Terrorism Risk: A Reemergent Threat

April 8, 2010

This paper, written by Claire Wilkinson, vice president of Global Issues at the Insurance Information Institute, and Robert Hartwig, the institute’s president, reviews the impacts for property/casualty insurers of a reemerging threat of terrorism. International terrorism has had a profound influence on the global insurance and reinsurance industries over the past decade. The human and economic toll of such events as the attacks on the World Trade Center and the London transport system bombing may have receded in time, but recent developments such as the March 29 Moscow subway bombings are propelling terrorism into the headlines once more and reaffirm the risk facing insurers. All these factors suggest that terrorism risk will be a constant if not reemergent threat in the decade ahead. The report reviews and summarizes the impact of the 9/11 attacks on property/casualty insurers and reinsurers and discusses revisions and extensions of the Terrorism Risk Insurance Act since it was originally enacted in 2002. Sections of the report deal with how insurers treat terrorism risk today and how they estimate potential terrorism losses, with a breakdown of terrorism threats by type, including transit system threats and cyber terrorism. The paper also discusses the structure and coverage of the terrorism risk insurance program; the federal role in terrorism insurance; nuclear, biological, chemical and radiological threats; aviation insurance for terrorism risks; terrorism risk insurance programs in other countries; and the liability factor. The paper is illustrated with charts and includes and appendix providing a guide to what terrorism insurance is and what it covers.


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