Terrorism: insurance marketplace responds to an evolving risk

June 20, 2017

For much of the general public, terrorism is something that happens elsewhere and to other people. It is understandable then that in the weeks following a mass terrorist incident that attention drifts to the next news topic. Yet, there is a growing sense of awareness among the public that terrorism is not a fleeting trend or phase – it is a reality that is here to stay, though the tactics used by terrorists may change. Just as public officials realize they need better and more sophisticated counterterrorism contingency plans, this growing awareness extends to a business community that now realizes that it, too, must do more to protect their companies and personnel from the threat of terrorism. The targets chosen by terrorists are as diverse as their victims, and business owners of all sizes and industries are realizing that they are not immune. There is more they can do to protect their companies from the financial fallout following a terrorist or malicious attack.

It was only a short while ago that many in the business community believed that terrorism insurance policies were only for the top global companies – a cover that seemed beyond reach financially or otherwise out of sync with their business realities. However, despite the rise of terror attacks, the terrorism insurance market has remained soft, strongly benefitting potential clients as insurers can offer cover at highly competitive rates. Even more, insurers are finding new and innovative solutions to meet the constantly evolving nature of terrorism.

Changing terror tactics

While ISIS controls only a fraction of the area they once did before the establishment of the US-led coalition fighting it on the ground in the Middle East, the group is still able to inflict carnage far from its safe havens in Syria and Iraq. ISIS has commanded their adherents to attack unsuspecting civilians using any readily available method. The rise in unsophisticated small-cell or lone-wolf styled attacks using vehicles to ram pedestrians, small arms or knives are ISIS-inspired. It is for this reason that deadly knife-wielding attacks and vehicle-ramming attacks have begun to proliferate. ISIS-inspired terrorism will likely continue to be the most damaging source of terrorism for the foreseeable future.

The current political climate and rhetoric, as mentioned in our 2017 Outlook, may prove to be particularly harmful to counterterrorism efforts. Terrorism is a global scourge – it is therefore essential that governments work together with their own domestic populations to stop radicalization (be that religious, ethno-nationalism, etc.) before it leads to violence.

Market response

The insurance market has developed and adapted their products to meet the evolving nature of terrorism and violent attacks that may threaten your business. In fact, many forms of cover are specifically tailored for a wider spectrum of companies and sizes and industries. The physical and financial damage from a terrorist attack such as a bomb blast can be catastrophic, but the trend in terrorism is moving away from the highly coordinated, spectacular attacks and instead turning toward favoring smaller, guerilla styled attacks. Insurers are moving to cover the resulting risks through a range of products.

Political violence: Regional and civil conflicts can escalate with little or no warning – one need only look at the fallout from the Arab Spring, or the invasion of Ukraine as examples. These events can be highly disruptive to business operations in the affected regions. Political violence insurance provides protection against the damage or destruction of assets resulting from events such as war, revolution, insurrection, civil unrest, strikes, civil wars, and forced abandonment of a project due to political violence.

Malicious acts: Recently there has been an uptick in violent attacks, both terrorist and isolated incidents. The ease with which, especially in the United States, a troubled individual can acquire deadly weapons means that such an attack can happen anywhere, anytime.Malicious acts insurance covers direct physical loss to your insured properties, as well as the loss of business income and loss of attraction as a result of the malicious attack to either your property or a nearby location within a mile radius. This cover can also include crisis management costs such as security consulting and trauma counseling for an extra fee.

Active assailant/active shooter: Insurers offering active assailant insurance have broadened their cover over the past couple years in response to the increase in violent attacks. This cover is similar ways to malicious acts insurance, but active assailant policies do not have a physical damage trigger. Additionally, active assailant covers events that do not necessarily pertain to terrorism; it covers random acts of violence, attacks by disgruntled employees, domestic violence attacks, etc. It also covers the damage from a wider array of weapons, including hand-held guns, knives, explosive devices worn on the body (such as a suicide vest) and even road vehicles.

Impairment of access: Acts of violence can block your employees from your worksites, severely limiting your operations and quickly resulting in financial loss. This cover has been broadened to cover the impairment of access due to strikes, riots and civil commotion, as well as the threat of an attack that forces the closure of or prevents access to/from your premises.

This unique product provides cover for losses incurred if an incident, threat, or even a hoax means a business cannot function normally due to the total or partial prevention of access to their premises. The policy is a stand-alone product, requiring no property damage trigger, and covers business interruption losses not only if they are caused by a terrorist event or threat, but also if they arise from a government cordon, civil unrest or a strike action, at either the company’s own or adjacent facilities within a given radius or defined route.

Nuclear biological chemical radiological (NBCR): Security analysts are increasingly worried about a nuclear, biological, chemical, or radiological attack. The resulting damage from such an attack could be catastrophic — not only in terms of casualties but also in terms of financial loss. A recent example of this growing threat was the temporary closure of the Hamburg Airport in Germany which was forced to close, along with nearby trains/subways, due to unidentified individuals releasing pepper spray into the HVAC system. This coverage not only protects you from the physical damage of an NBCR attack but also covers the clean-up costs associated with such an attack.

Cyber: The threat posed by cyber terrorists has grown exponentially. Cyber insurance has traditionally focused on liability resulting from a network attack, the subsequent recovery of digital assets and incurred crisis management expenses, but today cyber cover can protect against property damage and ensuing business interruption caused by a direct internal or external attack on an insured’s industrial control systems or related operational technology. While cyber attacks in the past typically focused on banking and retail sectors, sophisticated attacks have shut down hospitals in the U.K. and even shut down a regional power grid in Ukraine. Increasingly, organizations of all sizes are beginning to understand their cyber exposure and finding that the insurance marketplace is offering more ways to protect their assets.