logo image

Insurance Solutions

Formerly Moody’s RMS

The hospitality industry worldwide is being battered – not by a physical force of nature like an earthquake or hurricane but by an “invisible” coronavirus, which causes no physical property damage. Projections show 2020 to be the worst year on record for hotel occupancy, even worse than during the Great Depression. 

Providing non-damage business interruption (NDBI) coverage explicitly for pandemics is a major challenge for insurers. Limited capacity is a constraint; to overcome this problem, the market is actively considering the transfer of NDBI pandemic risk to the capital markets and national governments. 

Not just a pandemic can cause a drastic decline in hotel occupancy rates but acts of terrorism can also keep visitors away. Just as tourists avoid booking hotels in cities with a high pandemic infection rate, they avoid cities that have been targeted by terrorists. One city that has suffered from tourists staying away due to fears of terrorism is Paris, the most popular tourist city in Europe, which saw a noticeable decline in tourist numbers in 2016 following two high-profile ISIS terrorist attacks the previous year. The worldwide media publicity for both attacks was in keeping with the ISIS mantra that “half of Jihad is media.”

The first Paris terrorist attack in 2015 targeted staff attending the weekly editorial meeting of satirical magazine Charlie Hebdo, on January 7. Later that year, on November 13, 2015, a second Paris attack targeted the national sports stadium, a popular theater, as well as six restaurants and cafés. The death toll was 12 in the first attack and 130 in the second.

No hotels were targeted in either of these attacks, which involved AK-47s and improvised explosive devices, so there was no direct physical damage to any Paris hotel nor any collateral damage from a nearby attack. Nevertheless, there was a 15 percent decline in revenue per available Paris hotel room through the first three quarters of 2016. There were 1.5 million fewer tourists in Paris in 2016 compared with 2015. This decline was sufficiently large for some hospitality businesses in Paris to consider coverage for terrorism NDBI to even out their future revenue streams.

As a pioneer in both pandemic and terrorism risk modeling, RMS® has been involved in NDBI discussions on combined pandemic and terrorism risk transfer since the 2009 influenza pandemic, which originated in Mexico. The case fatality rate for the 2009 pandemic was less than for seasonal flu, and concern over pandemic risk was muted by the benign experience of a mild pandemic. This classic example of “anchoring bias” (using an initial piece of information to make subsequent decisions) has been dispelled by COVID-19, which has highlighted the large coverage gap for economic losses arising from pandemic-related social distancing measures.   

As a reminder of the persistent Islamist terrorist threat in France, on October 16, 2020, a schoolteacher, Samuel Paty, was stabbed and beheaded by a teenage Chechen refugee for showing controversial cartoons that had motivated the 2015 Charlie Hebdo terrorist attack. A menacing message was also sent to the French president to emphasize the political dimension to this terrorist outrage. The site of the brutal killing was a school about 30 kilometers (about 18.5 miles) from Paris, but it might have been in the French capital. A mass demonstration of solidarity was held in central Paris, as happened five years earlier after the Charlie Hebdo attack. Other French cities have also experienced attacks, including three people murdered in Nice on October 29, 2020.

Terrorism is the language of being noticed. These recent terrorist acts across France garnered international news coverage. This might be reason enough for tourists to reconsider a future visit to the country, post-coronavirus lockdown. Certainly, the fear of terrorism quelled tourist numbers in 2016.

Both terrorism and pandemics are systemic risks, having a global reach and affecting all business sectors. Even if widespread NDBI coverage is not feasible, specific coverage might be available for a specific city, such as Paris, and for one designated business sector, such as hotels. Lateral thinking might lead to a NDBI solution reaping the diversification benefits of pooling extreme risks, both natural and man-made, including pandemic as well as terrorism risk. For the tourism sector, there will be a significant appetite for coverage that can protect their businesses from the worst extremes of these risks in the future. 

