Yemisi Izuora/Agency Report
The terror attacks in Brussels, Lahore and Turkey in the past two weeks highlights the growing human and financial cost of terrorism just as experts are calling for a broader form of terrorism insurance.
The number of terrorist attacks, as well as resulting fatalities and financial cost, has been rising at an alarming rate, according to a report by insurance and reinsurance broker JLT Group released this week.
According to statistics from the Institute for Economics and Peace and Global Terrorism Database, almost 45,000 people were killed in 2014 as a result of terrorist actions, compared with 2,000 in 2000.
The economic costs of terrorist attacks have also rocketed. They stood at $52.9bn in 2014. This is up from $4.9bn in 2000 and even greater than the $51.5bn reported in 2001 that saw the terrorist attacks on the World Trade Centre and US Pentagon.
This increase coincides with the rise of Islamic State, as well as a shift away from high profile property targets to attacks on people, aimed at causing fear and panic, explained David Flandro, global head of analytics at JLT Re.
The increase in fatalities and economic cost has risen most sharply since 2011.
“While much of the increase in terrorism since 2011 has been in developing markets, we are now starting to see it creep into western countries,” said Mr Flandro.
According to Mr Flandro, much of the $51.9bn cost of global terrorism in 2014 would have been uninsured.
Insurers and national terrorism pools do a good job of providing property damage cover for terrorism, and penetration for these risk is often high, especially for higher value property, he explained. However, global terrorism exposure has changed since the terrorism market first evolved in the 1990s and this is not easily covered by insurance.
“The terrorism threat has evolved and we have seen fewer large scale attacks against western targets. Yet global fatalities and the economic cost of terrorism have increased significantly since 2008 and we now see that business interruption, liability and potentially cyber can be causes of loss,” said Mr Flandro.
According to catastrophe modelling firm AIR Worldwide, the Brussels attack last week, like those in Paris in January, is expected to have limited impact on the insurance industry.
“Loss of life and injuries to individuals involved are the most substantial consequences of the attack. Damage to buildings is expected to be relatively minimal, resulting in limited insured property losses,” it said.
AIR also noted that insured losses from the attacks in Brussels are covered by the Belgian Terrorism Reinsurance and Insurance Pool (TRIP). Participation in the pool is not compulsory, but approximately 95% of insurers operating in Belgium contribute, according to the Organisation for Economic Cooperation and Development (OECD).
Given the potential effects of business and contingent business interruption, the economic cost of attacks in Paris and Brussels could be larger than property damage, said Mr Flandro.
While property damage was minimal, the economic costs of the attacks in Paris are expected to total between $9bn and $12bn, according to estimates from the Cambridge Centre for Risk Studies.
“Business interruption and contingent business interruption following a terrorist attack can be devastating, especially for smaller companies. This is not always covered by insurance policies or pools, but non-physical damage business interruption is an area where insurance could make a big difference,” said Mr Flandro.
As a result of the evolving terrorist threat, and lack of broader non-physical damage insurance cover, a great deal of economic terrorism exposure is retained on company balance sheets or resides ultimately with governments, noted Mr Flandro.
“We need to look again at how terrorism insurance and pools are structured. It is possible to create new insurance and reinsurance products that can be used by insurers and pools to expand cover. They only have so much capital, but there are ways to help them expand into non-property damage cover,” he said.