The recent attacks in Paris and confirmation that a bomb took down the Russian plane over Egypt have been called “a game changer” in terms of the type of risk the global insurance industry is now facing, by the CEO of a mutual reinsurer whose members comprise the vast majority of insurers and Lloyd’s syndicates which offer commercial property insurance in the UK.
Julian Enoizi, CEO of Poole Re, told Insurance Business the terrorism agenda is moving daily, making it difficult for the global insurance sector to react. Indeed, it will be some time before the real impact of these two most recent attacks is assessed.
Yet the latest annual Global Terrorism Index by the Institute for Economics and Peace, released Tuesday, said that in 2014, acts of terror cost the world US$52.9bn, compared with US$51.51bn in the aftermath of September 11, 2001.
The report calculates the value of property damage and the cost of death and injury but doesn't factor in the ongoing cost of damage to travel infrastructure or rising insurance premiums.
Enoizi warned that there could be an increase in premiums and a reduction in companies’ aggregate exposure from some insurers as a result of recent events. It is understood that while some companies may see terrorism risk as a profit opportunity, for others it's seen as a “sideways risk”, putting the balance sheet at risk.
Enoizi said that terrorist groups such as ISIS are, as highlighted by the UK's Chancellor of the Exchequer, increasingly tech savvy, which will prompt many companies to scrutinise the inclusion of cyber triggers in terrorism policies.
A growing number of terrorism incidents worldwide have prompted an increase in specialist insurance products covering both cyber and terrorism incidents, but the largely unknown impacts of risk make the sector difficult to assess. There are also concerns from some quarters, including Robert Hannigan, director of UK spy agency GCHQ, that the skills required to adequately assess and develop suitable cyber insurance products are sadly lacking in the industry. Something that Lloyd's is seeking to address with its Oversight Framework for Cyber-Attack Exposure Monitoring.
In the UK on Tuesday, the Chancellor of the Exchequer doubled the budget available to counter cyber attacks against the UK in expectation of rising activity from extremist forces, saying banks, cars, and schools were all targets. But such statements also raise the question of how far the insurer's liability should, or could, go.
Commenting more broadly on cyber, Enoizi said an attack on national infrastructure such as the electricity grid, for example, could have far reaching effects running to thousands of businesses, and it could be argued that it is not within the remit or the capability of the insurance sector to cover that.
In fact, Lloyd's published a research report in July estimating the economic and insurance impacts of a severe, yet plausible, cyber attack against the US power grid, potentially affecting the Northeastern USA and triggering a wider blackout leaving 93 million people without power.
The numbers were staggering. The total impact to the US economy is estimated at US$243bn, rising to more than US$1tn in the most extreme version of the scenario, with insurance claims arising in over 30 lines of insurance and total insured losses of US$21.4bn, rising to US$71.1bn in the most extreme version of the scenario.
But Enoizi was keen to point out: “It's important to distinguish that while other parts of the world are facing insurance claims for terrorist attacks, the UK is faced with a set of circumstances to which it can react,” he said.
"Poole Re has, in concert with both the Office for Security and Counter Terrorism (OSCT) and the National Counter Terrorism Security Office (NaCTSO) introduced incentives such as the Property Security Improvement Activity (PSIA) in order to improve the resilience of crowded places and key sites of employment and commerce. Pool Re consequently offers lower premiums to organizations engaged with PSIA, which in future could be expanded to include a broader range of businesses."
In a speech last week at the Insurance Institute of London lecture in the Lloyd's Old Library, Enoizi said that modernisation initiatives are required to meet the evolving threat of terrorism risk and that “terrorism (re)insurance should no longer be seen merely within the prism of national concern, but a truly global issue requiring an international response.”