The ISIS terrorist attack in Brussels last week has insurance and reinsurance companies and government officials looking again at the economic exposure to terrorism.
Coverage not up to snuff is a huge problem.
AIR Worldwide said Belgium’s Terrorism Reinsurance and Insurance Pool (TRIP) will cover the attack and it won’t impact the industry as a whole. The biggest losses will be loss of life and personal injury which TRIP covers. There will be minimal property losses and while some of that will slip into regular insurers and reinsurers, losses will be slight.
Economic costs to the country are another matter. JLT Re and JLT Specialties are insurance and reinsurance brokers. The companies released a report last week that pointed to the big gap between the amount of terrorism insurance held and the actual costs of restoring to normalcy after an attack.
Chris Holt — Head of Credit, Political & Security Risk Consulting at JLT Specialty — said insurance and reinsurance is only absorbing a small part of the impact. The industry has been slow to respond to changing risk dynamics. Current products are not meeting the needs.
“Terrorism has evolved into a more complex threat for businesses and insurers, with both attacks and fatalities seeing steep increases since 2011,” Holt said. The report listed the economic costs of terrorist attacks since 2000 and found the increasing.
Here’s a list of the worldwide economic damage terrorism has done since 2000:
• 2000 — $4.93 billion
• 2001 — $51.51 billion
• 2002 — $7.65 billion
• 2003 — $5.42 billion
• 2004 — $10.99 billion
• 2005 — $11.07 billion
• 2006 — $15.78 billion
• 2007 — $20.44 billion
• 2008 — $13.4 billion
• 2009 — $14.74 billion
• 2010 — $12 billion
• 2011 — $12.31 billion
• 2012 — $16.96 billion
• 2013 — $30.92 billion
• 2014 — $52.90 billion
Holt said this isn’t just about an increase in activity, “The rise of Islamic extremism, combined with the potential access to weapons, explosives and toxic materials, comes at a time when modern communications and technologies are being exploited by groups as recruitment tools, communication channels and potential attack vectors. This means today’s terrorist threat is more dynamic with impacts that are difficult to accurately predict.”
And as noted on the list, in 2014 global economic costs from terror attacks hit $53 billion. That’s a bigger hit than what we saw in 2001. But — again — insurance and reinsurance coverage has not kept up.
JLT said a restructuring of terror risk pools is in order. The pools would handle the more complex risks. In the meantime, commercial P&C companies can take care of commerce and property risks. “An optimal outcome would include the creation of new and comprehensive products that account for all potential terror-related impacts across several different coverages. Such solutions will require the support of reinsurers and insurers, along with meaningful input from industry and governments,” JLT said in the report.
This will require an effort at the international level. “Any long-term solution will realistically require the involvement of global terror pools as well as private risk carriers, with pools potentially taking on more systemic risks and the standalone market providing broadened coverage and new products to reflect the prevailing threat that exists today. Crucially, innovators are needed to devise new solutions which are able to keep pace with an ever changing terrorism threat,” the report added.
Events such as those in Belgium are a reminder that the world faces a threat which requires financial protection, and that the rising economic costs, while of course overshadowed by the terrible human toll, is an important gap that needs protecting to improve life and livelihood of global populations.
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