Terrorism insurance
Encyclopedia
Terrorism insurance is insurance
purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist
activities.
It is considered to be a difficult product for insurance companies, as the odds of terrorist attacks are very difficult to predict and the potential liability enormous. For example the September 11, 2001 attacks
resulted in an estimated $31.7 billion loss. This combination of uncertainty and potentially huge losses makes the setting of premiums a difficult matter. Most insurance companies therefore exclude terrorism from coverage in casualty
and property insurance
, or else require endorsements to provide coverage.
, carriers were hit with large losses in one centralized location. Insurers seek to spread the coverage over a wider geographic area than as with other aggregate perils, such as flood.
planning can save large amounts money in the long run. According to experts, for every dollar spent on developing crisis management plan a head of time, $7 is saved in losses when a disaster comes.
payments related to terrorism
are restricted to a billion euro per year for all insurance companies together. This regards property insurance, but also life insurance, medical insurance, etc.
through December 31, 2014. The law extends the temporary federal Program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism.
The United States insurance market offers coverage to the majority of large companies which ask for it in their polices. The price of the policy depends on where the clients are residing and how much limit they buy.
According to The Economist, one of the best studies to understand TRIA has been the one undertaken in 2005 by the Center for Risk Management at the Wharton Business School ("TRIA and Beyond"; available on their website below).
In mid-2007 the idea of another extension to TRIA was tabled and is officially known as TRIREA, (Terrorism Risk Insurance Revision and Extension Act). Initially TRIREA contained several new provisions including a mandatory 'make available' clause for NCBR coverage (Nuclear, Chemical, Biological and Radiological) and the ending of the distinction between domestic and foreign events.
, following the Baltic Exchange bomb in 1992, all UK insurers stopped including terrorism cover on their commercial insurance policies with effect from 1 January 1993 (home insurance policies were unaffected). As a consequence, the government and insurance industry established Pool Re. Primarily funded by premiums paid by policyholders, the government guarantees the fund although any such support must be repaid from future premiums. To date no government support has been necessary.
, long-term terrorism insurance is available in the following countries:
Insurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist
Terrorism
Terrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...
activities.
It is considered to be a difficult product for insurance companies, as the odds of terrorist attacks are very difficult to predict and the potential liability enormous. For example the September 11, 2001 attacks
September 11, 2001 attacks
The September 11 attacks The September 11 attacks The September 11 attacks (also referred to as September 11, September 11th or 9/119/11 is pronounced "nine eleven". The slash is not part of the pronunciation...
resulted in an estimated $31.7 billion loss. This combination of uncertainty and potentially huge losses makes the setting of premiums a difficult matter. Most insurance companies therefore exclude terrorism from coverage in casualty
Casualty insurance
Casualty insurance, often equated to liability insurance, is used to describe an area of insurance not directly concerned with life insurance, health insurance, or property insurance. It is mainly used to describe the liability coverage of an individual or organization's for negligent acts or...
and property insurance
Property insurance
Property insurance provides protection against most risks to property, such as fire, theft and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, earthquake insurance, home insurance or boiler insurance. Property is insured in two main...
, or else require endorsements to provide coverage.
Industry needs
Concentration of risk is another factor in determining availability for terrorism insurance. Due to the concentrated losses of the World Trade CenterWorld Trade Center
The original World Trade Center was a complex with seven buildings featuring landmark twin towers in Lower Manhattan, New York City, United States. The complex opened on April 4, 1973, and was destroyed in 2001 during the September 11 attacks. The site is currently being rebuilt with five new...
, carriers were hit with large losses in one centralized location. Insurers seek to spread the coverage over a wider geographic area than as with other aggregate perils, such as flood.
Modelling the risks
Insurance companies are using an approach that is similar to that used with natural catastrophe risks. A Swiss report suggested that in this case where demand is greater than the supply for terrorism coverage that a short-term solution is possible: a mix of government and private resource to make easy the transition. In this situation, the government would serve two functions: to establish rules to overcome the capacity shortage and to be the insurer of last resort.Crisis management
Crisis managementCrisis management
Crisis management is the process by which an organization deals with a major event that threatens to harm the organization, its stakeholders, or the general public. The study of crisis management originated with the large scale industrial and environmental disasters in the 1980's.Shrivastava, P....
planning can save large amounts money in the long run. According to experts, for every dollar spent on developing crisis management plan a head of time, $7 is saved in losses when a disaster comes.
Netherlands
InsuranceInsurance
In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...
payments related to terrorism
Terrorism
Terrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...
are restricted to a billion euro per year for all insurance companies together. This regards property insurance, but also life insurance, medical insurance, etc.
