Category Archives: Terrorism Risk

Terrorism Risk: Why a Public/Private Partnership is Key

The Terrorism Risk Insurance Program, a public/private risk-sharing partnership which is set to expire at the end of 2014, is absolutely critical to maintaining the health of the American economy, according to an updated white paper just released by the Insurance Information Institute (I.I.I.).

The I.I.I.’s Terrorism Risk: A Constant Threat, Impacts for Property/Casualty Insurers explains that should the federal Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) be allowed to expire at year-end 2014, this would have a detrimental impact on the availability and affordability of terrorism insurance for businesses.

Introducing the paper, Dr. Robert Hartwig, I.I.I. president and an economist says:

The war on terror is far from over, as last year’s Boston Marathon bombings and other events around the world attest, but TRIA by all objective measures is now a proven and unqualified success. The program not only succeeded in restoring stability to the country’s vital insurance and reinsurance markets in the years immediately following 9/11, but it continues more than a decade later to deliver substantive, direct benefits to millions of businesses, workers, consumers and the overall economy—all at essentially no cost to taxpayers.†

Industry data shows that the proportion of businesses buying property terrorism insurance (the take-up rate for terrorism coverage) has increased since the enactment of TRIA in 2002. In fact for the last five years, some 60 percent of businesses nationally have purchased terrorism coverage, usually at a reasonable cost.

Dr. Hartwig notes that industries responsible for much of the country’s critical infrastructure such as power and utilities, telecommunications and health care, along with financial institutions and local government have take-up rates that approach or exceed 70 percent.

Moreover, the take-up rate for workers compensation is effectively 100 percent, meaning that every worker in America is protected against injuries suffered as the result of a terrorist attack, he adds.

Global Rise in Political Risks for Investors

Direct foreign investors operating in the Middle East and North Africa (MENA) face an increasing level of political risk as a result of the instability and uncertainty created by the Arab Awakening, according to an annual risk report.

The 2014 Marsh-Maplecroft Political Risk Map reveals that more than 60 percent of countries in the MENA region have experienced a significant increase in the level of political violence since 2010.

According to the map, 17 countries since 2010 have experienced a significant increase in their level of dynamic political risk, more than half of which are located in the MENA region.

Note: dynamic political risks focus on short-term challenges, such as rule of law, political violence, the macroeconomic environment, resource nationalism and regime stability.

Syria has seen the most significant increase in risk and is now ranked as the second-highest risk country behind only Somalia.   For the first time, Egypt is now categorized as “extreme† risk for political violence, a deterioration driven by post-coup violence and increased terrorist activity in the Sinai Peninsula.

Over the past year, East Africa was host to the most countries with an increase in political violence, according to the map.

Marsh notes that the increase in political violence in East Africa presents significant challenges to foreign investors looking to the region following the discovery of substantial oil and gas reserves.

Despite these risks, the map points to opportunities for investors in six growth markets where overall dynamic political risk has significantly improved since 2010: the Philippines, India, Uganda, Ghana, Israel, and Malaysia.

The map draws from Maplecroft’s Political Risk Atlas 2014 and highlights dynamic political risks across 197 countries, including conflict, terrorism, macroeconomic stability, rule of law, and regulatory and business environments.

Hat tip to Business Insurance which reports here.

TRIA Renewal Essential for Continued Protection of Economy

More than a decade since 9/11, the Terrorism Risk Insurance Program continues to deliver “substantive direct benefits to millions of businesses, workers, consumers and the overall economy – all at essentially no cost to taxpayers.†

This was a key takeaway from testimony delivered yesterday by Dr. Robert Hartwig, I.I.I. president and chief economist, at a Senate Banking Committee hearing.

Dr. Hartwig noted:

The war on terror is far from over, as the recent Boston Marathon bombings attest, but TRIA by all objective measures is now a proven and unqualified success.†

Dr. Hartwig pointed out that upwards of 60 percent of businesses purchased terrorism coverage nationally in 2012, up from 27 percent in 2003.

