \u2018ground zero\u2019 for this type of event.\u201d<\/p>\n\n\n\n

Data-driven, but not deterministic<\/strong><\/p>\n\n\n\n

Hiscox\u2019s built SRCC model has expanded from six risk factors to more than 35. These now include variables such as unemployment, inflation, GDP per capita, and food prices.<\/p>\n\n\n\n

\u201cWhen we talk about the Arab Spring, it was largely influenced by wheat prices,\u201d Montes notes. \u201cControl Risks provide country risk scores, which help with factors such as governance and corruption ratings.\u201d<\/p>\n\n\n\n

Still, he cautions against treating models as crystal balls.<\/p>\n\n\n\n

\u201cIf we were able to accurately predict the future, we wouldn’t be in this line of business,\u201d he says.<\/p>\n\n\n\n

Instead, Hiscox uses the model to adjust exposure at a granular level. He cites Peru\u2019s mining sector as a classic example of where economic cycles can generate social tension.<\/p>\n\n\n\n

\u201cIf there is a world economic recession, that will more than likely lead to social unrest around the Peruvian mining sector, perhaps with a lag of 12 to 18 months,\u201d he explains.<\/p>\n\n\n\n

\u201cThey have a local tax, called the canon system, giving a percentage of profit to local communities. If there’s a recession, local communities don’t understand why their share seems to have gone down.\u201d<\/p>\n\n\n\n

Distorted signals from the market<\/strong><\/p>\n\n\n\n

Despite these forward-looking efforts, SRCC underwriting is still shaped by broader re\/insurance market dynamics. Carriers have continued to pour capacity into this diversifying specialty line of business.<\/p>\n\n\n\n

\u201cWe’re just a small piece in a large puzzle,\u201d he says.<\/p>\n\n\n\n

\u201cUltimately, we’re insurers, and this is a matter of supply and demand. Rates continue to go down because there’s so much supply of capacity, and the reason why there is so much capacity has little to nothing to do with our niche within this market.\u201d<\/p>\n\n\n\n

He believes oversupply in US natural catastrophe and casualty lines is driving capital into specialty risks. On paper, PV portfolios in Latin America appear profitable, he suggests, largely because the losses that the drove standalone market were largely sustained by property business.<\/p>\n\n\n\n

\u201cYes, there have been significant losses, but a lot of those losses get hidden within property,\u201d he explains.<\/p>\n\n\n\n

\u201cIn 2019 we didn’t pay for most of the losses in Chile, or for the Yellow Vests claims in France between 2018 and 2020, or the Black Lives Matter claims in the US in 2020. Even in South Africa in 2021, a lot of the losses were paid by the treaty reinsurance market.\u201d<\/p>\n\n\n\n

This, combined with the lack of historical loss data for standalone PV, has likely skewed the rate-on-line picture, he suggests.<\/p>\n\n\n\n

\u201cThe property all-risks market<\/a> took the losses, then excluded them, before buyers turned to the PVT market to find continued protection in places such as Chile,\u201d Montes says.<\/p>\n\n\n\n

Watching Latin America closely<\/strong><\/p>\n\n\n\n

While 2024 was expected to be volatile due to a surge of elections globally, Montes says the year passed with surprisingly few losses.<\/p>\n\n\n\n

\u201cOverall, it was a relatively quiet year. There were no large losses, certainly not in Latin America,\u201d he says.<\/p>\n\n\n\n

But looking ahead, he sees potential flashpoints in Chile and Central America.<\/p>\n\n\n\n

\u201cIn Chile, for example, it looks like the right may come back into power, and that may generate some social unrest, depending on how strongly the pendulum swings.\u201d<\/p>\n\n\n\n

Montes is also concerned about the long-term effects of deportation policies under the Trump administration.<\/p>\n\n\n\n

\u201cIt\u2019s not going to express itself immediately, but it could have long-lasting repercussions. Of course, many innocent people are going to be deported, but there are also a lot of members of gangs and criminal organisations that will be deported, which is likely to stir up serious problems within their home nations, in places such as El Salvador.\u201d<\/p>\n\n\n\n

In the Andean region, meanwhile, the security outlook has deteriorated.<\/p>\n\n\n\n

\u201cFive years ago, I probably wouldn’t have mentioned Colombia, but in the past two to three years, they’ve had major setbacks in some specific areas, back to being controlled by the guerrillas,\u201d he says. \u201cEcuador is also a major concern, due to criminal organisations, and events continue to be out of control.\u201d<\/p>\n\n\n\n

Asked where the SRCC market goes next, Montes offers a measured reflection.<\/p>\n\n\n\n

\u201cOur line is still more of an art than a science,\u201d he says. \u201cWe don’t have enough frequency, such as you see in property, which contributes to the modelling sophistication. We need to rely a lot more on data, and make better use of models, but I think the ultimate decision comes with experience \u2013 more art than science.\u201d<\/p>\n\n\n\n

Gain further perspective, download our latest report \u2013 Political Violence: Underwriting in an Age of Insecurity<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Napoleon Montes, Head of Hiscox crisis management, Miami, is shifting the lens on political violence risks. As social unrest becomes more complex and widespread, the traditional tools used by political violence (PV) insurers to model strikes, riots and civil commotion (SRCC) are no longer enough. Napoleon Montes, head of Hiscox\u2019s crisis management business in Miami, […]<\/p>\n","protected":false},"author":2,"featured_media":10008,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"ep_exclude_from_search":false,"footnotes":""},"categories":[7,26],"tags":[10,14],"line-of-business":[30],"class_list":["post-10007","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blogs","category-latest-insights","tag-exposure","tag-underwriting-workbench","line-of-business-political-risk"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/posts\/10007","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/comments?post=10007"}],"version-history":[{"count":0,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/posts\/10007\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/media\/10008"}],"wp:attachment":[{"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/media?parent=10007"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/categories?post=10007"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/tags?post=10007"},{"taxonomy":"line-of-business","embeddable":true,"href":"https:\/\/www.advantagego.com\/en-us\/wp-json\/wp\/v2\/line-of-business?post=10007"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}