Tag Archives: Terrorism

Counter-terrorism efforts key to estimating risk post-9/11

Today marks the 16-year anniversary of 9/11, and as we remember those who perished and honor first responders on that day, it’s worth noting that we have not had a large-scale terrorist attack on U.S. soil since then.

From a recent discussion by property underwriters Gedion Amesias and Jeri Xu at the Swiss Re Open Minds blog:

“Since 9/11, the U.S. government and four of its allies (Five Eyes alliance) have been spending tens of billions of dollars each year on counter-terrorism. Even though it’s hard to accurately estimate, there are experts that approximate the U.S. spends around $100 billion a year on counter-terrorism efforts. Successful attacks since 9/11 have been carried out by either a lone wolf or a duo, for example the 2016 cargo truck attack in Nice by one driver, and 2013 Boston Marathon bombing by a pair of brothers. Plots that involve more people are more likely to be discovered through the surveillance of their communications, so organized large-scale plots are less likely to occur.”

And:

“Terrorism insurance is effectively insurance against the failure of counter-terrorism. Because counter-terrorism efforts have increased so much post 9/11, a reasonable assumption to make is that the frequency and severity of loss from terrorism have decreased significantly.”

They conclude that underwriters need to think about how terrorists will behave going forward and how governments around the world will counteract terrorism in order to predict where and to what extent future losses may occur.

Willis Towers Watson offers insight into how insurers are responding to meet the evolving nature of terrorism.

The I.I.I. has resources on terrorism risk and insurance here.

UK terrorism reinsurance pool will respond to any claims arising from Manchester attack

UK terrorism reinsurance mutual Pool Re stands ready to respond to any claims arising from last night’s horrific attack at a major concert venue in the city of Manchester.

At least 22 people were killed and more than 50 injured in the bombing as they left the Manchester Arena at the end of an Ariana Grande concert.

“Pool Re will work with its Members in resolving any claim arising from the attack as quickly as possible. We will make a further statement as more information becomes available.”

Most insurers providing commercial property and business interruption insurance in the UK (including many overseas companies and Lloyd’s syndicates) participate in Pool Re.

The government formed the mutual reinsurance pool for terrorist coverage in 1993, following acts of terrorism by the Irish Republican Army.

Last night’s attack comes 21 years after a bombing in Manchester’s main shopping district injured more than 200 people and caused an insured property loss of $966 million (in 2015 dollars). The 1996 Manchester bombing still ranks as the third costliest terrorist attack by insured property damage, according to the I.I.I.

Pool Re is one among a number of public/private risk-sharing schemes around the world that provide terrorism coverage, as discussed in a recent report by Marsh:

Here’s how the Pool Re scheme works:

  • Member insurers pay premiums at rates set by the pool. There are two geographic zones, one for major cities, with an adjustment for a “target risk,” and the other for the remainder of the country.
  • The primary insurer pays the entire claim for terrorist damage but is reimbursed by the pool for losses in excess of a certain amount per event and per year, based on its share of the total market.
  • The maximum industry retention increases annually per event and per year.
  • The government acts as the reinsurer of last resort, guaranteeing payments above the industry retention.
  • Only terrorism losses arising from damage to commercial property are covered by the pool. Coverage does not extend to life or personal injury.

The Definition And Risk Of Terrorism Is Shifting

A man drives a car into pedestrians on Westminster Bridge, keeps driving, crashes the car outside the Houses of Parliament, then tries to enter the complex armed with a knife. Four people are dead, including a policeman and the assailant, and at least 40 injured.

The investigation into yesterday’s terrorist attack in the heart of London is ongoing, as Westminster bridge reopens and Parliament gets back to work.

Small group and “lone wolf” terrorist attacks are seen as indicative of the shifting nature of terrorism, according to experts (here and here).

In the U.S. such attacks have yet to meet the $5 million damage certification threshold required to trigger the government-backed terrorism risk insurance program (the Terrorism Risk Insurance Program Reauthorization Act of 2015).

Broker Marsh reports that while recent attacks may have resulted in little direct physical damage and losses, they still have the potential for significant business disruption costs and contingency losses, for example if a city is put under curfew, or travelers cancel reservations, travel is disrupted, and business activity levels are diminished.

To address these evolving threats, insurers have adapted coverage to consider: active shooter situations; extra expense for evacuating people due to threat; contingent interruption of operations; canceled reservations; loss of attraction.

Policies can be structured to include nonphysical damage scenarios such as damage resulting from a cyber event, and nuclear, biological, chemical, and radiological (NBCR) risks.