You May Also Like
November 16, 2015
The Paris Attack Explained: 7 Points

The suicide armed and bomb attacks in Paris on November 13, 2015 were unprecedented in size and scale. The attacks that killed more than 125 people and left 350 injured have exposed France’s vulnerability to political armed violence and alerted the rest of Europe to the threat of salafi-jihadist within their domain. Here are seven points we found noteworthy about these attacks: 1. Tragic but not surprising Though tragic, the Paris attacks do not come as a complete surprise to the counter terrorism risk community.  The terrorism threat in France is higher compared to several other Western European countries. Apart from this recent attack, there have also been several terrorist attacks in France in the last 18 months.  These include the attack on December 20, 2014 in Tours, the armed assault at the ‘Charlie Hebdo’ offices in Paris on January 7, 2015, the shootings in Montrouge on January 8, 2015, the hostage siege at a Jewish supermarket in Paris on January 9, 2015 and an attack against three French soldiers in the city of Nice on February 3, 2015. On August 21, 2015, there was also a terrorist attack on the Amsterdam to Paris high speed Thalys (TGV) train service. What is surprising is the magnitude and scale of these six assaults.  These attacks were very ambitious. Divided into three distinct groups, the militants were able to execute simultaneous strikes on six locations. Simultaneous attacks are very effective as they cause significant number of casualties before the security services have the time and ability to respond. The attacks were also very well coordinated and involved myriad attack devices reflecting a sophistication that can only come from having some level of military training and expertise as well as centralize control. 2. A well-coordinated attack with unprecedented magnitudes and scale   In the first series of attacks, three bombs were detonated at locations near the Stade de France, where a soccer match between France and Germany was taking place.  These bombings killed five people. The three explosions at the Stade de France outside Paris were all suicide bombings. One of the attackers had a ticket to the game and attempted to enter the stadium when he was discovered wearing a suicide bomb vest. He blew himself up upon detection. The second suicide bomber killed himself outside the stadium few minutes later while a third suicide attacker detonated explosives at a nearby McDonalds. Meanwhile at the same time, gunmen reportedly with AK-47 assault rifles opened fire on a tightly packed Southeast Asian restaurant in a drive-by shooting, killing more than 10 people.  Later in the evening there were two other drive by shootings in the different parts of the city that resulted in the deaths of 23 people. Another suicide bomb blast also occurred along the Boulevard Voltaire at a cafe, killing himself but also injuring 15 customers. The worst violence occurred at the Bataclan Theater, where four militants took hostages during a concert performance by an American rock music group. Witnesses reported that the attackers launched grenades at people trapped in the theater. All the assailants were reported dead after the French police raided the building. Three of the assailants blew themselves up with suicide belts instead of getting arrested, as the police got close while the remaining one was shot and killed by the French authorities.  More than 80 people were believed to be killed at the theatre suicide siege. 3. Chosen strategy offers greatest impact The suicide armed attacks or sieges witnessed at the Bataclan Theater involved a group opening fire on a gathering of people in order to kill as many as possible.  Similar to the Mumbai attacks in 2008, the ability to roam around and sustain the attack, while being willing to kill themselves in the onslaught, makes such terrorist attacks more difficult to combat. From the terrorist’s perspective, these assaults offer a number of advantages, such as greater target discrimination, flexibility during the operation, and the opportunity to cause large numbers of casualties and generate extensive worldwide media exposure. It is possible that following the success of Friday’s Paris attacks, suicide-armed assaults and bomb attacks will become an even more attractive tactic for terrorist groups to replicate. Such attacks will typically target people in crowded areas that lay outside any security perimeter checks such as those of an airport or at a national stadium.  Probable targets for such attacks are landmark buildings where there is a large civilian presence. 4. Use of TATP explosives indicates high levels of experience Also of interest is the terrorist’s use of triacetone triperoxide (TATP) explosives for the suicide bomb vests used in the attacks at the Stadium as well as the Bataclan Theater. TATP is basically a mixture of hydrogen peroxide and acetone with sulfuric, nitric, or hydrochloric acids. These are chemicals relatively available in neighborhood stores.  However, TATP is highly unstable and is very sensitive to heat as well as shock. More often than not TATP will detonate prior to the desired time.  Given the high level of precision and coordination needed to orchestrate these attacks, an experienced bomb maker had to be involved in creating the suicide bomb vest stable enough to be used in these operations. 5. Longstanding ethnic tensions fueled The Islamic State (IS) has claimed responsibility for the catastrophic attacks in the French capital. While these claims have not been officially authenticated, the suicide operations and the synchronous nature of these attacks are consistent with the modus operandi of salafi-jihadi militant groups such as the IS and al-Qaida. France’s military incursion in the Middle East such as the country’s recent bombing campaigns against IS positions in Syria and Iraq, justifies its targeting in the eyes of the Salafi-jihadi community. Both IS and al-Qaida linked groups have in the past have threaten reprisal attacks against France for their military intervention in the region.    On the domestic side, the fact the one of the suicide bombers was a Syrian refugee will also further fuel longstanding ethnic tensions in the country. France continues to struggle to deal with the problems of poor integration and perceived marginalization of its large Muslim population. Domestic policies such as the deeply unpopular headscarf ban have contributed to the feelings of victimization claimed by some sections of the French Muslim community. 6. Homegrown terrorists pose a threat Compounding the threat landscape are indications that many French individuals have traveled to countries such as Syria and Libya to receive paramilitary training. The experience of other Western European countries, which face their own home-grown terrorist threat, has shown that individuals benefiting from foreign training and combat experience can act as lightning rods for local radicalized individuals and provide an addition impetus to orchestrate attacks in their homeland. So far, according to the French authorities it is believe that there is around 400 French citizens in Syria fighting with extremists, making the French among the largest western contingents of foreign fighters in Syria. 7. Potential for subsequent attacks The November 13, 2015 attacks in Paris, France are the deadliest attacks in Europe since the 2004 train bombings in Madrid, Spain, where 191 people were killed and over 1,800 people were injured. In regards to the terrorism risk landscape in France, while the suicide bombers have been all killed, the drive-by shooters remain at large. Moreover, despite several arrests in Belgium of individuals allegedly link to the attacks in Paris, it is still unclear whether these detentions have broken up the terrorist network that supported these attacks. Thus, in the short term, subsequent attacks in France or even neighboring countries cannot be discounted.

