Soaring terrorism threat reveals ‘non-property protection gap’
Australia is experiencing more terror attacks than ever, and insurers and governments are not adequately prepared for non-property-related damage, a conference has heard.
Research commissioned by the Australian Reinsurance Pool Corporation (ARPC) shows more terrorist incidents on Australian soil in 2014/15 than in the 15 preceding years combined.
And in OECD countries the number of deaths from terrorism increased 650% to 577 last year from 77 in 2014, when Islamic State was established.
The trend seems to be continuing this year, with 482 deaths in the first seven months.
OECD High-Level Advisory Board Vice-Chairman Robert Muir-Wood told the ARPC-OECD Global Terrorism Risk Insurance Conference in Canberra last week that while market capacity for terrorism-related property damage remains sufficient thanks to national pools, some observers question if there is adequate coverage in other lines of business.
“This is most notable in areas such as bodily injury, cyber terrorism and business interruption, leading some to consider whether there is a role for government intervention in providing a backstop for these losses when related to terrorism,” he said.
“For example, in the aftermath of [September 11 2001] we saw how physical damage was a key economic constituent of the impacts of a major terrorist attack.
“But in recent attacks in Paris or Nice, for example, we see some of the principal economic impacts relate to loss of business incomes, as around tourism-related sectors.”
He says Paris suffered a 6.4% dip in tourism in the first half of this year, with 1 million fewer visitors and €750 million ($1.1 billion) in lost revenue.
Cyber terrorism raises a number of challenges, including its definition, which often acts as a trigger for reinsurance pool coverage.
Dr Muir-Wood says terrorism coverage may be expanded to include business interruption losses for certain designated sectors.
A PricewaterhouseCoopers report shows London market pricing for terrorism risk has fallen 5-7% a year since 2013, with excess-of-loss treaties down 10% last year.