Canadian Underwriter

The insurance needed for today’s terrorism threats: report

March 24, 2016   by Staff

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terrorism_bomb_explosion_carTerrorism has changed dramatically over the last 25 years, JLT Re points out in a recent study.

In the 1990s, domestic terror groups often targeted high-value properties using vehicle-borne homemade bombs. Today, Islamic extremist attacks target crowded public spaces to maximize civilian casualties.

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Many, like the San Bernardino shootings, are carried out by lone attackers, though the November 2015 Paris attacks and the March 2016 Brussels attacks show IS’s ability to plan sophisticated operations in Europe.

Yet the insurance and reinsurance communities, the study states, haven’t adapted their products to reflect the new threat.

“Although most existing terrorism policies are designed to respond to events that cause significant property losses,” the report reads, “property damage is no longer the primary loss driver.” That has become civilian loss of life.

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“Indeed, the disparity between the hefty economic impacts of some recent attacks and the decreasing amounts being covered by insurance is a worrying trend, and one which risk carriers must address quickly if they are to remain relevant to clients.”

JLT notes terrorist threats can be especially challenging when insurers try “to split different risk components into buckets of pre-existing cover. For terrorism, this includes property, personal accident (PA) and WC, kidnap and ransom (K&R) and cyber.”

Instead, the industry should focus on new products that address property damage, business interruption, impacts on people, cyber impacts, and damage to brand and reputation.

Many governments–although not Canada’s–offer terrorism pools as coverage of last resort. JLT suggests these pools “may better serve the market by providing backstops for risks that carriers have difficulty modelling or where systemic risks lie, such as CBRN and cyber,” leaving the industry to innovate.

This story was originally published by Canadian Insurance Top Broker.