Terrorism preparedness is evolving too as businesses adapt to the changing threat (see active shooter prevention and response steps).

The last major terrorist attack in the UK in July 2005 targeted the public transportation system during rush hour and left 52 people dead.

Insurance Information Institute facts and statistics on terrorism risk available here.

This chart, via the New York Times, shows that with the exception of the 9/11 and Oklahoma City attacks, there is no year since 1970 when terrorism killed more than 50 people in the United States:

Brushing up on Terrorism Insurance

Multiple explosions over the weekend in New York and New Jersey as well as a knife attack by an individual at a mall in Minnesota come amid heightened concerns of terrorist attacks 15 years after 9/11.

Some 29 people were injured in the blast Saturday night in New York City’s Chelsea neighborhood, which is also reported to have caused significant property damage. Meanwhile, nine were injured in the Minnesota mall attack, where the suspect was killed by police.

Monday morning another explosion was reported near Elizabeth train station in New Jersey, where up to 5 devices were found, and as the FBI investigation intensified and security tightened around major transportation hubs, law enforcement officials arrested a suspect in the NY/NJ blasts.

While the unfolding events are unsettling, it’s good to know that if the home you own were damaged by an explosion and fire, personal insurance policies have you covered.

Standard homeowners insurance policies cover the homeowner for damage to property and personal possessions due to explosion, fire and smoke—the likely causes of damage in a terrorist attack, according to the Insurance Information Institute (I.I.I.), even if terrorism is not specifically referenced in the insurance policy.

Condominium or co-op owner policies also provide coverage for damage to personal possessions resulting from acts of terrorism, while damage to common areas of a building like the roof, basement, elevator, boiler and walkways would be covered providing the condo/co-op board has purchased terrorism coverage.

Standard renters insurance policies also include coverage for damage to personal possessions due to a terrorist attack. Again, coverage for the apartment complex itself must be purchased by the property owner or landlord.

If your car is damaged or destroyed in an explosion your auto insurance policy will cover the damage if you have purchased “comprehensive” coverage.

Commercial insurers are required to offer coverage against terrorist attacks and many owners of commercial property, such as office buildings, factories, shopping malls and apartment buildings,  have purchased the coverage.

Marsh estimates some 60 percent of U.S. businesses have purchased terrorism insurance, up from 27 percent in 2003.

However, losses are only covered by a commercial terrorism insurance policy if the government officially certifies an attack as an act of terrorism. Several criteria must be met for the certification to be made. If property/casualty losses do not exceed $5 million in the aggregate, the act will not be certified as an act of terrorism.

Acts of terrorism are excluded from most standard business insurance policies.

Workers compensation—a compulsory line of insurance for all businesses—covers employees injured or killed on the job and therefore automatically includes coverage for acts of terrorism.

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

Terrorist Attacks, Strategy and Impact

Suicide-armed assaults and bomb attacks may become an even more attractive tactic for terrorist groups to replicate following the November 13, 2015 attack in Paris, France, according to catastrophe modeling firm RMS.

In a blog post, RMS writes that the Paris attacks–which killed more than 125 people and left 350 injured–are the deadliest in Europe since the 2004 train bombings in Madrid, Spain, where 191 people were killed and over 1,800 injured.

The attacks have exposed France’s vulnerability to political armed violence and alerted the rest of Europe to the threat of salafi-jihadists within their domain, according to RMS.

RMS also notes that the chosen strategy in last Friday’s attacks offers greatest impact. For example,  the suicide armed attacks or sieges witnessed at the Bataclan Theater involved a group opening fire on a gathering of people in order to kill as many as possible.

Similar to the Mumbai attacks in 2008, the ability to roam around and sustain the attack, while being willing to kill themselves in the onslaught makes such terrorist attacks more difficult to combat.

From the terrorist’s perspective, these assaults offer a number of advantages, such as greater target discrimination, flexibility during the operation, and the opportunity to cause large numbers of casualties and generate extensive worldwide media exposure.”

Such attacks typically will target people in crowded areas that lay outside any security perimeter checks such as those of an airport or at a national stadium. Probable targets for such attacks are landmark buildings with a large civilian presence, RMS suggests.

Business Insurance reports that victims of the Paris attacks–whether French national or not–can claim compensation for personal injury from Le Fonds de Garantie des Victimes des Actes de Terrorismes et d’Autres Infractions (FGTI), as detailed by France’s insurance industry association Fédération Française des Sociétés d’Assurances on its website here.

