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.

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