Tag Archives: terrorism insurance

Crossing the Terrorism Casualty Protection Gap

This blog was first published as an article in Insurance Day

The victims of the Las Vegas shooter Stephen Paddock, the injured and the dependents of the 57 who died have one comfort following their tragic predicament. Their vicious and indiscriminate attacker (whose reported comments get the attack classified as “domestic terrorism”) chose to fire at the 20,000-plus crowd attending the Route 91 Harvest music festival from the 32nd floor of the Mandalay Hotel, part of the MGM chain with a US$735 million liability insurance coverage. As a result (reflecting in part the “moral hazard” of insurance limits), the victims will receive the distribution (after substantial lawyers’ fees) of a near-US$800 million settlement.

In the lead-up to the attack on October 1, 2017, Paddock had researched renting a high-rise condo in Las Vegas and also explored the crowd numbers on the beach at Santa Monica and considered other festivals to target in Boston and Chicago. If he had chosen to shoot from a residential building or clifftop, to the same effect, the only compensation the victims could have expected would have been the US$11 million raised in a public appeal after the shooting: equal to around US$200,000 for each of those who died. As it is, their compensation should work out 30 times more generous.

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London Bridge Terrorism Inquests: A Counterfactual Risk Perspective

The inquests into the deaths of eight individuals killed in a terrorist attack on London Bridge and in Borough Market on June 3, 2017, were held at the Central Criminal Court, Old Bailey, London, two years later – from May 7 to June 28, 2019. Judge Mark Lucraft, the Chief Coroner for England and Wales, concluded that the eight victims were unlawfully killed, but he was not convinced that MI5 and the police missed any opportunities that would have prevented the attack.

Three Islamist terrorists, Khuram Butt, Rachid Redouane, and Youssef Zaghba, rammed pedestrians on London Bridge, before launching a frenzied knife rampage around nearby Borough Market, a lively food market and tourist hotspot that attracts 4.5 million visitors per year. The three attackers were shot dead by police at 10.17 p.m., less than 10 minutes after the rampage began.

Although the Chief Coroner did not criticize MI5 and the police in his conclusions, he did criticize the lack of security barriers on the bridge, and concluded that this showed weaknesses in systems for assessing the need for such measures, and implementing them promptly. The attack happened only two-and-a-half months after the Westminster Bridge vehicle ramming attack on March 22, 2017.

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Understanding the Terror Attacks in Sri Lanka

A decade ago, an RMS colleague traveling to Bali for a climate change conference sought my advice on where to stay to minimize the risk of falling victim to terrorism. In 2002, some 204 people had been killed in a bomb attack by Islamist militants in Kuta Beach, a busy tourist area in Bali. My advice then, as it is now, was to stay away from luxury hotels. Not just for tourists, but for insurers also, the risk to luxury hotels is far higher than for lesser accommodation.

The basic principles of terrorism risk modeling explain the terrorist preference for luxury hotels and places of worship, both of which were targeted in a coordinated terrorist attack in Sri Lanka on Easter Sunday (April 21), which with a current death toll of 290, has nearly killed half as many more people than the Bali bombing.

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Insuring Against Failure: The Terrorist Threat to Australia

This is a reprint of an article originally published in Insurance News. For the original article, click here.

Australia, along with New Zealand, is part of the formidable Five Eyes Alliance with the intelligence forces of the U.K., U.S. and Canada.

With a massive annual budget of US$100 billion (AUD$138 billion), this is the most effective and intrusive intelligence cooperative in the world, capable of smashing terrorist cells and interdicting complex terrorist plots.

The price of security is not just financial; there is also a cost in loss of privacy. At a recent Five Eyes ministerial meeting on Australia’s Gold Coast, a statement was issued warning that privacy is not absolute, and tech companies must give law enforcement access to encrypted data.

Credible intelligence assessed by Australian security agencies indicates individuals or groups continue to possess the intent and capability to conduct a terrorist attack in Australia. On a five-grade scale, the current threat level is three: probable. The higher grades are “expected” and “certain”. By comparison, the U.K. threat level is one notch higher at grade four.

Everyone has their own social network. For terrorists, interaction with their social network is needed for motivation and gaining the tradecraft for terrorist operations. However, the more communication there is between cell members, the greater the chance that counter-terrorism surveillance will close in. Too many terrorists spoil the plot.

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The Intangibles Protection Gap

This is the third blog in a series of four blogs examining three potential “protection gaps” and the importance of “protection gap analytics”. To read the first blog post in this series, click here.

In 1975, 83 percent of the value of the S&P 500 companies was invested in physical assets: factories, refineries, ships and offices. By 2015 that percentage had fallen to 16 percent, leaving 84 percent of the assets as intangible. Intangibles included intellectual property, data on clients, brand value and innovation potential. This massive shift has had huge significance for insurance.

The insurance product was designed to cover tangible risks: first ships and their cargoes, then houses, factories, cars and airplanes. Each item could be independently valued. A claims assessor could be sent out to inspect the damage and measure the costs of repair and replacement.

Now, much of business value is intangible. The “Intangibles Protection Gap” includes all those situations where insurance fails to cover losses suffered by non-physical business assets. How does one assess the value of intangibles — how does one measure loss? Some intellectual property (IP) has been stolen — how much is it worth? You are a cloud service provider hit by a deadly cyberattack which has released some confidential data. What is the value of your lost business, the damage to your reputation and of the penalties levied by the regulator and your customers.