France also has a state-backed reinsurer for property losses caused by terrorism, known as GAREAT (Gestion de l’Assurance et de la Réassurance des Risques Attentats et Actes de Terrorisme), which will likely cover any insured property losses resulting from the attacks.

Check out I.I.I. facts and statistics on global terrorism losses here and the latest I.I.I. paper on the renewed and restructured Terrorism Risk and Insurance Program in the U.S.

Terrorism Risk and Economic Stability

The April 2013 Boston bombing may have marked the first successful terrorist attack on U.S. soil since the September 11, 2001 tragedy, but terrorism on a global scale is increasing.

Yesterday’s attack by the Al-Shabaab terror group at a university in Kenya and a recent attack by gunmen targeting foreign tourists at the Bardo museum in Tunisia point to the persistent nature of the terrorist threat.

Groups connected with Al Qaeda and the Islamic State committed close to 200 attacks per year between 2007 and 2010, a number that grew by more than 200 percent, to about 600 attacks in 2013, according to the Global Terrorism Database at the University of Maryland.

Latest threats to U.S. targets include calls by Al-Shabaab for attacks on shopping malls.

And a recent intelligence assessment circulated by the Department of Homeland Security focused on the domestic terror threat from right-wing sovereign citizen extremists.

On January 12, 2015, President Obama signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2015.

A new I.I.I. white paper, Terrorism Risk Insurance Program: Renewed and Restructured, takes us through each of more than eight distinct layers of taxpayer protection provided under TRIA’s renewed structure.

While TRIA from its inception was designed as a terrorism risk sharing mechanism between the public and private sector, an overwhelming share of the risk is borne by private insurers, a share which has increased steadily over time.

Today, all but the very largest (and least likely) terrorist attacks would be financed entirely within the private sector.

Enactment of the 2015 reauthorization legislation has brought clarity and stability to policyholders and the insurance marketplace once again, the I.I.I. notes.

In the week before Christmas when Congress adjourned without renewing the Terrorism Risk Insurance Act (TRIA), Jeffrey DeBoer, president and CEO of The Real Estate Roundtable, a trade group representing real estate industry leaders, said:

This law does not stop terrorist attacks. But it does disrupt terrorists’ goals of damaging our economy.”

The I.I.I. paper makes a similar point:

Since its creation in 2002, the federal Terrorism Risk Insurance Act, and its successors, have been critical components of America’s national economic security infrastructure. TRIA has cost taxpayers virtually nothing, yet the law continues to provide tangible benefits to the U.S. economy in the form of terrorism insurance market stability, affordability and availability.”

For a federally backed program, that is quite a success story.

Terrorism Risk Insurance: An Uncertain Future

It’s Election Day and as you head to the polls the insurance issue that remains at the top of mind for most is the future of the Terrorism Risk Insurance Act (TRIA).

In a new paper the Insurance Information Institute (I.I.I.) says the question of what happens if the federal act is not renewed by Congress is no longer a theoretical one:

Since insurance policies negotiated during 2014 extend beyond the imminent December 31 expiration date of the program, the negative consequences of non-renewal are already being experienced by businesses across America and their insurers.”

The private sector simply does not have the capacity to provide insurance or reinsurance for terrorism risk to the extent currently provided by the federal program, the I.I.I. says. As a result, in the absence of the act, terrorism risk insurance would be less available and less affordable.

Over at WGA InsureBlog, David Bardelli, senior vice president and casualty practice leader for William Gallagher Associates, notes that with Congress not back in session until mid-November, the clock is ticking for lawmakers to come up with a solution before the end of the year.

Bardelli writes:

A lame duck Congressional session could pass an extension, which has been the case with previous versions of the bill. With House Democrats and Republicans at odds over the latest version of the House Committee’s proposal, it looks like the November elections will have the biggest impact on what happens with TRIA.”

Insurers are not alone in their concerns over the future of terrorism risk insurance. Just on Friday, the Real Estate Roundtable reported that while senior commercial real estate executives see a continuing recovery in the markets, they remain concerned about the lack of clear direction in many federal policies, primarily terrorism risk insurance.

Roundtable President and CEO Jeffrey D. DeBoer, said:

Without a long-term reauthorization of TRIA when policymakers return in November, financing for CRE projects will be directly threatened, job creation will suffer as it did after 9-11, and businesses can expect a general slowdown as many financing contracts will be found to be in technical default without terrorism insurance.”

Congress will return November 12 for the “lame duck” session.

Maplecroft: Global Terrorism Fatalities Up 30%

Global fatalities from acts of terrorism jumped by 30 percent in the last year even as the number of attacks decreased, according to a new interactive mapping platform from risk analytics firm Maplecroft.

