Tag Archives: terrorism

Is Terrorism the New Normal for Insurers?

After several mass shootings across the U.S. – in Orlando, San Bernardino, Charleston and elsewhere that, whatever the motivation, created terror – the insurance industry is responding with new “standalone terrorism” coverage.

Does this reflect a level of acceptance of such incidents, and of gun violence, as a “new normal,” something we’ll just need to live with?

I don’t think so. In fact, the responses of insurers illustrate their key role: helping individuals, businesses and other organizations deal with unforeseen harm and tragedy, and recover from it.

As cited by Carrier Management in August, the FBI’s “Study of Active Shooter Incidents Between 2000 and 2013” reported that 70% of incidents took place in either a commerce/business or educational environment. The findings establish an increasing frequency of incidents, the report said.

Until this year, insurance didn’t respond to “lone wolf” shooting incidents because of two factors. One is the parameters set forth by the Terrorism Risk and Insurance Act (TRIA). Staggered by the massive losses from the 9/11 attacks, Congress passed legislation that provided for similar, large events. To qualify for coverage through the act, losses from a terrorist event must total at least $5 million – far exceeding the property damages that have resulted from shootings and similar attacks.

See also: How to Develop Plan on Terrorism Risks  

The other factor is the lack of clarity regarding what’s covered by commercial general liability insurance. In the same article, John Powter, president of GDP Advisors in McKinney, Texas, says the general liability part of a commercial policy doesn’t clearly cover or exclude active shooter incidents. “There is a concern, or gray area, with the general liability policy – in reality, it was never designed to cover an active shooter incident,” he said.

The shift in the nature of terror

Earlier this year, Insurance Business reported on research by KPMG that noted that the changing nature of ideologically motivated crime has yet to be addressed by insurance coverages.

“There is a shift in the nature of terror,” the publication quoted KPMG partner Paul Merrey as saying. “In the 1990s, it was about property damage. The incidents we’re seeing now are about maximizing casualties. There is a gap between what insurers are providing cover for and what customers actually want.”

He added that the gap will “go from a gray area to excluded,” as was the case with cyber risks – which, in turn, led to entirely new cyberrisk insurance.

In a similar response, insurers introduced new standalone terrorism insurance earlier this year.

Bermuda-based insurer XL Catlin introduced an “active assailant” policy in February. The policy provides “time element” coverage, which includes business interruption and extra expense coverage.

Ben Tucker, head of U.S. terrorism and political violence insurance for the company, told Insurance Business that “the level of awareness is increasing quite dramatically, and it’s not limited to large-risk management types of exposures.” The company has received inquiries about the coverage from agents and brokers representing school districts, public buildings and small hospitality firms.

The policy, the publication reported, is triggered when an event involving a handheld weapon affects three or more people. In this policy, “affects” has a broad definition: a person affected could simply be a witness to such an event.

GDP Advisors in February introduced an Active Shooter Insurance Program underwritten through Lloyd’s of London. Powter told Carrier Management that the coverage originally was intended for educational institutions, but soon after it was launched GDP received inquiries from banks, hotels, sports venues, amusement parks and other businesses.

The real value: preventing injuries and losses

Powter added that the “real value of the policy” is in its provision of risk management and crisis response services. Those are important, he said, because many businesses and educational institutions are now learning how to best respond if an incident occurs at their facility.

And that’s perhaps the most important response by insurers. When they insure any organizations, insurers take steps — risk management services — to help prevent losses from occurring.

Those services are especially valuable to businesses and other entities that have purchased active assailant coverage. Students and teachers at schools where shootings have occurred said that the safety drills and procedures they practiced helped to minimize injuries and losses and, perhaps, save lives.

Does coverage for such attacks imply an acceptance of them? Only in the same sense that other types of insurance imply an acceptance of fires, storms or other natural disasters. They’re incidents that could happen, and require specific safeguards, preparation and insurance.