Industries responsible for much of the country’s critical infrastructure such as power and utilities, telecommunications and healthcare, along with financial institutions and local government have take-up rates that approach or exceed 70 percent, Dr. Hartwig said.

Moreover, the take-up rate for workers compensation is effectively 100 percent, meaning that every worker in America is protected against injuries suffered as the result of a terrorist attack.

But it is important to note that the majority of coverage that exists in the market today exists because of the continued existence of the Terrorism Risk Insurance Program, Dr. Hartwig said.

He went on to warn of dire economic consequences if TRIA is not renewed:

A sharp spike in business failures, higher unemployment and reduced GDP growth are just a few of the adverse consequences that are certain to follow in the event of a major terrorist attack in the absence of TRIA.”

Dr. Hartwig noted that the unambiguous success of TRIA demonstrates that the Act has become an invaluable component of the country’s national security infrastructure, adding:

Failure to institutionalize a permanent plan to protect the nation’s financial infrastructure leaves the country unnecessarily vulnerable to economic instability and risk of recession.†

Also check out a  recently updated  I.I.I. paper on terrorism risk.

PC360 has more on this story.

Terrorism Risk and Insurers

Ratings agency Fitch has warned that failure to renew the federally backed Terrorism Risk Insurance Program could have a significant impact on the availability and pricing of workers compensation and commercial property insurance coverage.

Insurer credit ratings and the commercial mortgage backed securities (CMBS) market would also be affected.

The report comes as at least 19 U.S. embassies and consulates in the Middle East and North Africa remain closed through the week after the State Department issued a global travel alert to U.S. citizens due to potential terrorist threats.

Fitch notes that workers compensation insurers could be particularly vulnerable to large losses if an extreme terrorist event takes place without the federal terrorism reinsurance program in place:

Recognition of this vulnerability may lead to a withdrawal of insurer’s underwriting capacity from the workers’ compensation market, particularly in industries and geographic areas with greater perceived risk of terrorism-related losses. Reduced workers’ compensation coverage availability would generate broader economic consequences for employers.†

Another major line of business that is highly sensitive to changes in the terrorism risk insurance program is commercial property insurance.

Fitch says withdrawal of the federal backstop without readily available substitute coverage would likely move commercial property insurers to exclude terrorism from property coverage.

Fitch notes that demand for private market terrorism insurance protection will inevitably increase and premium rates will significantly rise if the terrorism risk insurance program is not extended beyond its December 31, 2014 expiration, or coverage is materially reduced.

The private market is unlikely to duplicate the coverage limits available under the current federal program if renewal is unsuccessful, Fitch says.

PC360 has more on this story.

Check out the newly updated Insurance Information Institute (I.I.I.) paper Terrorism Risk: A Constant Threat.

Aon: Growing Impact of Terrorism on Business

A continued threat of a terrorist attack or political violence exists in 44 percent of countries, according to Aon’s 2013 Terrorism and Political Violence Map.

Aon says this trend is especially prevalent in African and the Northern African countries, with the worst affected being Afghanistan, India, Iraq, Nigeria, Pakistan, Russia, Somalia, Syria, Thailand and the Yemen.

The Middle East and North Africa region saw the highest proportion of countries with a terrorism and sabotage peril, at 85 percent.

Despite 19 countries showing improved terrorism and political violence ratings, including the United Kingdom and Germany, Aon’s analysis suggests growing awareness is needed for businesses looking to expand.

A  press release  cites  Neil Henderson, head of Aon Risk Solutions’ Crisis Management Terrorism team:

Terrorism is having an increasing impact on today’s global organizations and terrorist attacks are now regarded as a foreseeable risk. An attack not only on, but near an organization’s premises can result in human casualties, property damage, business interruption, legal liability issues and long term damage to brand and reputation.†

The map measures political violence and terrorism in 200 countries and territories to help companies assess the risk levels of exchange transfer, political violence and terrorism.

