Global terror index aims to give industry "unbiased" view of losses

Market calls for a third-party assessment for "difficult risk"

Global terror index aims to give industry "unbiased" view of losses

Insurance News

By Lucy Hook

A new loss aggregation service that will provide the insurance industry with loss estimates for worldwide terror events has been revealed today.

PCS, an arm of global data analytics provider Verisk, has launched PCS Global Terror – which will provide estimates for terror events with insured physical damage and business interruption losses of at least US$25 million industrywide.

The service was developed following significant insurance and reinsurance market demand for an independent third-party view of industry loss estimates from terror events, the firm said in a release. It will enable insurers, reinsurers, and other stakeholders in the global risk and capital supply chain to gain access to an “unbiased view of the industry loss for some of the most sensitive insurance events worldwide,” it said.

In addition, it will provide the industry with an index to facilitate reinsurance and alternative risk-transfer transactions, such as industry loss warranties (ILWs) – an area where the need for a loss aggregation service has been “palpable.”

“Terror has been a difficult risk for the global insurance and reinsurance industry,” Tom Johansmeyer, assistant vice president at PCS, said.

“Accumulations have risen over the past few years as reinsurers have accepted terror risk into natural catastrophe programs to hold the line on pricing. Transferring the risk cost-effectively becomes tough when the risk bearer isn’t compensated for taking the risk up front. Alternative sources of capital and industry loss triggers may provide a greater opportunity for capital management,” he went on to say.

Historically, the terror ILW market has been constrained by the lack of a credible, independent industry loss index, Johansmeyer said.

He added: “We launched PCS Global Terror at the specific request of several clients because they wanted to improve how they manage terror risk, but the tools already in the market weren’t sufficient. We’ve listened closely to the insurers, reinsurers, and ILS funds pioneering coverage for this risk and included their feedback to ensure we would bring a useful and reliable loss aggregation platform to market.”

According to PCS product development manager Alex Mican, PCS Global Terror should help companies understand losses and transfer risk more effectively.

He added: “We believe that the launch of this index can help grow an ILW market that could provide access to much-needed capital markets capacity and increase retrocessional activity—two key factors in growing the overall cyber insurance market worldwide.”

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