See also: How to Find Coverage for Terrorism Risks

Society must address the threat of terrorism, whether via large attacks or the actions of one individual. Anyone who follows the news is familiar with the many options being discussed and debated by policymakers.

But as those threats persist, insurers must deliver both preventive measures and coverage for damages, whether to property or the psyches of survivors and witnesses. That’s the type of response we expect from insurance companies.

What Can Derail an Important Event?

As Brazil copes with the Zika-virus outbreak, political turmoil, civil unrest, crime, water sanitation and the looming threat of terrorist attacks, thousands of athletes, fans and officials are making their final preparations for the Summer Olympics. While none of the crises look likely to derail the Rio 2016 Games, the list of concerns reads like the list of covered exposures in a well-designed cancellation of event insurance policy.

The International Olympic Committee is not alone in struggling to cope with the world of extreme events. Just look at some major sporting events that have recently been canceled, relocated or postponed:

  • National Football League (Buffalo)
  • English Premier League (Manchester United)
  • Major League Baseball (Pittsburgh and Miami)
  • Southeastern Conference Football (LSU and Tennessee)

If the list were to be expanded beyond sports, the number of concerts, events and conventions suffering the same fate is too large to compile. So, what should be considered when planning an important event, whether large or small?

Infectious diseases:

Zika is the latest of many infectious diseases to result in global travel advisories, the banning of large concentrations of people or implementation of public health control measures Communicable disease resulting in quarantine or restriction in people movement by a national or international body or agency is simply one exposure that concerned parties can eliminate through effective use of insurance solutions.

See also: How to Think About the Zika Virus

Extreme weather:

In today’s world of extreme weather events, once remote weather-related possibilities are becoming more and more frequent. Previously safe geographic areas have experienced hurricanes, earthquakes, wildfires, snowstorms, hailstorms, etc., all of which can leave event planners madly scrambling to determine the extent of damage incurred and whether their carefully choreographed event can go on. Even if the adverse weather does not damage the venue(s) of the event itself, the mega-facility guidelines of the nation may require the requisition of the venue by emergency personnel or evacuees in the event of a hurricane, wildfire, dam-breaking or some other catastrophe.

Terrorism:

Despite recent World Health Organization warnings, foremost in the worries of most risk managers for large-scale events is the rise of terrorist actions worldwide. Protection against terrorist acts can be included in cancellation of event policies for an additional cost. Such coverage would typically exclude the use of nuclear, chemical or biological materials, or radioactive contamination post-Fukushima, but even these eventualities can be covered if a thorough market analysis is conducted. Many policies do not require that a terrorist event actually take place; they can be designed to protect an entity’s financial interest if the event is affected by the mere threat of terrorism, if the threat is confirmed by a recognized competent authority on the state, national or international level.

Key person coverage:

For events that rely on the attendance of certain personnel, performers or speakers, organizers can buy coverage specifically protecting against the non-appearance of key people.

Public sector strikes:

Public sector strikes, particularly those involving transportation services, and damage or loss of utility service to a venue also lead to many events being canceled, relocated, postponed or interrupted and are all insurable exposures.

Business interruption coverage:

Contingency insurance exists to provide protection for the expenses an entity occurs in organizing an event as well as the revenue the event should generate for the organizers, promoters, municipalities, etc. There is no “boiler-plate” solution for a specific event. It is essential that the event organizers and insurance representatives spend time evaluating the actual financial exposures the entity has. Expenses are normally the easiest to determine because they are fixed costs. However, many streams of revenue are often ignored if too much attention is given to the largest items, such as ticket sales, instead of supplementary income generated from merchandise sales, concessions, sales, lost sponsorship monies or even parking fees for attendees.

See also: The Defining Issue for Financial Markets

It is equally essential to determine who the financial responsibility ultimately rests with. Sponsorship contracts serve as a good example of complex obligations. If a corporation has agreed to spend millions to be the signature sponsor of an event, and the event is moved to a different venue where companies other than the sponsor already occupy desired signs and exposure, it should be determined if the expense is a sunk cost to the sponsor or if the hosting party has to reimburse the sponsor. This contract clause should dictate who receives the insurance policy benefit. Experience in determining financial exposure that each party incurs when events are in their initial planning stages is invaluable when custom-designing insurance policies to cover all possible financial liabilities.