United States
On December 26, 2007, the President of the United States signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2007 which extends the Terrorism Risk Insurance Act (TRIA)Terrorism Risk Insurance Act
The Terrorism Risk Insurance Act is a United States federal law signed into law by President George W. Bush on November 26, 2002. The Act created a federal "backstop" for insurance claims related to acts of terrorism. The Act is intended as a temporary measure to allow time for the insurance...
through December 31, 2014. The law extends the temporary federal Program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism.
The United States insurance market offers coverage to the majority of large companies which ask for it in their polices. The price of the policy depends on where the clients are residing and how much limit they buy.
According to The Economist, one of the best studies to understand TRIA has been the one undertaken in 2005 by the Center for Risk Management at the Wharton Business School ("TRIA and Beyond"; available on their website below).
In mid-2007 the idea of another extension to TRIA was tabled and is officially known as TRIREA, (Terrorism Risk Insurance Revision and Extension Act). Initially TRIREA contained several new provisions including a mandatory 'make available' clause for NCBR coverage (Nuclear, Chemical, Biological and Radiological) and the ending of the distinction between domestic and foreign events.
Iraq
The New York Times reports that in Baghdad personal terrorism insurance is available. One company offers such insurance for $90, and if the customer is a victim of terrorism in the next year, it pays the heirs $3,500.United Kingdom
In the UKUnited Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
, following the Baltic Exchange bomb in 1992, all UK insurers stopped including terrorism cover on their commercial insurance policies with effect from 1 January 1993 (home insurance policies were unaffected). As a consequence, the government and insurance industry established Pool Re. Primarily funded by premiums paid by policyholders, the government guarantees the fund although any such support must be repaid from future premiums. To date no government support has been necessary.
Countries with long-term terrorism insurance programmes
According to the policy agenda of The Real Estate RoundtableThe Real Estate Roundtable
The Real Estate Roundtable is a non-profit public policy organization based in Washington, D.C. that represents the interests of real estate. It focuses on policy areas governing tax, capital and credit, environment and energy, and homeland security. The Real Estate Roundtable holds four annual...
, long-term terrorism insurance is available in the following countries:
- AustraliaAustraliaAustralia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
- AustriaAustriaAustria , officially the Republic of Austria , is a landlocked country of roughly 8.4 million people in Central Europe. It is bordered by the Czech Republic and Germany to the north, Slovakia and Hungary to the east, Slovenia and Italy to the south, and Switzerland and Liechtenstein to the...
- FinlandFinlandFinland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...
- FranceFranceThe French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
- GermanyGermanyGermany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
- IsraelIsraelThe State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea...
- NamibiaNamibiaNamibia, officially the Republic of Namibia , is a country in southern Africa whose western border is the Atlantic Ocean. It shares land borders with Angola and Zambia to the north, Botswana to the east and South Africa to the south and east. It gained independence from South Africa on 21 March...
- NetherlandsNetherlandsThe Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
- RussiaRussiaRussia or , officially known as both Russia and the Russian Federation , is a country in northern Eurasia. It is a federal semi-presidential republic, comprising 83 federal subjects...
- South AfricaSouth AfricaThe Republic of South Africa is a country in southern Africa. Located at the southern tip of Africa, it is divided into nine provinces, with of coastline on the Atlantic and Indian oceans...
- SpainSpainSpain , officially the Kingdom of Spain languages]] under the European Charter for Regional or Minority Languages. In each of these, Spain's official name is as follows:;;;;;;), is a country and member state of the European Union located in southwestern Europe on the Iberian Peninsula...
- SwitzerlandSwitzerlandSwitzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....
- TurkeyTurkeyTurkey , known officially as the Republic of Turkey , is a Eurasian country located in Western Asia and in East Thrace in Southeastern Europe...
- United KingdomUnited KingdomThe United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
See also
- SecuritySecuritySecurity is the degree of protection against danger, damage, loss, and crime. Security as a form of protection are structures and processes that provide or improve security as a condition. The Institute for Security and Open Methodologies in the OSSTMM 3 defines security as "a form of protection...
- Geneva AssociationGeneva AssociationThe Geneva Association is the leading international insurance “think tank” for strategically important insurance and risk management issues.The Geneva Association identifies fundamental trends and strategic issues where insurance plays a substantial role or which influence the insurance sector...
(also known as the International Association for the Study of Insurance Economics)
External links
- Terrorism from the Insurance Information InstituteInsurance Information InstituteThe Insurance Information Institute is a U.S. industry organization which exists "to improve public understanding of insurance -- what it does and how it works."The I.I.I...
- Policy Watch: Challenges for Terorrism Risk Insurance in the United States (Wharton's authors)
- Terrorism Insurance: Where's the coverage?
- America Needs Terrorism Insurance
- Terrorism Insurance: Where Do We Go from Here? (Wharton's authors)
- CIAT: Coalition to Insure Against Terrorism
- Wharton Risk Center on Terrorism Insurance Markets