Read More
Je suis Charlie Paris
January 26, 2015
Paris in the Winter: Assessing Terrorism Risk after Charlie Hebdo …
Read More
Related Products

Make better risk-based decisions with loss…

Learn More
Gordan Woo pic
Gordon Woo
Catastrophist, Moody's RMS

Gordon is a catastrophe-risk expert, with 30 years’ experience in catastrophe science, covering both natural and man-made hazards. Gordon is the chief architect of Moody's RMS terrorism risk model, which he started work on a year after joining RMS in December 2000. For his thought leadership in terrorism risk modeling, he was named by Treasury & Risk magazine as one of the 100 most influential people in finance in 2004. He has since lectured on terrorism at the NATO Center of Excellence for the Defense against Terrorism and testified before the U.S. Congress on terrorism-risk modeling.

As an acknowledged, international expert on catastrophes, Gordon is the author of two acclaimed books: “The Mathematics of Natural Catastrophes” (1999) and “Calculating Catastrophe” (2011). Dr. Woo graduated as the best mathematician of his year at Cambridge University and he completed his doctorate at MIT as a Kennedy Scholar and was a member of the Harvard Society of Fellows. He also has a Master of Science in computer science from Cambridge University.

cta image

Need Help Managing Your Portfolio?

close button
Overlay Image
Video Title

Thank You

You’ll be contacted by an Moody's RMS specialist shortly.