Some 18,668 terrorism fatalities were recorded in the 12 months prior to July 1, up 29.3 percent from an annual average of 14,433 for the previous five years.

Over the same period there were some 9,471 global terrorism attacks at an average of 26 a day, down from a five-year average of 10,468. This indicates that terrorist methods have become increasingly deadly over the last year, Maplecroft said.

Nigeria recorded by far the highest number of fatalities per attack, with 146 reported attacks in the last year resulting in 3,477 fatalities — an average of 24 fatalities per attack (compared to 2 fatalities per attack in Iraq).

Iraq recorded the highest number of attacks, with 3,158 acts of terrorism resulting in 5,929 fatalities.

China, Egypt, Kenya and Libya are seeing the most significant increases in the risks of terrorist attacks, the Maplecroft Terrorism and Security Dashboard (MTSD) reveals.

The MTSD classifies 12 countries as ‘extreme risk,’ including: Iraq (most at risk), Afghanistan (2nd), Pakistan (3rd), Somalia (4th), Yemen (6th), Syria (7th), Lebanon (9th) and Libya (10th). Many of these countries are blighted by high levels of instability and weak governance, Maplecroft notes.

However, of particular concern for investors, the important growth economies of Nigeria (5th), the Philippines (8th), Colombia (11th) and Kenya (12th) also feature in the category.

Jordan Perry, a principal political risk analyst at Maplecroft says:

Libya, Kenya and Egypt are among a handful of countries to witness a significant increase in risk in the MTSD and investor confidence in key sectors, including tourism and oil and gas, has been hurt. When faced with rising security costs and decreasing safety for their personnel, companies can, and do, reconsider their country-level commitments.”

The MTSD logs, analyzes and plots all reported incidents of terrorism, piracy, political violence and human rights abuses by security forces down to 100m ² worldwide. It also draws on Maplecroft’s seven years of global data to reveal terrorism and security trends across 197 countries.

Maplecroft CEO Alyson Warhurst  makes the important point that  the dynamic nature of terrorism means individual events are impossible to predict, but the information included in the MTSD can help organizations make informed decisions relating to market entry, security measures for in-country operations, duty of care obligations, supply chain continuity and risk pricing.

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

RAND: TRIA Saves Taxpayers Money

Allowing the terrorism risk insurance program to expire could increase federal spending by billions of dollars in the event of a future terrorist attack, according to a new study by RAND Corporation.

RAND reports that for terrorist attacks with losses up to about $50 billion, not having the Terrorism Risk Insurance Act (TRIA) in place would result in higher federal spending.

For terrorist attacks with losses ranging from $14 billion to $26 billion, RAND predicts the federal government would spend $1.5 billion to $7 billion more without TRIA than with the program in place.

The greater federal spending without TRIA would result from less insurance coverage, leading to greater uninsured loss and hence greater demand for federal disaster assistance.

RAND’s  analysis  comes as a bipartisan agreement was introduced in the Senate last week that would extend TRIA for seven years, with changes in the insurer co-pay and mandatory recoupment threshold.

An excerpt from the RAND report reads:

If allowing TRIA to expire causes terrorism insurance coverage to revert to pre-TRIA levels, a greater fraction of loss in a terrorist attack would go uninsured than would be the case with TRIA in place. More loss going uninsured would increase demand for other forms of compensation, which could, in turn, lead to an increase in other (non-TRIA) forms of federal disaster assistance.†

The study makes the point that the federal government currently makes no net expenditures under TRIA until the commercial insurance industry has paid at least $27.5 billion in claims in TRIA-eligible lines.

As the size of the attack increases and the insured loss increases beyond the $27.5 billion industry retention amount, the federal liability through TRIA kicks in.

Based on current take-up rates, a 9/11 type attack would result in an insured loss of about $33 billion, RAND notes. Therefore, taxpayers would contribute through TRIA only in an attack comparable in magnitude to 9/11, which remains the second most costly insurance event in U.S. history, exceeded only by Hurricane Katrina.

For attacks with greater losses, in excess of $50 billion, the increase in disaster assistance after an attack without TRIA begins to be countered by the elimination of federal payments through the TRIA program, eventually leading to a net decrease in federal spending should TRIA expire.

RAND concludes:

From the perspective of federal spending, TRIA therefore appears to be a reasonable federal policy: In the absence of a terrorist attack, it costs taxpayers relatively little, and in the event of a terrorist attack comparable to any experienced before, it is expected to save taxpayers money.†

Claims Journal reports on the study findings here.