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Downward Counterfactual of the Seattle Suicide Pilot Crash

When hazard events occur, substantial resources are often committed to find out what happened, and investigate the factors that led up to them. Rarely is there a systematic investigation of downward counterfactuals, addressing the question: how could the loss consequences have been more severe?

On October 31, 1999, an Egyptian pilot, Gameel Al-Batouti, deliberately crashed EgyptAir 990 into the Atlantic, en route from JFK to Cairo. Batouti had waited to be alone in the cockpit of the Boeing 767, and had intentionally manouvered the airplane to its destruction, switching off the engines. His last words, repeated several times, were, ‘I trust in Allah’.

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Forecasting Terrorist Attacks

At the start of the RMS Exceedance conference in New Orleans in March this year, I was interviewed for A.M. Best TV on terrorism risk, and specifically asked what I was envisaging for future terrorist attacks.

I replied that terrorists have been thwarted in their ability to produce large explosives for vehicle bombs, and are likely to use vehicles for ramming groups of people. Less than a day later, on March 22, 2017, such an attack took place on Westminster Bridge, London. Over the summer, several other terrorist vehicle ramming attacks have occurred in London, and one in Barcelona.

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Will a Clearer Picture Emerge for Terrorism Insurers?

What a difference a week makes. A week before the tragic events in Manchester, RMS was in New York, and the previous week in London as we hosted over 400 risk professionals from across the (re)insurance industry at two half day terrorism seminars. The seminars featured several of the world’s leading experts on counterterrorism, modeling, and terrorism risk management and highlighted the fluid threat environment, its insurance implications, and the impact of technology on terrorism risk. Continue reading

Recent Attacks Illustrate the Principles of Terrorism Risk Modeling

Some fifteen years after terrorism risk modeling began after 9/11, it is still suggested that the vagaries of human behavior render terrorism risk modeling an impossible challenge, but still the core principles underlying terrorism risk modeling are not widely appreciated. Terrorism risk modeling, as it has developed and evolved from an RMS perspective is unique in being based on solid principles, which are as crucial as the laws of physics are to natural hazard modeling.  The recent high-profile terrorist attacks in London, Stockholm, and Paris adhere to many of these principles.

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Terrorism Insurance Under a Trump Presidency

It is likely that very few of the 60 million U.S. citizens who voted for Donald Trump would have done so because of his stance on terrorism insurance. Only because terrorism insurance is too arcane an issue to have come up in the presidential debates. However, many of the nation’s wavering voters may have been swayed by his pledge to make America safer from the scourge of terrorism. Under his presidency, border security will surely be tightened – even if no frontier wall is ever built and changes made to entry decisions for Syrian Muslim refugees into the United States.

Reauthorization of TRIA – Talks Start in 2018

On January 12, 2015, the Terrorism Risk Insurance Program Reauthorization Act of 2015 was signed into law by President Obama. This third extension of the original 2002 Terrorism Risk Insurance Act (TRIA) will sunset at the end of 2020, coinciding with the end of the first term of the Trump presidency. In the drafting of the 2015 reauthorization bill, detailed consideration was given by the House Financial Services Committee to alternative wordings that would have reduced the coverage provided by the U.S. government insurance backstop. One such alternative would have focused U.S. government involvement in the terrorism insurance market on covering terrorism losses from extreme attacks using weapons of mass destruction. When the future of terrorism risk insurance is raised once more on Capitol Hill in 2018, the Republican White House and Congress are likely to seek to further extend the private terrorism insurance market. Though I consider this to be contingent on President Trump keeping his pledge to keep America safe until then.

Balancing Civil Liberties in the Face of Reducing Terrorism Risk

In the democracies of the western alliance, the balance of keeping people safe from terrorism and preserving civil liberty is much debated issue. After the July 2005 London Transport bombings, the head of the British security service, MI5, warned that ‘there needs to be a debate on whether some erosion of civil liberties may be necessary to improve the chances of our citizens not being blown apart as they go about their daily lives’. On a national scale across America, a similar debate was prevalent during the 2016 U.S. presidential election. It may seem that in this instance, the champion of civil liberties, minority rights, and political correctness lost to the conservative advocate of oppressive counter-terrorism action and profiling of terrorist suspects.

Regardless of who occupies the White House, however, terrorist plots against the U.S. will persist and terrorists must be stopped before they move to their attack targets. Success in interdicting these plots depends crucially on intelligence gathered from electronic surveillance. It is well-documented that more intrusive surveillance can successfully increase the chances of lone wolf plots being stopped. And President-elect Trump has already affirmed his readiness to authorize more surveillance. He can claim a public mandate for this: for America to be great again, it has to be safe again – even from lone wolf terrorist plots. After the Orlando nightclub attack on June 12, 2016, perpetrated by the radicalized son of an Afghan immigrant, Donald Trump said that ‘we cannot afford to be politically correct anymore’. And in fighting global Islamist extremism vigorously, he may be able to count on President Putin’s support. While the two world leaders differ on geopolitics, their mutual respect as a President may be maintained through abrasive counter-terrorism action.

When Michael Chertoff was appointed Secretary of Homeland Security, President George W. Bush told him not to let 9/11 happen again – and he didn’t. President-elect Trump will expect a similarly impressive clean sheet. On a more personal level he also has a special interest in increased security against terrorist attacks. His own real estate empire includes some notable potential terrorist targets, including high-profile landmark buildings bearing his name. While the New York Stock Exchange has too tight security to be attacked, in contrast, the Trump Building on Wall Street has easy public access. There are numerous opportunities for terrorist target substitution.