It is only a matter of time before a global spectacle of an event is canceled due to an unforeseen peril. While the emotional loss experienced by the participants and attendees is high, the financial impact can be mitigated or completely eliminated through the insurance market.

What Happens if U.K. Exits the E.U.?

On June 23, 2016, the U.K. population will vote on whether to stay a part of the E.U.’s 28 countries or to leave. It’s a once-in-a-generation decision, and it is likely to dominate U.K. press for the next six months. But what impact would a British exit, or “Brexit.” have on the insurance industry?

A report by Euler Hermes, a consultancy backed by Allianz, indicates this exit would include:

  • Massive loss of U.K. exports, which could take 10 years to recover
  • A heavy hit to financial services
  • London’s loss of its supremacy as a financial center
  • The likelihood that trade barriers would be imposed by continental Europe

Global insurers would inevitably be affected. Zurich Financial Services says it is “monitoring developments carefully.” The AXA chief executive described the situation as the U.K. “playing Russian roulette” and predicted a severe negative impact on London. Moody’s says the U.K.’s credit rating would be hurt.

Despite the recent challenges of Solvency 2, the argument that there will be less regulation if the U.K. leaves the E.U. doesn’t hold weight with Lloyd’s of London, whose Chief Risk Officer Sean McGovern recently said, “None of the alternatives will be as beneficial for the London market as the current relationship.”

Companies are already indicating they will need to make stockholders aware of the consequences of leaving—if only to avoid directors and officers (D&O) claims down the line. Because most annual reports are published only months before the vote, there’s likely to be a swell of activity; social media analytics measuring citizen sentiment will have a field day.

In October 2015, U.S. administrator Michael Froman ruled out a separate trade deal with the U.K. in the event that it leaves the European Union. He said, “We have no free trade agreement with the U.K., so it would be subject to the same tariffs—and other trade-related measures—as China, or Brazil or India.”

At face value, staying in the E.U. seems like an obvious choice, especially as the U.K. population—like the insurance industry—is risk averse and often reluctant to change. But there are other issues at play here, especially those regarding the emotional response.

Some are suggesting that London would be at greater risk of terrorism if the U.K. remains part of the E.U. Others are concerned about the immigration issue and the effect of the Euro crisis. Others simply argue that that the U.K—which has the fifth-largest economy in the world, is the fourth-greatest military power, is a leading member of the G7, has more Nobel Prizes than any other European country and is one of only five permanent members on the U.N. Security Council—is entitled to greater autonomy to make its own decisions and should not be constrained by politicians who are not elected by U.K. citizens.

“After all,” say those in favor of an “out” vote, “isn’t the current safety and prosperity enjoyed by the U.S., Australia, India, Canada and others founded on the principles of democratic self-government created by those who were once prepared to take matters into their own hands?”

Luckily, even with an “out” vote, the exiting process won’t happen overnight. There will be processes to follow, some of which could take years. It’ll give plenty of time for insurers and intermediaries, (not just those in the U.K. or Europe) to think carefully about the consequences on their businesses, the economy and their customers.

Here are some issues that would have to be considered:

  • As London reduces its influence and there is a brain drain, where might the power shift to, physically, and will some of the big broking houses move house (again)? Where will the new powerhouse occur? Singapore or Shanghai?
  • If there are new trade tariffs, how will this affect the flow of global business? According to U.K. government data, in 2011, the U.S. exported $3.5 billion of insurance services to the E.U.—that’s nearly $1 in every $4 in global insurance services exports.
  • How might an economic squeeze in the U.K. over the next decade affect consumer behavior in terms of buying both property and life insurance, and will this lead to further consolidation of an already saturated marketplace?

