Terror attacks focus minds on non-damage BI solutions

“After a terrorist attack there is always an uptick in enquiries for terrorism insurance to cover property damage and associated business interruption. What has changed in the last 12 months is that we are now seeing more companies looking for non-property damage business interruption,” said Andrew Page, Terrorism Underwriter at Beazley. He pointed out, however, that the non-property damage BI terrorism market is in its infancy. But insurers are now developing specialist non-damage coverages to address the growing demand from corporates, according to Mr Page. On 13 November a series of terrorist attacks killed some 130 people in the French capital Paris. It later emerged that further attacks against the business district of La Defense and Charles de Gaulle airport were also planned. The attacks came just days after a suicide bombing in Beirut, and a month after the downing of a Russian MetroJet airliner in Egypt that killed all 224 people on board. Islamic State (IS) and its affiliates have claimed responsibility for all three incidents. These events are part of a spate of terrorist attacks by religious extremists, a growing number of which have targeted western countries or citizens.hideIn the days after the attacks in Paris, extremists killed 19 people in a gun attack at a luxury hotel in Mali’s capital Bamako. Shortly after, a married couple, believed to be associated with IS, fatally shot 14 people in San Bernardino, California. UK police are treating a stabbing on London’s underground train network in December as a terrorist incident. In June extremists carried out a mass shooting at a tourist resort in Tunisia, killing 38 people, while in August a terror group bombed a popular shrine and tourist attraction in Bangkok, Thailand. Western cities, including many in Europe, have also seen terrorist attacks in recent months and years. In August, a mass shooting was narrowly avoided on the Amsterdam to Paris Thalys train after a gunman was tackled. These acts followed a series of extremist-related shootings in Brussels, Belgium in May 2014, Ottawa, Canada in October 2014, Sydney Australia in December 2014 and Copenhagen, Denmark in February 2015, as well as the bombing of the Boston Marathon in April 2013. “The incidents [in Paris, Lebanon and Egypt] place sharply into focus Islamic State’s ability to strike in multiple continents, working with local cells or franchises to carry out attacks on high-profile commercial and civilian targets,” said political risk consultancy Verisk Maplecroft in a client report. The Paris attacks, and other high-profile incidents, reflect the widening capabilities and reach of Islamic State, as well as the potential for more sophisticated, large-scale operations involving jihadists returning from battlefields in Iraq and Syria, it said. Verisk Maplecroft believes that the risk posed by returning jihadists will likely increase over the coming year. An estimated 30,000 foreign fighters have joined IS. “In light of the attacks in Paris and elsewhere in recent weeks, responsible investors will look to re-assess the exposure of their personnel and assets to Islamic State activities. Outside of Iraq and Syria, Islamic State and its affiliates have shown their willingness to attack ‘soft’ targets as diverse as public transport, restaurants, shopping areas and tourist sites,” said Maplecroft. As seen in Tunisia and Egypt, the tourism industry is a particular target as IS looks to destabilise regional economies by hurting economically important industries. Extremists are also targeting symbols of the west, such as hotels. The attack on the Radisson Blu hotel in Mali’s capital Bamako is one example. Verisk does not expect IS to target individual western companies in Europe and the US. It noted that IS’ attacks in Europe have been largely symbolic, demonstrating the terrorist group’s capabilities and spreading fear. Recent attacks have implications for terrorism insurance, which has historically focused on protecting companies’ assets and liabilities through a combination of property damage terrorism cover and enhancements to third party liability, employers’ liability and life coverages. However, the recent events have highlighted potentially large contingent business interruption exposures to terrorist attacks, as well as large third party liabilities. For example, following the Paris attacks in November, large parts of Brussels’ city centre were effectively under lock-down over fears of a further incident. Tour operators faced the cost of evacuating customers from Tunisia after the terror attack in June and following the downing of the Russian MetroJet over Egypt. “The modus operandi of extremists has changed, with a greater focus on creating fear and disruption, and less focus on property damage. That said, the threat of a large scale or iconic terrorist attack has not gone away, it’s just harder to pull off, said Mr Page. “The shift in focus means that attacks like the one in Paris in November and Tunisia in June are more likely, but that is not to say that a large scale attack will not happen. Risk managers need to be mindful of both types of attacks when buying terrorism cover,” he added. The last year has seen more companies looking for non-property damage business interruption cover, he explained. Contingent Business Interruption (CBI) costs can be significant following a terrorist attack. The Paris attacks in November cost Air France $54m in lost revenue as passenger numbers declined as people avoided travel to the French capital. Attacks in Tunisia and Egypt hit travel and airline companies with significant costs and loss of revenues, raising awareness of potential financial implications from terrorism beyond property damage. “Recent events have highlighted the need for risk managers to review their exposures and cover at renewal. Attitudes are changing and more and more clients now look for alternative products,” said Mr Page. Typically property terrorism insurance only covers business interruption following damage to the insured’s property. Most major state-backed terrorism pools also do not extend cover to non-property damage BI. Some cover is available under property policies through denial of access extensions, which could cover business interruption and additional expenses incurred by a government enforced exclusion zone around a property. But wordings defining indemnity periods, together with companies’ contingency planning, mean claims are rare. “Risk managers need to understand the clauses in their policies, identify gaps and then look to fill in any grey areas,” advises Mr Page. Terrorism coverage is compulsory on all insurance policies covering property damage in France. Therefore insured property damage from the attacks in Paris is likely to be covered by the country’s Gestion de l’Assurance et de la Reassurance des Risques d’Attentats et Terrorisme (GAREAT) terrorism pool. According to Jean Rondard–Director, Gras Savoye Corporate Risk Management—GAREAT would support most consequences of the Paris attacks. However, GAREAT does not cover CBI following a terrorist event. Gras Savoye has been working with the insurance market to develop a ‘loss of attractiveness’ product to cover operating losses, and a product to cover operating losses caused by a terrorist threat, such as a bomb alert, said Mr Rondard. Insurers are now developing specialist non-damage coverages, according to Mr Page. Beazley has developed a loss of attraction cover that responds to indirect business interruption following a terrorist event. It pays for any shortfall in profits following a terrorist attack within a pre-agreed radius around a named location. The policy targets companies in the hospitality sector, but it could potentially be purchased by those in other sectors, such as retailers, according to Mr Page. Despite the numbers of terrorist attacks in western cities, the terrorism insurance market has remained competitive, although the Paris attack may make some insurers take stock. “The terrorism market is entering a period of renewal, and this is the first opportunity since the attacks in Paris for underwriters to review cover for companies in western Europe,” according to Mr Page. “It is too early to predict the likely impact of events on pricing, but we believe any change is likely to be negligible. Most underwriters have already factored the increasing likelihood of all kinds of attack into their pricing,” he said.

Terror attacks focus minds on non-damage BI solutions

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