Check out I.I.I. facts and statistics on terrorism risk.

RMS: Boston Bombing Will Impact Terrorism Market

While insured property losses from the Boston Marathon bombing are small, the insurance of sports events is likely to be impacted, according to catastrophe modeling firm  RMS.

Dr. Gordon Woo, catastrophist at RMS noted that the shortage of terrorism insurance cover in the years after 9/11 had led to the securitization of the cancellation risk of the 2006 FIFA World Cup.

So while the property insurance loss is small, the Boston Marathon bombing may well have a significant influence on the terrorism insurance market.†

Dr. Woo’s comments came as investigators moved closer to identifying possible suspects in Monday’s bombing which left 3 dead and more than 170 injured.

RMS says most of the property damage appears to be within 10-20 feet of the explosions, and insured property losses are unlikely to exceed $1 million. However, it believes the costs of business interruption as a result of security restrictions made after the event may be a larger source of insurance claims.

The Boston marathon attack was the first high-profile successful act of terror in the U.S. since 9/11, but it should be seen as one of the dozens of terrorist plots launched against the U.S. homeland since then.†

RMS noted that the use of smaller sized lethal explosive devices has been the preferred attack mode in recent terrorist plots. Street events, like the marathon, are inherently vulnerable because while they are very large crowds public access is unrestricted.

Dr. Woo added that plots involving a small number of operatives, such as seems to be the case in the Boston bombing, are the most difficult to prevent:

Terrorism attacks remain a very real threat; there have not been larger attacks only because of the success of plot interception.†

Global Reinsurance has more on this story.

Check out I.I.I. facts and stats on terrorism risk.

Carriers Reassess Definition of Terrorism Risk

The scale and damage caused by recent global unrest has prompted a reassessment among risk carriers of how terrorism related risks and coverages are defined, according to a just-released report by Guy Carpenter.

Major terrorist attacks have occurred in Indonesia, Madrid, London and India since 2001, and the emergence of strong and independent al-Qaeda affiliate groups in unstable regions of the world now poses a significant threat to Western interests.

Guy Carpenter’s analysis finds that in addition to a now diverse and dispersed terrorism threat, there has been a dramatic rise in political instability and civil unrest around the world in recent years.

Several countries in the Middle East and North Africa have seen violent uprisings, resulting in heightened political uncertainty. European countries such as Greece and Spain have also seen violent protests against a backdrop of depressed economic growth and high unemployment.

The report says:

These developments have had a significant impact on the global terrorism (re)insurance market. Global unrest has triggered a growing need for civil unrest and riot coverages in some international terrorism programs. There has also been an increased number of territory-specific losses in the facultative reinsurance market, impacting local capacity.†

Guy Carpenter goes on to explain that the definition of an “act of terrorism† can be open to different interpretations:

Terrorism coverage is often incorrectly perceived to cover all violent human acts resulting in property and business interruption losses. It must in fact meet the definition of terrorism in order for coverage to apply. This has led to renewed interest in the broader political violence coverage for exposures worldwide as it provides comprehensive protection regardless of how the event is defined.†

A recent paper on terrorism risk by the Insurance Information Institute (I.I.I.) noted that despite recent counterterrorism successes, including the killing of al-Qaida leader Osama bin Laden, terrorism is an evolving and ongoing threat for the foreseeable future.

Terrorism Risk 11 Years On

As we mark the 11-year anniversary of September 11, a just-released study from the Insurance Information Institute (I.I.I.) finds that while the risk is changing, terrorism is an evolving and ongoing threat for the foreseeable future.

The paper notes that despite recent counterterrorism successes, including the killing of al-Qaida leader Osama bin Laden, the threat from terrorism risk is far from insignificant.

Cyber-terrorism is one area of growing concern for governments and businesses around the world, according to the I.I.I.

It says recent high profile attacks, such as the sabotaging of Iran’s nuclear program via the Stuxnet computer worm and malicious infiltration attempts by China, underscore the growing threat to both national security and the economy.