There is a basic insurance principle used to establish negligence that dates back more than 100 years. It refers to the “man on the Clapham Omnibus,” a hypothetical character epitomizing the “common man,” who is described as reasonably educated and intelligent but nondescript and against which a defendant’s conduct is measured.

So, on June 23, 2016, everyone in the U.K. over the age of 18 will get to vote regardless of their expertise on the topic. On that day. it will not just be a matter for the entire U.K. population but for the “man on the Clapham Omnibus.” At this moment, we can only speculate whether his head will rule his heart, or vice versa.

Solving the Insurance Talent Crisis

A lot of ink has been devoted to the looming talent crisis in insurance, bemoaning the difficulty of attracting qualified young people to careers in an industry that is a cornerstone of commerce and one that helps countless people and businesses around the globe recover when the worst occurs. And one need not look far to see the cause of the problem. More often than not, we –insurance professionals — are the cause.

How many of us have felt a twinge of embarrassment when strangers at cocktail parties ask what we do? How many of us have worried about being perceived as leading boring, little lives?

Yet, we in insurance get to spend our days thinking about hurricanes, tornadoes, wildfires, earthquakes, car crashes, cyber crime, fraud, pandemics, terrorism and a host of other equally exciting risks affecting people in all walks of life and businesses in every field of endeavor. And we are increasingly using cutting-edge technology, big data and predictive analytics to enhance risk assessment, pricing, loss adjudication and every other aspect of insurance operations. Moreover, insurers are intimately involved in capital markets, managing billions upon billions in investments, not to mention that insurers’ very reason for being is to provide vital help when people and businesses need it the most.

Bottom line, if you’re concerned about the amount of grey hair you see in the insurance business and the difficulty of enticing budding data scientists, technologists, entrepreneurial spirits and the best and brightest of tomorrow’s leaders to consider careers in insurance, please allow me to suggest that you become an ambassador in service to the cause.

All it takes is talking with pride about the problems we solve, the good that we do and the fun that we have along the way.

How to Develop Plan on Terrorism Risks

Terrorist and other mass violence attacks, which occur with alarming regularity around the world, can threaten your people, operations and assets. Many companies look to insurance — mainly property terrorism and political violence coverage – to help manage the financial impact of these risks, which can include property damage and business interruption losses.

Terrorism Insurance or Political Violence Coverage?

Property terrorism insurance provides coverage for the physical damage and business interruption that can result from acts that are motivated by politics, religion or ideology. Political violence insurance provides coverage related to war, civil war, rebellion, insurrection, coup d’état and other civil disturbances.

Choosing which coverage – or combination – is best for your organization can be tricky. The line between what is considered “terrorism” and what is considered “political violence” is often blurry. For example, should attacks by particular groups be classified as acts of terrorism, or another form of political violence?

To help determine the best insurance program to manage these risks, here are a few things to think about:

  • Ensure the limits of insurance that you buy provide enough protection for multiple loss scenarios.
  • Review the location of your assets to determine the appropriate insurance solution.
  • Understand the policy terms, conditions and limitations of terrorism and political violence insurance.
  • Work with your advisers to understand your property and employee exposures so you can make an informed decision or mitigate potential losses.

Addressing the Risks

Along with insurance considerations, of course, you need to ensure the safety of your employees with integrated and well-practiced crisis and continuity plans in the event of a disaster. Events from terrorist attack to natural catastrophes can cause significant business interruption (BI) losses. Steps to take to manage BI risk include:

  • Develop and test business continuity plans.
  • Conduct scenario testing.
  • Coordinate BI insurance with other coverages, including political violence and terrorism insurance.
  • Be prepared to gather appropriate information in the event of a claim, including recording damage via photographs and video.
  • Maintain separate accounting codes to identify all costs associated with the potential damage.

For more information on these topics, read Marsh’s 2015 Terrorism Risk Insurance Report and our political risk insurance report, Strong Capacity Drives Buyer’s Market for Political Risk Insurance.