Lone Wolf and Small Group Attacks Shift Terrorism Risks
While Islamic State may be responsible for the terrorist attack in Istanbul, “lone wolf” and small-group terrorist attacks in Orlando and elsewhere have more companies concerned about a shift in terrorism risk resulting in exposures they may not be properly insured against. Although such attacks are usually perpetrated against “soft” targets and typically cause minimal property damage, they can exact a high toll in lives and suffering and indirect business interruption losses.
The Changing Face of Terrorism
More than 70% of companies said they are more concerned about terrorism risks today than three years ago, according to nearly 200 responses to an online poll during Marsh’s The New Reality of Risk® webcast.
Behind much of the concern are threats posed by international terrorist organizations as well as domestic terrorist groups and “lone wolf” actors. Incidents that destroy buildings and key infrastructure are less common — though still very much an issue — while acts orchestrated against “softer,” more civilian targets have increased in frequency.
We’re also seeing an increase in “terrorist-inspired” acts. These are committed by individual or small group actors who may not have direct contact with a known terrorist organization, but could be drawn to them through writings and video, particularly on the internet.
So how has the change in approach among terrorists affected the insurance markets?
Terrorism Insurance Trends
The 2015 extension of Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) brought certainty to companies that depend on terrorism insurance, according to Marsh’s 2016 Terrorism Risk Insurance Report. That, along with greater concerns over smaller, more local attacks has kept the demand for terrorism insurance high.
- Take-up rates — or the number of companies buying terrorism insurance — increased slightly, to 61%.
- Take-up rates were generally higher for larger companies. Still, more than half of all companies with less than $100 million in total insured value (TIV) purchased coverage.
- Pricing generally decreased as a company’s size increased. For companies with less than $100 million in TIV, rates increased from a median of $49-per-million in 2012 to $57-per-million.
- Standalone property terrorism insurance capacity remained constant year-over-year. The coverage can be more competitively priced and be broader than TRIPRA-embedded coverage and does not face the same requirements for a claim to be paid.
To address business disruption losses, several policy enhancements can provide coverage for:
- Active shooter situations.
- Extra expense for evacuating people due to a threat.
- Contingent interruption.
- Canceled reservations.
- Loss of attraction.
The changing nature of terrorism requires that you should regularly assess your insurance needs and strategies. Read our 2016 Terrorism Risk Insurance Report for more information on terrorism insurance and risk trends.