News Risk Management10 Oct 2018

Industry must innovate to meet changing demand of terrorism threats-Guy Carpenter

10 Oct 2018

New modes of terrorist attacks mean a shift from large events aimed at property destruction to less sophisticated attacks causing mass casualties and fear. With global commerce, tourism and financial markets impacted, demand is growing for innovation such as modelling, capacity and protection-gap solutions to increase resiliency against such attacks, says a new report from Guy Carpenter.

The report, Terrorism: A Maturing Market Meets an Evolving and Expanding Peril, noted that from the 911 and IRA bombing campaign style of large-scale attacks which governments and (re)insuers used to structure their responses for, terror has evolved to smaller, sophisticated yet no less appalling acts of terrorism across geographies that involve mass casualties and fear-inducing events.

“And the type of threat will continue to change as new technologies and opportunities reveal themselves to terrorist organisations – cyber terrorism is an example of a newly developing frontier within the peril,” said the report. The peril is global, and with improved online connectivity and the prevalence of the ‘Dark Web’, terrorists are increasingly able to modify, adapt and reinvent their tactics and quickly spread their methodologies to their worldwide support base, affecting tourism, trade and investments.

While political and industrial arenas take action to build capacity in the area of terrorism, inevitably, the action takes the form of a security line of effort, but the (re)insurance sector also has an important role to play – directly, by offering products to consumers that mitigate the risk of loss, or indirectly, by offering solutions that minimise risk to government balance sheets.

“The (re) insurance industry must remain in tune with these developments; it must gain insights from academia and observers on how the peril is changing, keep alert to new products in the market, unlock new sources of capacity and help clients understand their portfolios more readily so they remain relevant to their consumer base,” said the report.

Calling for new products with enhanced coverages to help clients realign property and casualty (re)insurance protections with the changing peril, Guy Carpenter managing director Charles Whitmore said, “The (re)insurance industry needs to ensure that protection covers and solutions evolve to fit the full breadth of attack methodologies and narratives. Today, lone-wolf attacks in public places aim to cause fear and loss of life as much as, if not more than, property destruction.”
In the report, Guy Carpenter highlights several areas in which innovation can drive more efficient risk management solutions for this dynamic exposure, including:

  • Augmentation of the insurance value chain by capital markets
  • New product development such as active shooter and non-damage business interruption policies, organized crime coverage extensions and life and health coverages
  • Solutions for evolving exposures like third-party liability, workers compensation and cyber – especially in light of the WannaCry and NotPetya cyber-attacks  
  • Expansion of public/private risk-sharing mechanisms to de-risk government balance sheets and reduce coverage gaps
  • Advanced analytics including computational fluid dynamic models, frequency estimations and chemical, biological and radiological modeling

The report also said that state terrorism pools and the open market have important roles to play in the next phase of the terrorism protection market’s development. Their participation will likely ensure that the line of defense offered to economies and individuals by the market is relevant and fit for purpose.

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