It goes on to cite a recent study by the Ponemon Institute in collaboration with Bloomberg Government, that estimated private sector spending on cyber security at roughly $80 billion in 2011, but noted this was not nearly enough.

The Ponemon study found that “utilities, banks and phone carriers would have to spend almost nine times more on cybersecurity to prevent a digital Pearl Harbor from plunging millions into darkness, paralyzing the financial system or cutting communications,† according to a report by Bloomberg News.

The findings were based on interviews with technology managers from 172 U.S. organizations in six industries and government.

More I.I.I. facts and statistics on terrorism risk here.

Terrorism Risk Reminder

Against the backdrop of unrest  surrounding May Day demonstrations, the one-year anniversary of the death of Osama Bin Laden is a reminder of the potential for terrorism attacks.

A bulletin released by the FBI and Department of Homeland Security last week warned of possible terrorist attacks on the one-year anniversary of Osama Bin Laden’s death.

While U.S. authorities said there are no specific, credible threats, concerns remain about “lone wolf† terrorists viewing an attack on this anniversary as “a symbolic victory.†

This is a good time to remind ourselves of the importance of the terrorism risk insurance program – a public-private risk sharing partnership that since 2002 has allowed the federal government and the insurance industry to share losses in the event of a major terrorist attack.

Facts and statistics from the Insurance Information Institute (I.I.I.) reveal that the terrorist attack of September 11, 2001 remains the worst terrorist act in terms of fatalities (2,976, excluding the 19 hijackers) and insured property losses (about $23 billion in 2010 dollars).

Total  insured losses from 9/11, including property, life and liability losses amounted to about $40.1 billion in 2010 dollars.

9/11 losses were paid out across many different lines of insurance, as this I.I.I. chart indicates:

LOSS DISTRIBUTION BY TYPE OF INSURANCE FROM SEPTEMBER 11 TERRORIST ATTACK (1)
($ 2010 billions)

LOSS DISTRIBUTION BY TYPE OF INSURANCE FROM SEPTEMBER 11 TERRORIST ATTACK (1)

(1) Adjusted to 2010 dollars by the Insurance Information Institute using the U.S. Department of Labor BLS Calculator.

Source:Â   Insurance Information Institute.

Terrorism and Political Risk Increase

Companies that operate internationally need to ensure they protect their employees, physical assets and business continuity amid a growing risk of terrorism and political violence around the world.

Civil unrest drove the downgrade of 37 countries in the Aon 2012 Terrorism and Political Violence Map.

Austerity measures and spending cuts in Europe sparked civil unrest, riots, strikes and student protests across Europe, leading to 43 percent of the downgrades in Aon’s analysis. The UK, France, Germany, Italy, Portugal and Spain were all downgraded from low risk to medium risk.

Meanwhile, terrorism remains relevant to the security of businesses, with some 46 percent of all countries assessed possessing the risk of terrorist incident icon, according to Aon.

It notes that the death of Osama bin Laden last year signified the decline of a truly globalized radical Islamist terrorism capability, but regionally active groups continue to be inspired by al-Qaida’s ideology.

While South Asia and the Middle East remain focal points for Islamist terrorist groups, Africa has shown the most dramatic shift in terrorism threat in the last year, Aon says. The ratings of six African countries have been downgraded with Senegal receiving a double downgrade from low to high risk.

In a press release Dr. David Claridge, managing director of Aon Risk Advisory, comments:

“Once again the map highlights the challenges businesses face in ensuring the security and continuity of their global operations. For the first time since the map’s inception, we have recorded significant negative ratings in Western Europe that reflect civil disorder in economies traditionally seen as stable. With further austerity measures still to be imposed and the eurozone crisis only in remission, economic and social degradation are likely to be important drivers of future unrest.†

The Arab Spring also features heavily in Aon’s analysis, both for its contribution to civil unrest and as post-uprising states fail to guarantee local and regional security.

Companies should consider insurance as part of their risk management program, Aon adds.

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