Canadian Underwriter

The Face of Terror

May 1, 2010   by Marc Sand

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The number and variety of domestic and international corporations conducting business in Canada and the rest of the world is growing daily, exposing all to the risk of disruptions related to terrorist activities. Terrorism represents a risk of disruption to any business, potentially resulting in shut down time, reconstruction, employee and family counseling, to name just a few consequences.

Terrorism insurance is a difficult product for insurance companies. Underwriters face a challenging task, since the likelihood of terrorist attacks is very difficult to predict and the potential liability is enormous. The Sept. 11, 2001 attacks, for example, resulted in estimated losses of $31.7 billion. The combination of uncertainly and potentially huge losses makes it difficult to define the parameters of potential damage. Therefore, most insurance companies exclude terrorism from their coverage in casualty and property insurance.

Since 9-11, a substantial stand-alone terrorism market has developed, Aon noted in a March 2006 publication, Stand-Alone Terrorism Insurance Market Update. “This market has enough capacity to fill gaps adequately in most property insurance placements where the property ‘all risks’ insurers are unwilling to offer terrorism coverage.”

Corporations can purchase terrorism insurance to cover their potential losses and liabilities that might occur due to an act of terrorism. Additional insurance for personal accident coverage — including war and terrorism, workers compensation, worldwide fleet, transit/cargo insurance and even personal insurance — are available. (In Baghdad, such coverage is offered for about $70.)


Canada’s Criminal Code defines “an act of terrorism” in two parts. The first and second part of the definition can be found in section 83.01 (1) of the Criminal Code, which applies to activities inside or outside Canada. Satisfying either part of the two-part definition constitutes a “terrorist activity.”

The first part refers to actions in contravention of United Nations conventions. Such conventions are related to the unlawful seizure of aircraft, civil aviation safety, crimes against internationally protected persons, hostage-taking, protection of nuclear materials, maritime safety, oil rigs, bombings and the financing of terrorism.

The second part refers to an action that is done “in whole or in part for a political, religious or ideological purpose, objective or cause.” This action might be undertaken “with the intention of intimidating the public, or a segment of the public, with regard to its security, including its economic security, or compelling a person, a government or a domestic or an international organization to do or to refrain from doing any act.” Furthermore, the action is intended to cause: 1) death or serious bodily harm to a person, 2) danger to a person’s life, 3) a serious risk to the health or safety of the public or any segment of the public, 4) substantial property damage or 5) “serious interference with or serious disruption of an essential service, facility or system, whether public or private, other than as a result of advocacy, protest, dissent or stoppage of work that is not intended to result in [harm].”

Throughout the Anti Terrorism Act, careful attention has been paid to the requirements and guarantees of the Canadian Charter of Rights and Freedoms.


Recently we have seen a 244% increase in the number of anti-government extremist groups, the kind of groups that spawned the likes of Timothy McVeigh 15 years ago. April 19, 2010 marks the fifteenth anniversary of the Oklahoma City bombing, perpetrated by McVeigh (who was described in media reports as a racist, anti-government fanatic), and killed 187 men, women and children.

In addition, recent shootings in Mexico City and Tijuana raise the specter of narco-terrorism.

Kidnappings in the world, mostly in Mexico and South America, have increased by 100% over the past six years. Mid-term captivity kidnapping-and-ransom events in Mexico alone happen at a frequency of 1,200 per year, and range in duration between five days to five months. Long-term events occur about 10 times per year and last between six months and one year. “Express” kidnaps that are considered to be robberies happen about 10 times per day, and last between one and three days.

Corporations have adapted, securing kidnap and ransom insurance for operating in foreign countries. A variety of coverages are available.


Concentration of risk is a big factor in determining availability for terrorism insurance. Most commonly, insurance companies are using an approach similar to the one used for natural catastrophe risks.

According to Guy Carpenter’s Global Terror Update 2009, nine Organization for Economic Co-operation and Development (OECD) countries — including Canada (although companies in Canada do offer standalone terrorism insurance policies) — have not established terrorism insurance schemes of any kind in either the public or private sectors. They include Denmark, Italy, Norway, Portugal, Sweden, Japan, Korea and Mexico.

In the Netherlands, insurance payments related to terrorism are restricted to a maximum of $1 billion per year for all insurance companies. This includes property, life, medical insurance, etc.

In the United Kingdom, after the Baltic Exchange bombing in 1992, all UK insurers stopped including terrorism cover on their commercial insurance policies as of Jan. 1, 1993. (Home insurance policies were unaffected.) As a result, the government and the insurance industry established Pool Re, which is primarily funded by policyholders. The government guarantees the fund, although its support is to be repaid from future premiums. (To date, the government has not had to make a payment.)

In the United States, in mid-2007, the idea of another extension to TRIA (Terrorism Risk Insurance Act) was tabled; officially, it was known as TRIREA (Terrorism Risk Insurance Revision and Extension Act). Initially TRIREA contained several new provisions, including a mandatory “make available” clause for nuclear, chemical biological and radiological (NCBR) coverage and the ending of the distinction between domestic and foreign terrorism. However NCBR was not largely adopted in the public sector.

Risk Management

Crisis management planning is also an important tool upon which insurance companies and underwriters rely when assessing coverage for a company’s terrorism risk exposure. For every dollar spent on developing a solid crisis management plan ahead of time, $7 is saved in losses when an attack strikes or disaster occurs.

But the preparation of policies, procedures, crisis management plans, implementation and execution of all those steps is still not enough. It is important that insurers and insureds consult with certified anti-terrorism specialists who have been involved in the war of terrorism and the prevention and detection. A solid crisis management plan needs proactive — and not reactive — thinking.

The involvement of all citizens, frontline police offers, emergency evacuation and response teams, business professionals, insurance companies and underwriters — basically, everyone — is vital. We cannot rely only on information we learn through media. We need to look beyond that. Risk management is key in the prevention and managing of any act of terrorism or catastrophic event.

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